Category: Oil & Gas Page 48 of 56

PDF version: What’s the next step when shallow rights become deep rights?

Cases considered: Talisman Energy Inc. v Energy Resources Conservation Board, 2010 ABCA 258; ERCB Decision 2009-050, Nexxtep Resources Ltd., Pool Delineation Application: Redesignation of the Lower Mannville C Pool to Rock Creek, Wilson Creek Field, August 7, 2009; ERCB letter decision, June 23, 2010, unpublished, available here.

The purpose of this note is to update readers on the developments in a set of facts that first came before the courts in 2007 and on which I blogged in July 2008.

The Facts

The facts, as outlined in my earlier blog, were as follows:

“Nexxtep purchased certain petroleum and natural gas rights under Crown oil and gas leases from the base of the Mannville through the Rock Creek formation to the base of the Pekisko pursuant to a purchase and sale agreement (PSA) of March 2004 with Talisman. The assets included a horizontal well but not a more prolific vertical well which, at the time of the PSA, both parties assumed to be producing from above the base of the Mannville. Subsequent investigations by Nexxtep established that the vertical well was producing from the Rock Creek formation below the Mannville. When Nexxtep’s requests that Talisman shut in the vertical were unsuccessful, Nexxtep commenced an action [the QB action] and brought an application for an injunction requiring Talisman to shut in the vertical well below the Mannville. Talisman in turn sought an order for summary judgment and in the alternative security for costs.”

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PDF version: A century of liability for an abandoned well

Case considered: Dalhousie Oil Company Limited, Section 40 Review of Abandonment Cost Order No. ACO 2008-1, Turner Valley Field, ERCB Decision 2010-19

In this decision the Energy Resources Conservation Board (ERCB, the Board) confirms that the current owner of an abandoned well has a continuing responsibility to pay for the re-abandonment costs associated with that well even though the well in question had not produced since the 1920s. The decision is particularly interesting in the context of the current discussion surrounding who should assume responsibility for the long term liabilities associated with carbon capture and storage projects.

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PDF version: Ontario Court of Appeal holds that oil and gas lease continued by virtue of (late) payments under a unitization agreement 

Case considered: Tribute Resources v McKinley Farms, 2010 ONCA 392

The Court of Appeal has varied in part the decision in Tribute Resources v McKinley Farms that I blogged here. The trial judge held that any rights that Tribute held under the terms of an oil and gas lease or under the terms of a gas storage agreement (GSA) had terminated.

The Court of Appeal agreed with the trial judge on the GSA point but held that trial judge had erred in holding that the lease was continued by the terms of the unitization agreement. The Court of Appeal concluded that this was an ordinary commercial contract and that the Court must give effect to its terms. The agreement provided that payments under the unitization agreement were effective to deem production on the leased lands. The fact that some payments were late was not significant since the lease did not provide for automatic termination; the default clause was evidence of that and the default clause seemed to allow the lessee the right to notice and the opportunity to cure a default. There had been no notice of default and ergo the deeming was effective.

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