Category Archives: Oil & Gas

Terminating a Long Term Gas Sales Contract on Account of a Material Adverse Change: The Continuing Fallout from the Collapse of the Enron Empire

Cases Considered: Marathon Canada Ltd v. Enron Canada Ltd, 2008 ABQB 408;
Marathon Canada Ltd v. Enron Canada Ltd, 2009 ABCA 31.

PDF Version: Terminating a long term gas sales contract on account of a material adverse change: the continuing fallout from the collapse of the Enron Empire

The Court of Appeal, in a memorandum of judgement authored by Justices Ellen Picard, Peter Costigan and Jack Watson, has affirmed the decision at trial of Justice Terence McMahon of the Alberta Court of Queen’s Bench. Justice McMahon held that Marathon Canada had lawfully terminated a natural gas purchase contract with Enron Canada. Marathon chose to terminate when Enron Canada’s US parent (Enron Corp) fell into serious financial difficulties. Both courts also held that: (1) Marathon was entitled to recover $560,000 damages for natural gas that it had delivered prior to contract termination, but that, (2) Enron Canada was not entitled to recover liquidated damages of some $126 million based on a counter-claim of wrongful termination and the estimated\guesstimated present value of Marathon’s future deliveries at the contract price.

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What Zones Were the Subject of a Unitization Agreement?

Cases Considered: Signalta Resources Limited v. Dominion Exploration Canada Limited, 2007 ABQB 636; Signalta Resources Limited v. Dominion Exploration Canada Limited, 2008 ABCA 437

PDF Version:  What zones were the subject of a unitization agreement?

I blogged the trial decision of Justice AG Park in this case and now the Court of Appeal has affirmed. Readers wanting a full statement of the facts should review that earlier blog.

There were, as the Court put it, “no grounds for appellate intervention” (at para. 2) and in particular the Court of Appeal agreed with Justice Park that the original inclusion of the Glauconite for the section 8 lands in the schedule to the unitization agreement was a mistake. It was a mistake for two reasons: (1) Dyco (Dominion’s predecessor in title) did not have rights to the Glauconite under its farmout with Husky and therefore could not contribute Glauconite rights, and (2) Husky (which did own the Glauconite rights) never contributed them and executed the relevant agreements as a royalty owner and not as a working interest owner.

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When is a Non-Operator Entitled to a Constructive Trust over the Operator’s Own Assets?

Cases Considered: Brookfield Bridge Lending Fund Inc. v. Vanquish Oil and Gas Corporation, 2008 ABQB 444

PDF Version: When is a non-operator entitled to a constructive trust over the operator’s own assets?

In this case Justice Bruce McDonald ruled that a joint operator may be entitled to a constructive trust remedy over the assets of an operator, where the operator is in receipt of production revenues attributable to the joint operator and where the operator fails to preserve an amount representing those monies in its commingled bank account. As a result, the joint operator was allowed to take priority over the interests of both secured and unsecured creditors.

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When Does a “Participant” Earn Under the Terms of a Farmout and Participation Agreement?

Case Considered: Solara Exploration Ltd v. Richmount Petroleum Ltd., 2008 ABQB 596

PDF Version:  When does a “participant” earn under the terms of a farmout and participation agreement?

In this decision Justice Sheilah Martin concluded that a participant in a farmout and participation agreement did not earn an interest in the farmout property when it elected to go non-consent on an operation to frac a particular formation, even when that operation was proposed after the parties had already installed a well head, outlet valve and production tubing. However, Justice Martin went on to hold that the farmor was estopped from denying that the participant had earned in the circumstances of the particular case. The decision is an important one for several reasons. It is a first decision on the definition of “completion” in the 1990 CAPL operating procedure, but it also serves to draw attention to the vulnerability of a “participant” in a farmout and participation agreement, especially where the farmor (as here) is wearing multiple hats and serving as both farmor and as operator for the purposes of the test well to which the participant is contributing. The case also highlights some of the difficulties associated with borrowing definitions from other agreements.

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Landowners, Procedural Fairness and Alberta’s Energy Resources Conservation Board

Cases Considered: Domke v. Alberta (Energy Resources Conservation Board), 2008 ABCA 232.

PDF Version:  Landowners, Procedural Fairness and Alberta’s Energy Resources Conservation Board

In a break from what seemed to be a growing trend, Mr. Justice Keith Ritter has refused leave to appeal to a group of landowners with respect to an Energy Resources Conservation Board (“ERCB”) decision. Perhaps because of the unfortunate result in Graff v. Alberta (Energy and Utilities Board), 2008 ABCA 119 (see my post on this decision ), Justice Ritter focused on one component of the test for leave – whether the appeal was prima facie meritorious – and dismissed the application. He looked at the facts and at the evidence and decided there was no merit to any of the proposed grounds of appeal. While it is hard to quarrel with all of Justice Ritter’s conclusions, ultimately his decision raises some troubling questions about procedural fairness and the ability of landowners to participate effectively in ERCB proceedings.

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