November 2005 - Canadian Association of Petroleum Landmen

THE
NEGOTIATOR
Th e M a g a z i n e o f t h e C a n a d i a n A s s o c i at i o n o f Pe t ro l e u m L a n d m e n
N ove m b e r 2 0 0 5
orphan
wells
Operator’s Expense Insurance
Robert Redden discusses the importance of
Operator’s Extra Expense Insurance and its
increasing importance in industry
Xerex Exploration v. Petro-Canada
Case Summary
Bryan Duguid discusses the recent Albert Court
of Appeal decision in the Xerex Exploration v.
Petro Canada case and its practical implications
Nature Conservancy of Canada
Find out about the Nature Conservancy
of Canada and its Working Landscapes
approach to conservation
THE
NEGOTIATOR
Th e M a g a z i n e o f t h e C a n a d i a n A s s o c i at i o n
o f Pe t ro l e u m L a n d m e n
Senior Editorial Board
Director of Communications
Ken Gummo
[ph]
Advertising Co-Editors
Clark Drader
[ph]
Tom Leakos
[ph]
Coordinating Editor
Tom Hunter
[ph]
Feature Content Editor
Cindy Cameron
[ph]
Regular Content Editor
Cathy Mageau
[ph]
Social Content Editor
Dave Boisjolie
[ph]
Editorial Committee
Michael Anderson
[ph]
Paul Cooper
[ph]
Calynda Gabel
[ph]
Kim Godard
[ph]
Kristy Halat
[ph]
Mark Innes
[ph]
Candace Kendric
[ph]
Tim Lee
[ph]
Christian Lindved-Jensen [ph]
Adrienne Petzold
[ph]
Brian Postma
[ph]
Jarwin Martin
[ph]
THE
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NEGOTIATOR
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Features November 2005
2 27th Annual CAPL Conference
Greg Strachan
5
Operator’s Extra Expense Insurance
Robert Redden
9
Orphan Wells
Glen L. Nazaruk
16The Power of Place
Giving Back to the Land
19Fiduciary Duties, Top To Bottom
The Xerex Decision
2005–2006 CAPL Board of Directors
President
Guy Anderson, P.Land [ph] 221-0838
Vice-President
Ian Clark, P.Land [ph] 205-6850
Secretary/Director, Social
John Boone [ph] 261-4656
Director, Business Development
Cam Weston, P.Land [ph] 231-7685
Director, Communications
Ken Gummo, P.Land [ph] 296-6044
Director, Education
Bob Mosoronchon [ph] 514-8010
Director, Field Management
Terry O’Connor [ph] 538-5593
Director, Finance
Cindy Rutherford, P.Land [ph] 539-1777
Director, Member Services
Lenni Werner-Schmidt, P.Land [ph] 260-1699
Director, Professionalism
Sue Kuethe, P.Land [ph] 716-7688
Director, Public Relations
Robert Telford, P.Land [ph] 503-5265
Director, Technology
Scott Nalder [ph] 264-1221
Past President
Neil Cusworth, P.Land [ph] 289-7396
Jane Lawton
Bryan Duguid
In Every Issue
7 Board Briefs
8 Message from the Executive
15 Get Smart
24 Roster Updates
28 CAPL Calendar of Events
28 November Meeting
28 December Meeting
Also in this issue
Suite 350, 500 – 5 Avenue S.W. Calgary, Alberta T2P 3L5
[ph] 403-237-6635 [fax] 403-263-1620
www.landman.ca
18CAPL Sponsors Stampede Steer Classic
Denise Grieve, Office Manager
dgrieve@landman.ca
Karin Steers, Office Administrator ksteers@landman.ca
Irene Krickhan, Office Administrator ikrickhan@landman.ca
23 2005 10k Road Race and Fun Run
and Receives AAPL Community Service Award
27 CAPL Contributes To Hurricane Katrina Relief Fund
THE NEGOTIATOR / NOVEMBE R 2005
27th Annual CAPL
Conference
Choosing the site of one of the
world’s most awesome natural
wonders seemed to be the perfect fit for the
ered in Niagara Falls, Ontario at the Sheraton on
theme “Generating the Power to Succeed” and
in our Association’s history.
the 27th Annual CAPL Conference and General
and away the most well attended CAPL Conference
The journey to Niagara Falls began some
twenty months earlier when myself, as Conference
WRITTEN BY
On September 19, 2005 over 680 CAPL members,
Chairman and the other Conference Committee
Greg Strachan,
guests, Exhibitors and industry associates gath-
Chairmen got together to discuss how to make the
2005 conference Chairman
Meeting.
the Falls Hotel and Conference Centre. This was far
P.Land
We were able to listen and
learn from the experiences
of some the best in the
business,
both
current
industry professionals and
past members of CAPL, all
who have gone on to forge
their own path to success.
27th Annual Conference the most successful ever. We recognized the desire amongst
the CAPL membership that any Conference
must include a dynamic program, first
Tyler Murray, Dave Horn, Greg Strachan, Ron MacLean, Don Cherry,
Sheldon Funk and Tim Galbreath
class conference facilities and amenities
and of course activities that offer delegates
several enticing options. We wanted a
theme that generated a multitude of possibilities for us as landmen as we continue
to evolve within an ever changing energy
industry. These criteria remained our focus
until the Conference began.
We set the tone at the Welcoming
Reception where we were able to witness
a spectacular view of Niagara Falls and a
dazzling fire works display. Our delegates
and guests gathered to renew past friendships and partnerships and establish and
build new relationships.
Monday was the beginning of perhaps
Delegates were treated to a spectacular fireworks display at the opening reception
the best Program ever assembled at any
Conference. We were able to listen and
learn from the experiences of some the
best in the business, both current industry professionals and past members of
CAPL, all who have gone on to forge their
own path to success. Don Cherry and Ron
MacLean from Hockey Night in Canada
were greeted with a standing ovation and
proceeded to regale us with stories, make
us laugh and made us realize that, yeah
On Tuesday morning, after having
been surrounded by countless “CAPL
Stars” at Planet Hollywood on Monday
night; Farley Flex from Canadian Idol
fame gave us some powerful insights into
what drives each of us. What makes you
CAPL President, Guy Anderson and AAPL President, David Frye
THE NE GOTI ATOR / NOVEMBER 20 05
we really did miss hockey!
as an individual tick? And how, by being
positive and feeling positive in our daily
lives whether at work or at home, we
can make each and every day a success.
With that positive outlook in hand, it
was off to the various activities where
members could relax, have some fun
and experience the awesome power of
Niagara Falls on an up close and personal
level. Everyone came back with fond and
lasting memories of their day in the sun.
Wednesday, we had a glimpse from
some very insightful individuals of what
might be in store for us, our profession and our industry. We reflected on
past trends and experiences and then
Many delegates ventured out on the Maid of the Mist for activities day
by examining the forces at work in
the market place we found we could
learn from them and anticipate and plan
ahead on how to make our futures and
our companies’ futures better.
The final touch to this outstanding
Program was Ron Joyce of Tim Horton’s
fame. He told us in his own words, his
success story. He concluded so appropriately, “the road to success is always
under construction”.
With everyone filled with powerful and
forceful ideas; ready to challenge each day
and move forward to make it a success,
our delegates and guests could relax and
unwind with some champagne, enjoy a
delicious dinner and then dance the night
away to old “blue eyes” himself at the
Don Cherry gets ready to speak to CAPL
delegates and guests
grand finale of the Chairman’s Ball. What a
great way to end this fantastic experience.
This
most
successful
Conference
could not have been possible without the
dedication of the Conference Executive
Committee of Helen Klein, Lorne Schaufert,
Michele Beitel, David Horn, Dennis Eisner
and Ron Vermeulen and of course the
many committee volunteers and the CAPL
THE NEGOTIATOR / NOVEMBE R 2005
office staff who worked tirelessly to achieve
our goal; to make the 2005 Conference the
best ever. I am truly fortunate to have been
associated with this group and I thank
them for their support, their dedication
and their endless spirit.
It has been an honor and a privilege to
share in this achievement. m
Niagara Falls … simply breathtaking at night
Brad Purdy and Gregg Scott as the boys from
Dumb and Dumber on theme night
Operator’s Extra
Expense Insurance
Why Higher Limits?
Although well blow-outs do not
occur every day, the fact is they do
occur. One risk facing an oil and gas explora-
an insurance vehicle called an Operator’s Extra
tion and production (E&P) organization is the
sion within both the oil and gas industry and the
cost associated with bringing a blown-out well
insurance industry regarding OEE coverage and
WRITTEN BY
under control. As opposed to accepting this risk
what policy limits should be considered adequate.
Robert Redden
internally, E&P companies often choose to trans-
For E&P companies, selecting the “right” OEE limit
Aon Reed Stenhouse
fer the risk away from the organization through
is difficult because it is impossible to accurately
Expense (OEE) policy.
Lately, there has been a great deal of discus-
“Exceeding our customers’ expectations
and promoting their profitability.”
– Brad Goodfellow
• Surface Land Acquisition
• Crown Land Sales
1019 – 13 Avenue S.W.
Calgary, Alberta T2R 0L5
Phone: (403) 228-0509
Fax: (403) 228-0840
Email: brad@rangerland.ca
www.rangerland.ca
THE NE GOTI ATOR / NOVEMBER 20 05
• Freehold Mineral Leasing
Factors such as well accessibility, depth, well type, dry-hole cost, proximity
to water bodies and water sources, and proximity to urban development
will assist in the limit selection process each having an effect on the
potential magnitude of a claim.
determine the costs that will be incurred when a blow-out happens.
existing well program and upcoming drilling. Factors such as well
On the insurance industry side of these discussions, all agree that
accessibility, depth, well type, dry-hole cost, proximity to water
the cost of bringing a blow-out under control has increased substan-
bodies and water sources, and proximity to urban development
tially in recent years which has had a direct effect on the size of OEE
will assist in the limit selection process, each having an effect on
claims and, as such, policy limits should be increased, or at least
the potential magnitude of a claim.
re-evaluated, to ensure that they are adequate.
It is important to note that the OEE policy does provide some
One source of increased claim costs is the increased cost
pollution coverage but often at a limit that is lower than what is
of field services. It is no secret that cost of hiring field service
required, as the OEE policy is not designed to be a pollution policy.
contractors has increased substantially in recent years which, in
As such, it is important to evaluate the pollution policy limit in
itself, would increase the cost of OEE claims. But because the oil
conjunction with the OEE limit.
patch has had these contractors running at peak capacity, they
Of course, the cost of OEE coverage also plays a part in
often charge a premium to prioritize the work required in associa-
the decision process but at current OEE insurance pricing,
tion with a blow-out, driving the cost even higher.
E&P companies will be hard pressed to justify the decision to
Another factor is tighter regulatory requirements. Twenty years
purchase a less-than-adequate OEE limit in favour of cost savings
ago, government requirements where much less stringent with
should a blow-out occur that is large enough to exhaust the OEE
regard to the operator’s responsibility during and after a blow-out
policy limit.
especially as they relate to sour gas wells. Although these regulations
Essentially, rising field service costs, tightened regulatory
serve a valuable purpose, current regulatory requirements have not
requirements, and increased drilling costs have all had a direct
only served to increase the cost of bringing a well under control but
effect on the size of OEE claims experienced by E&P companies.
have also extended the time it takes to resolve OEE claims issues.
In order to ensure that its capital is not unnecessarily put at risk,
A rise in the cost of drilling itself has also had a direct effect on
the cost of OEE claims. Not only are E&P companies drilling deeper
wells and more wells in remote locations but drillers are charging
it is important for an E&P company to evaluate its exposure to loss
to ensure its policy limits are adequate in the event of a loss. m
more for their services. Because an OEE policy may extend to cover
Robert Redden is an Account Executive and
the cost of relief wells and/or the cost of re-drilling the damaged
Vice President with Aon Reed Stenhouse in Calgary. As part of
well bore, higher drilling costs have had a direct effect on the
Aon’s Energy Practice Group, Robert provides insurance and
risk management consulting services to many exploration and
potential for higher claims costs.
With all of this said, how then should an appropriate limit
production companies in Western Canada. He holds a Bachelor
be selected? Insurance buyers should, in consultation with their
of Science Degree, a Canadian Risk Management designation,
qualified Insurance Agent, evaluate the exposure posed by their
and certification as a Canadian Accredited Insurance Broker.
Rockford Land Ltd.
THE NEGOTIATOR / NOVEMBE R 2005
➣ Alberta Crown Sales
Scott Clapperton
➣ Freehold Mineral Acquisitions
rockfordland@shaw.ca
➣ Surface Acquisitions
Suite 119, 2526 Battleford Ave SW Calgary, Alberta T3E 7J4
287-3500
Board Briefs
The key issues discussed and
resolved at the CAPL Board
of Directors’ Meeting held
September 19, 2005 in
Niagara Falls, Ontario:
•Terry O’Connor, Field Acquisition and Management Director,
advised the draft Road Map for Surface Land Certification
under CAPL has now been sent to SEPAC and the AEUB for their
comments.
•Bob Mosoronchon, Director of Education, advised a presentation
was made to the Team Leaders of the Education Committee
•Lenni Werner-Schmidt, Membership Director, provided twelve
on the proposal for the Centre for Energy Asset Management
active membership applications to the Board of Directors, all of
Studies (“CEAMS”) in its initiative to establish an education
which were approved.
program for Asset Management. A presentation will also be
•Lenni Werner-Schmidt advised that she is currently reviewing
made to the Board of Directors.
proposed changes to the CAPL By-Laws regarding membership
• Guy Anderson reminded Directors of the following:
and will be presenting the changes to the Board of Directors in
•The next Board of Directors’ Meeting will be held October 4,
the near future.
•Ken Gummo, Director of Communications, provided a list of
Directors that will provide the Message from the Executive for
The Negotiator issues from September 2005 to June 2006 inclu-
2005 at the CAPL Office.
•The next General Meeting will be held October 25, 2005 at
The Westin Hotel with the guest speaker to be confirmed. m
sive. He also advised that beginning with the November 2005
John Boone
issue of The Negotiator, there will be an increase in the number
Secretary/Director, Social
of colour pages.
THE NE GOTI ATOR / NOVEMBER 20 05
Message from
the Executive
Calendar
The new Education Calendar will come out shortly. We look
forward to the revised look.
Website
The
E d u c at i o n
Committee
is mandated with enhancing the overall
The Education Committee is working with the Technology
Committee to develop information for the CAPL website.
professional development of CAPL members
through education. With this mandate, the
Olds College
Committee is charged with providing useful
The CAPL Board of Directors has endorsed an Olds College initia-
information and services through which
tive to raise money for a full-time Land Agent Industry Chair.
members can acquire new knowledge and skills that are impor-
The activities of the Industry Chair will be specifically focused in
tant to their career development. Seminars play the greatest role
areas that promote the professional development of existing land
in this effort.
agents and ensure the quality of training in Olds College’s Land
Agent diploma program.
New Courses
We are currently looking at taking the CAPL surface courses on the
University of Calgary
road. Starting in early 2006, CAPL will offer select surface courses
We are reviving the U of C Advisory Committee again. This will
in Grand Prairie, Edmonton and Cold Lake. The logistics involve
give the CAPL a valuable opportunity to have input in the ongoing
finding appropriate sites to hold the course and advertising the
development of the U of C PLM Program.
courses effectively to the surface land community.
CEAMS – Centre for Energy Asset Management
Marketing
This initiative was began by CAPLA some time ago to recognize
The Education Committee will be changing some of the ways that
the need for more asset managers such as contract analysts, land
we advertise. We plan on advertising more of our courses through
administrators, accountants and joint venture analysts to replace
various industry periodicals. This should bring more attention to
our aging work force, and to plan for the education required to
the courses that are already in high demand.
provide a solid foundation. The CEAMS project has evolved into an
We will also start sending advertisements through direct mail
opportunity that the CAPL Board of Directors has endorsed.
to the CAPL Membership. This friendly reminder has worked well
in the past.
For more information on these or other CAPL education
issues, please contact Bob Mosoronchon at Tasman Exploration Ltd.
Multi-Course Savings
The Education Committee has announced a discount program for
those registrants who take 3 or more courses in one year, or those
Bob Mosoronchon
companies that send 5 or more registrants to a single course.
Director, Education
The saving is 30% per course subject to the rules as set out by the
THE NEGOTIATOR / NOVEMBE R 2005
Education Committee.
(514-8010 ext. 258). m
Orphan Wells
It is ironic that the issue of abandoned well
reclamation has been captured in song
The old Jimmie Osborne tune called
The Death of little Kathy Fiscus was
written way back in 1949. As Osborne
same year fell 90 feet down an abandoned 14 inch
used to sing … On April the eighth, the year forty
ous jurisdictions around the United States that
nine, death claimed a little girl so pure and so fine …
required the capping and filling in of abandoned
A short four verse song, the tune helped to crystal-
wells by state agencies if necessary. In some
well shaft and died. The result was the enactment
of abandoned well or “Kathy Fiscus” laws in vari-
states, this legislation also applied to abandoned
what to do with all these holes that have been
oil and gas wells, arguably starting what have now
glen l. nazaruk
put into the ground…? Sadly, the inspiration for
become state, provincial and federal Abandoned
ibm canada Ltd.
that little ditty, three year old Kathy Fiscus, in that
Well Plugging and Orphan Well Programs.
THE NE GOTI ATOR / NOVEMBER 20 05
lize an issue that had been on the minds of many,
WRITTEN BY
Introduction
Alberta
The oil and gas industry in North America and Alberta in particu-
The most famous case of abandoned or orphan well management
lar, is being forced to face a growing problem head on; what to do
in Canada involves the Peace River Oil Company No. 1. (No. 1) well.
with the increasing number of abandoned (also known as orphan)
No. 1 was spudded on May 15, 1916 with a resulting major natural gas
wells. There are at least 42,000 inactive oil and gas wells and
and salt water flow occurring into the Peace River. Attempts to stop
7,000 related facilities in Alberta awaiting proper abandonment.
the flow by the Canadian government were unsuccessful and in the
More importantly, it has been reported that growing concerns are
early 1930s, the Natural Resource Transfer Constitution Amending
being raised regarding a further 120,000 wells and over 30,000 km
Agreement transferred natural resource ownership to the province
of pipelines that have already been abandoned in Alberta. Many of
of Alberta along with the problem of the No. 1 well. Some relief was
these old wells are aged or improperly sealed and could be leaking
achieved in 1955 with the drilling of a relief well. Subsequently, the
natural gas or other contaminants to either the surface or further
well blew out several times and the province eventually developed a
downhole, possibly contaminating groundwater. As the petroleum
well control program which unfortunately could not end the release
industry matures, even more oil and gas wells and facilities are
of contaminants into the Peace River. Finally, on September 9, 2003
reaching the end of their operational lives and it is necessary that
the No. 1 and all related wells were successfully abandoned.
these locations be properly abandoned and that reclamation and
THE NEGOTIATOR / NOVEMBE R 2005
decontamination take place where required.
10
Alberta initially established an Abandonment Fund in 1994 to
provide funds for the reclamation of abandoned or orphan well sites
There is good cause to be concerned about improperly aban-
only. This fund has since been continued as the Orphan Well Fund.
doned wells. Wells that have not been plugged or properly
In the upstream oil and gas industry, an orphan is a well, pipeline,
reclaimed may have environmental consequences. People living
facility or associated site for which no legally responsible or finan-
in rural areas should be aware of the potential impacts of aban-
cially able party maintains responsibility for its abandonment and
doned well sites. Some of the signs that an abandoned well
reclamation. The Alberta Energy and Utilities Board (EUB) admin-
may be located on your property are the existence of a pipe or
isters the Alberta Orphan Well Program. This program requires
wellhead, usually a large diameter, an area where vegetation will
the petroleum industry to pay for the cleanup of abandoned or
not grow, the odor of crude oil or natural gas and a nearby water
orphan wells that do not have a readily identifiable owner. To date,
well that has been contaminated either by crude oil, natural gas
the industry had contributed well over $20 Million to the Orphan
or most likely, saltwater. Saltwater contamination may increase
Well Fund.
water hardness and can inhibit freezing. Natural gas can also be
The Orphan Fund was expanded in 2000 to include those
observed in water wells through pressure increases in your water
costs incurred in the suspension and reclamation of well sites
pipes, a natural gas odor at the tap and in some cases, gas bubbles
and facilities and not just the abandonment of well sites. The EUB
in the water. The combination of two industries, coal mining and
has combined the process by which suspension, abandonment
crude oil production, has created opportunities in the produc-
and reclamation costs are determined for wells and facilities.
tion of coal bed methane but also raised concerns regarding
It has been recognized that not only wells, but many pipelines,
water quality protection. Of the various mining industry related
gas plants, batteries, satellites, compressor stations and other
minerals that can rise and escape to the surface where they can
facilities reaching the end of their operational lives and the sites
contaminate water and land, aluminum is the most toxic. In some
upon which they are located must be reclaimed. In conjunction
wells associated with coal mining, it has been found that various
with Alberta Energy, the EUB will hold companies and responsible
concoctions of iron, manganese and aluminum may push their
individuals accountable for the cleanup of upstream oil and gas
way up old pipes until they find a discharge point.
and well related facilities. Where a responsible party cannot be
identified, the oil and gas industry will pay these costs through the
outstanding debt to the Orphan Fund in respect of abandonment or
Orphan Fund. In creating the Orphan Well Program, the province
reclamation costs, the EUB may make a declaration that a director,
has established a process whereby a holder of a working interest
officer, agent or other person is designated as the approval holder
in a well can recover monies expended for abandonment opera-
or working interest participant at the time of the contravention,
tions. These monies may be recovered from a licensee, another
failure to comply and personally liable for these costs.
working interest holder or from an absconded participant.
Recently, changes to Part 16 of the OGCA regulations were
proposed respecting applications for the determination and payment
Alberta Legislation
from the Orphan Fund for abandonment costs in an attempt to
Part 11 of the Oil and Gas Conservation Act (“OGCA”) establishes
streamline the process. The previous authority which permitted
the Orphan Fund the overall purpose of which is the reclamation of
an application from a working interest participant for a costs order
abandoned wells. Under section 70(1) of the OGCA the purpose of the
has been expanded to include an application for the determination
Orphan Fund is to pay for abandonment and related costs in respect
of suspension costs, abandonment costs and reclamation costs for
to orphan wells and facilities. More specifically, the section provides
wells and facilities. Such an application is to include the applicants
that the Orphan Fund may pay for suspension, abandonment and
full legal name, address, phone number, contact person, the legal
reclamation costs incurred on behalf of working interest participants
description of the well or facility including the license number of the
who are unable to collect the share from the other working interest
well or facility, a list of all working interest participants including
participants or where no working interest participants actually exist
their proportionate interest in the costs order, a total description of
and the work is carried out by some other party such as the Director,
the costs incurred and a statement that the suspension, abandon-
Alberta Environment or the EUB. The Act authorizes that money may
ment or reclamation has been completed. Under section 29 of the
be paid from the Orphan Fund for the purposes outlined in the legis-
OGCA, there is continuing liability to a license holder or working
lation and that such a payment becomes a debt payable to the EUB.
interest participant for the control of an abandoned site including
Under the definition section in OGCA, a working interest partici-
any further abandonment related costs which might be incurred.
pant is defined as a person who owns either a beneficial or legal
Where a working interest party fails to pay its share of abandon-
undivided interest in a well or facility under any agreements that
ment costs as ordered by the EUB, a penalty may be applied equal to
pertains to the ownership of that well or facility. Well or facility
25% of the share of the abandonment costs.
suspension, abandonment and reclamation costs must be paid by
Under Part 11 of the OGCA, the EUB has broad powers to autho-
the working interest participants in accordance with their propor-
rize money to be paid for the reclamation and abandonment of
tionate share in the well or facility. Under section 3.020(1) of the
Orphan Wells. The EUB considers a well to be properly abandoned
OGCA regulations, wells are required to be suspended within twelve
when it has been closed permanently with a downhole plug,
months after the last production operations have occurred subject to
cemented to seal both the surface and downhole to prevent any
certain exceptions such as where there is a seasonal market or if the
oil or gas escaping and the well site has been reclaimed. For a long
well is classed as an observation well. Section 3.068 of the regulations
time, oil companies in Alberta were not required to properly abandon
require that a licensee abandon a well on the termination of the
their wells within a specified period of time however, new directives
mineral or surface lease, if the EUB notifies that the well is a safety
issued by the EUB provide certain timeframes for abandonment
hazard, if the licensee becomes dissolved or is struck from the corpo-
activities subject to specific standards. All inactive wells must now
rate register or where the licensee fails to properly suspend the well.
be inspected and categorized as high, medium or low risk in terms
Under section 29 of the OGCA, the abandonment of a well or facility
of their potential impact to public safety and the environment. All
does not relieve the licensee, approval holder or working interest
high risk wells must be properly abandoned by the end of December,
participant from responsibility for the control or further abandon-
2005. All medium and low risk wells must be properly abandoned to
ment of the well or facility for the costs of doing that work.
the standards of each well category by the end of 2006. Effective 2008,
Certain parties may be deemed to be working interest participants under section 31 of the OGCA. Where a transaction results
low risk wells left inactive for 10 or more consecutive years will be
required to meet the higher standards set for medium risk wells.
Further changes to Orphan Well legislation are expected.
non-licensee successor working interest participant fails to pay its
EUB Bulletin 2005-11 has proposed further changes to the OGCA regu-
proportionate share of the suspension, abandonment or reclama-
lations to provide for cases where a licensee ceases to be an Alberta
tion costs, the Board may deem the person continue to be a working
resident, is deceased or has been struck from the corporate register.
interest participant responsible for abandonment and reclamation
Changes have also been made to the EUB Enforcement Process for
costs. Section 30 of the OGCA may render certain parties personally
high non- compliant licensees who may not be adequately main-
liable for debts owed to the EUB which could include the re-payment
taining wells, facilities or pipelines. The purpose of the Orphan Well
of abandonment and reclamation costs to the Orphan Fund. Where
Association (OWA) is to manage the abandonment and reclamation
a licensee, approval holder or working interest participant has an
of upstream oil and gas orphan wells, pipelines and associated sites.
11
THE NE GOTI ATOR / NOVEMBER 20 05
in someone no longer being a working interest participant and the
The OWA operates under delegated authority granted to it through
Where the deemed liabilities exceed the deemed assets, the
the EUB. The 2005 Orphan Fund Levy is based upon the revenue
licensee will be required to post a security deposit with the EUB
requirements from the Orphan Well Association budget and each
equal to the difference. These security deposits are intended to
year each licensee is invoiced for the percentage of the budget that
offset the abandonment and reclamation liabilities in order to
its deemed liability represents of the total industry deemed liability.
minimize the possibility that these costs will have to be paid by
For 2005, the amount of the Levy is a licensee’s deemed liability
the Orphan Fund. This security deposit can only be cash or letters
times $12,000,000 divided by the sum of the industries deemed
of credit and must be submitted directly by the licensee and
liability. Failure to pay the Orphan Well Levy will result in a company
not by a third party. The security deposits will only be refunded
being pushed up the Alberta Energy Generic Enforcement Ladder.
upon request where the licensee meets certain eligibility criteria.
Under section 74(2) of the OGCA, a failure to pay the Orphan Fund
The EUB may use all or part of a security deposit to properly
Levy on the date required results in a 20% penalty. Despite these
abandon or suspend a well, facility or pipeline and Alberta
new initiatives, it is easy to see that they barely touch the surface.
Environment may access the security deposit to undertake reme-
In 2002, about 1,160 wells were abandoned while 18,350 new wells
diation or reclamation activities at these sites.
were drilled. In 2001, 2,200 wells were abandoned with over 15,000
new wells drilled. The statistics for wells drilled is expected to be
Texas
much higher for 2004-2005 and for a few years to come as the oil
Texas has the most active and maybe, the most successful well
patch reels in the face of high drilling activity resulting from high
plugging program in the United States. It is estimated that 1.5
oil and gas prices.
million wells have been drilled in Texas in the last century for
THE NEGOTIATOR / NOVEMBE R 2005
oil and gas related activities. Between 1992 and 2002, operators
12
Licensee Liability Rating
voluntarily plugged almost 90,000 wells. It is estimated that
Alberta has established a Licensee Liability Rating in conjunction
approximately 25,000 wells remain inactive, abandoned and in
with its liability management program in an effort to minimize
violation of the Texas well plugging rule. In addition, an esti-
the risk of unfunded abandonment and reclamation liabilities
mated 150,000 abandoned water wells exist in Texas. It has been
and help increase the scope of the Orphan Fund. The EUB through
recognized in Texas that wells drilled for water, oil and gas when
the imposition of a License Liability Rating, or LLR program, is
improperly drilled or cased, or when the casing has corroded,
attempting to ensure that the industry deals with the issue of
may serve as conduits for the contamination of the aquifers
abandoned wells. The EUB calculates the LLR for each licensee
below. This may occur in many ways including the direct release
monthly based on a comparison of its deemed assets to its
of oil or gas into the aquifer, the blending of waters from different
deemed liabilities. For producers, deemed assets will be based
aquifers and the release of contaminants such as metals or pesti-
upon a provincial industry average netback, based on the cash
cides. In fact, it has been found that salt water from abandoned
flow from oil and gas production reported to the EUB. Deemed
oil and gas wells in Texas has polluted the upper portions of the
liabilities are essentially calculated on the same basis for both
Colorado River.
producers and non-producers and is the sum of abandonment
The Texas legislature attempted to address the issue of aban-
and reclamation liabilities of all wells and facilities for which the
doned wells in 1983 by creating the Abandoned Well Plugging
party is a licensee, in addition to net present value and salvage
Fund to be financially supported by industry through a well drill-
factors. When calculating deemed assets for non-producers, the
ing permit fee. In 1991, as a result of falling oil production, Texas
EUB will use an individual netback calculated annually by the
enacted the Oil Field Cleanup Fund to be supported by additional
licensee and approved by the EUB for a 12 month period.
new funding sources within the state government. The role of
the fund was also expanded to include cleanup of well sites for a
Conclusion
variety of environmental purposes including plugging and clear-
New requirements cost the industry money. The view of industry
ing up abandoned oil and gas leases, pits and oil fields. Further
is to make sure that the requirements are reasonable and cost
changes to the Texas legislation were introduced in 1999 with the
effective and that they are actually meeting a need.
increase in the drilling fees, regulatory fees, penalties and interest,
Small operators with only a few wells may feel that the LLR
all designed to support the program. Finally, changes in 2001 have
rating is skewed to favor the larger operators and could threaten
increased the amount that can be spent annually from $10M to
their existence. The program forces licensees to pay a levy or a
$20M provided that there is sufficient revenue. In 2002, total expen-
security deposit each year where the cost of abandoning certain
ditures from the fund were over $18M while revenues were almost
facilities is greater than the value of the assets. In some cases,
$17M, resulting in the plugging of approximately 1400 wells.
it could be argued that the LLR system encourages licensees to
The Texas program is not free from potential issues. It has
abandon and reclaim their wells early so as to protect their LLR
been estimated that at the present pace, it will take Texas 20 years
rating status. Where this results in the abandonment of poten-
to abandon their current backlog of orphan well sites. Texas also
tially economically viable wells, the LLR could lead to a wasting
does not regularly monitor the downhole condition of orphan
of scarce resources. Not all jurisdictions deal similarly with this
wells to ensure that they are not polluting water supplies before
issue. For example, where the burden to plug an abandoned well
these sites are plugged. One important part of the approach to
falls upon the state of Alaska, the Alaska Oil and Gas Conservation
orphan wells in Texas is the requirement that all oil and gas
Commission may not plug a well that has economic potential and
operators be secured or “bonded” by a bond, letter of credit or
does not pose a threat to human health or the environment.
refundable cash deposit. In addition, Texas encourages the plug-
Orphan wells in many cases are not without economic value.
ging of wells through reductions on severance tax and reduced
Lease equipment, hydrocarbons remaining in the reservoir, stor-
property tax assessments. Other similar programs exist in many
age tanks and the leases themselves have all been recognized to
states including Pennsylvania, New York, Alabama, Colorado, New
retain economic value, even in abandoned sites. For example, as
Mexico, Kentucky, Alaska, Louisiana and Oklahoma. The Interstate
total oil production declines across most of the United States,
Oil and Gas Compact Commission (IOGCC) has also taken a lead-
marginal wells in states such as Oklahoma are becoming increas-
ership role in the U.S. regarding the plugging of orphan wells.
ingly more important. Surprisingly, marginal wells producing less
than 10 barrels or 60 mcf of gas per day are actually cumulatively
California
accounting for almost 30% of total U.S. petroleum production.
California has dealt with an interesting problem in that they have
With the advent of higher oil prices seen through most of 2005,
attempted to deal with orphan wells in the face of declining produc-
some of these marginal wells are being re-entered with new tech-
tion from limited oil and gas reserves from many marginal wells.
nology with appreciable increases in production in these states.
This created a strong incentive to “milk” whatever production may
States such as Texas and California show how programs
remain in the state while also dealing with environmental safety
may be established to deal with large numbers of orphan
and potential legal liability. California has passed Section 3250 of
wells combined with a maturing industry which is in decline.
the Public Resources Code which declares that idle or deserted
Such programs could be further studied as Alberta deals with
oil and gas wells are public nuisances and that it is necessary to
similar problems and issues since Alberta is facing declining
abandon and minimize their dangers to life, health and natural
production rates in both oil and gas reserves as well as the
resources. Where no operator exists or holds responsibility for the
maturing and necessary reclamation of a large number of wells,
plugging and abandonment of an idle oil and gas well, that well
facilities and related sites. While the establishment of an Orphan
may be determined to be a hazardous well. In such a case, the state
Fund Program and LLR Assessment are important achievements,
may order that the well be abandoned using state funds. California
they may be seen as first steps in dealing with an industry facing
maintains an idle well inventory and operators of idle wells are
these difficult issues. In this regard, we may be able to borrow and
required to file an annual fee based on the length of time a well has
improve upon the experiences of our counterparts to the south
been idle, establish an escrow account or file an idle well elimination plan. Importantly, the state has established an Adopt-a-Well
Glen L. Nazaruk is a member of the Bars of Alberta,
for up to 90 days without incurring any liability for plugging the
Canada and Louisiana, U.S.A. and has a Masters
well. If the prospective operator is interested in taking over the
degree in Energy Law from Tulane University. He is
well, the well can be adopted by posting a bond and becoming the
presently a Mineral Land Analyst with IBM Canada Ltd.
permanent operator. The new operator may then be provided with
performing services for BP Canada Energy Company
various incentives such as a reduction in licensing fees or taxes to
and can be reached at nazarukg@ca.ibm.com.
provide for an incentive to further produce the well.
13
THE NE GOTI ATOR / NOVEMBER 20 05
Program allowing for prospective operators to test an orphan well
who have already faced similar problems. m
THE NEGOTIATOR / NOVEMBE R 2005
14
Get Smart
The CAPL Education Committee is pleased to present the following courses:
Principles of Contract Drafting and Interpretation
November 15, 2005
8:30 a.m. to 12:00 p.m.
Geophysics for Non-geophysicists
November 29, 2005
8:30 a.m. to 4:30 p.m.
The principles of drafting and interpreting contracts that have
The instructor will focus on a number of personal cases to
evolved in case law over the years will be presented. In addition
exemplify the use of seismic data. Simple in class exercises
to reviewing case studies, the instructor will discuss the essen-
will show some of the limitations of seismic data in a cost-
tial concepts in drafting and suggestions for improving essential
effective exploration program. Ownership issues and legal
parts of agreements.
obligations of acquiring seismic data in Canada will also
be introduced.
The Law of Pooling: Voluntary and Compulsory
November 18 and 25, 2005
8:30 a.m. to 4:30 p.m.
The seminar is an intensive and detailed study of the Law of
Northern Issues
December 7, 2005
8:30 a.m. to 4:30 p.m.
Pooling and Unitization that will focus on fundamental concepts
Emphasis will be placed on providing a framework for under-
and basic principles; emphasize the legal, practical and business
standing the current regulatory regimes in the North, including
consequences thereof; and provide insight and guidance on how
the effects of settled (and unsettled) land claims and devolution.
to identify, analyze and resolve problems arising therefrom.
Land and water use will be covered along with Aboriginal and
community issues including consultation, benefits and participa-
Fiduciary Duties
November 22, 2005
tion agreements. Northern joint operating agreements will also
8:30 a.m. to 12:00 p.m.
This half-day seminar will focus on problem areas arising in
be discussed. m
the context of both transactions and day-to-day operations.
Case examples and court decisions specific to land-related issues
For further information or to register, please contact
the CAPL office by phone at 237.6635 or email
will be presented and discussed.
dgrieve@landman.ca, or complete and return a
Ethics
November 22, 2005
registration form by fax to 263.1620. Registration
1:00 p.m. to 4:30 p.m.
forms and full course descriptions can be found
This seminar is intended to increase the understanding of ethics
in the 2005 CAPL Course Calendar which is
and the dimensions to ethical behavior by stimulating the ethi-
available online at www.landman.ca.
cal thought process, giving a basic introduction to the nuances
of ethics, introducing a number of methods used in ethical decision-making, and providing a forum for discussions with respect
to land-related ethical issues.
THE NE GOTI ATOR / NOVEMBER 20 05
15
The Power
of Place
Giving Back
to the Land
The Nature Conservancy of Canada (NCC) was looking for
someone to run their operations in western Canada, and it didn’t
take long for Simpson to realize that this was his opportunity to
make a real contribution to protecting the natural landscapes he
was so passionate about.
When he first joined NCC in 1990, Simpson was the organization’s regional director in western Canada and its first, and
only employee, west of Ontario, responsible for NCC’s interests
in Manitoba, Saskatchewan, Alberta, B.C. and the far North.
Since then NCC has grown dramatically and now has seven
regional offices and several sub-regional offices across the country
in addition to a national office in Toronto.
Larry Simpson has long felt the “power of place”
NCC is a national organization dedicated to preserving
– both in his current role as Regional Vice President for the Nature
Canadian biodiversity by protecting ecologically significant natu-
Conservancy of Canada in Alberta, and when he worked as a minerals
ral areas through outright purchase or donation, or by helping
landman in the oil and gas industry. “When I worked in the oil and gas
landowners to place conservation easements on their property.
sector in the 1980s I spent a lot of time out on the land – enjoying our
It operates as a land trust, similar to habitat-conserving orga-
beautiful landscapes, but also getting a chance to see firsthand how
nizations like Ducks Unlimited Canada or the Rocky Mountain
quickly they were being altered by the activity and growth of our society.”
Elk Foundation. It takes a non-advocacy, non-confrontational
Brought up near Pincher Creek in rural southwest Alberta,
approach to conservation, working with landowners to create
Simpson started his career working with Amoco Canada Petroleum
‘win-win’ solutions that will benefit nature.
Ltd., but when Amoco Canada merged with Dome Petroleum,
NCC works in the grassland, parkland and foothills regions of
Simpson, and many other employees took a buyout package.
Alberta where there is a substantial amount of private land. Since
Ten months later, he was about to take a job with Norcen Energy
Simpson joined, more than 145 projects have been completed in the
Resources when he saw a newspaper ad that would change his life.
province, protecting over 140,000 acres of high conservation value land.
2005
EXPLORER™ Software Solutions Ltd.
EXPLORE
your options . . .
November Update
Version 7 of
CS*EXPLORER©
is now available.
THE NEGOTIATOR / NOVEMBE R 2005
Call us to find out about
the great new additions
and enhancements this
release has to offer.
For a demo, call Ken
Holmes at 571-5259.
CS*EXPLORER©
Integrated Oil & Gas Software
CS*Image©
Integrated Imaging
CS*JointInterest©
Service & Facility Agreements
EXPLORER Online Business Processes©
Customized Online Policy & Procedure Manuals
Oil & Gas Property Management
Consulting • Information Management Services
Product Support • Training
To update your current system,
call Carol York at 571-5279.
16
Contact: John Pullar or Ken Holmes
800, 734 – 7 Avenue S.W. Calgary, Alberta T2P 3P8
p. 403.571.5263 f. 403.571.5266
www.explorersoftware.com
In Alberta, NCC is best known for its “Working Landscapes”
and to set standards for
approach to conservation, which means that well managed
accessing the land that will
conserved grasslands can continue to be wisely used by ranchers
ensure that natural values
and industry. This approach has allowed NCC to build productive
are protected.
relationships with landowners and stakeholders across the province,
NCC and its partners,
while at the same time conserving natural landscapes and habitats.
from individual landowners
Properly managed natural grasslands grazing, for example, is not
to major companies such
incompatible with maintaining habitat for many native species.
as Shell Canada, Suncor, BP,
Typically, NCC’s field person – like the landman who repre-
Alliance Pipeline, Chevron
sents an oil and gas company – will try to find an arrangement
Canada Resources, Mobil Oil
that both benefits the landowner and furthers NCC’s goals.
Canada (now ExxonMobil)
“For example, some landowners are willing to manage their land
and
without draining wetlands and will graze cattle in a manner that
protected nearly 1.5 million
conserves healthy grasslands. These lands are still subject to the
acres of ecologically valuable
Surface Rights Act, meaning that a company can drill a well but
prairie grassland, parkland and foothills across western Canada.
Petro-Canada,
have
Larry Simpson
must minimize surface disturbance. In many cases we believe that
Yet there is still much to do, so much more biologically diverse
minimizing surface disturbance may even present a cost savings
land in Alberta that still needs to be conserved before it is modi-
to a company,” explains Simpson.
fied in a manner that compromises its natural and scenic value.
One of NCC’s most valuable tools for conservation is the
“The Nature Conservancy of Canada is doing some great things,”
conservation easement agreement. “If a landowner is interested
Simpson says. “But we can’t do it alone. And as a province, we’re
in ensuring that their property stays the way it is now, and can be
passed on to future generations with its natural values intact, then
a conservation easement makes a lot of sense,” says Simpson.
A conservation easement can be donated to NCC by the landowner or purchased by the organization. It is a permanent, legally
at risk of losing something very special.” m
Jane Lawton
National Director of Communications
The Nature Conservancy of Canada
binding agreement registered on the title of the property which
restricts certain uses of the land. The restrictions are tailored to fit
the particular property, the interests of the landowner, and the natural features to be protected. By choosing to impose these restrictions
and limit their own rights, a landowner can secure their land’s
conservation value, subject to the Alberta’s Surface Rights Act.
If the easement is donated, the landowner will receive a
tax-deductible receipt for the difference in value of the
property without an easement or with an easement. In a conservation easement purchase, NCC will typically offer a landowner
20 percent of the value of the property in cash or as a tax-deductible receipt. This provides an opportunity for a rancher to benefit
from some of the capital asset value of their ranch while still
retaining full ownership.
Each land conservation agreement with a private landowner is
still subject to provincial surface rights and mineral rights legislation,
and does not prevent petroleum companies from exercising their
right to explore for and produce oil and gas. Neither does the easement prevent the landowner from negotiating his or her own surface
long as all parties agree to protect the land’s conservation value.
On private lands with conservation easements, companies
have shot seismic and drilled for oil and gas while following
guidelines requiring them to minimize the impact on the ecologically valuable land. When this happens, NCC will work with the
company to try and ensure the surface disturbance is minimized
17
THE NE GOTI ATOR / NOVEMBER 20 05
access and compensation deal with the petroleum company – as
CAPL Sponsors
Stampede Steer
Classic and
Receives AAPL
Community
Service Award
Stampede Steer Classic, which turned out to be a huge success
on many counts.
Serving as a major sponsor of the prestigious and historic
Stampede Steer Classic shone a new spotlight on the CAPL’s
continuing efforts to strengthen our relationships with the agricultural and ranching community. Many thanks to everyone who
worked to make the Steer sponsorship and the 4-H Beef Raffle a
huge success, including Dave Pyke (Fairborne) for bringing the
opportunity to CAPL and to everyone that purchased a raffle ticket
to support this worthy cause. At the American Association of
Professional Landmen’s (AAPL) annual Conference held in Banff
this past June, the CAPL was presented with a Special Award for
Community Service. This prestigious award was presented to the
Landman’s Beef Benefit (“LBB”) Committee (30 CAPL members)
who organized the fundraising and social evening, and was
accepted by LBB Chairman Neil Cusworth.
Although the LBB Committee is most deserving of accolades for
There are a great many CAPL members who
individually contribute their time and energy
as Stampede volunteers in various capacities, keeping the spirit of our western heritage alive and
THE NEGOTIATOR / NOVEMBE R 2005
vibrant. Along with these individuals, the CAPL Public Relations
18
the goodwill and positive exposure extended towards the ranching
community through its efforts, credit for this award goes equally
to all of the sponsors, contributors and participants that came
together to make the Landman’s Beef Benefit a success story! m
Committee embraced the opportunity to participate in CAPL’s
Suzanne Stahl
sponsorship of the Reserve Steer Champion in the 2005 Calgary
Chairman, CAPL Public Relations Committee
Fiduciary Duties, Top To Bottom
The Xerex Decision
Recently, the Alberta Court of
Appeal released its decision in
Xerex Exploration v. Petro‑Canada.1
logging tools and casing so that it could explore the
While the result of the decision is not remarkable
does not form part of the mineral rights granted.
having regard to the facts as found by the trial
Further, the evidence at trial was that the over-hole
justice, the reasoning has significant implications
allowance does not give a right to information from
to the industry. The Court of Appeal held that Petro-
the deeper zone. Nonetheless, Petro-Canada was
Canada owed fiduciary duties to the commercially
to take drill cutting samples and send them to the
sophisticated, arm’s length plaintiff that owned
AEUB’s Core Research Centre in Calgary.
Shallow Rights to their full extent. However, AEUB
Guide 56 makes clear that the over-hole allowance
deep rights, merely because Petro-Canada used
Petro-Canada began to drill the 1-1 well, and began
the over‑hole allowance it had been granted by the
taking samples. On the morning of November 20, 1996,
Alberta Energy and Utilities Board (the “AEUB”).
Petro‑Canada drilled the 15 metres into the Deep Rights.
The well-site geologist examined the samples from the
Facts
Deep Rights, and reported to head office in Calgary
Petro-Canada held a lease to explore and exploit
that there were significant oil shows. At a meeting that
petroleum and natural gas from a shallow group of
morning at Petro-Canada head office, Petro-Canada’s
formations in lands in the Two Creek area, west of Swan
landman was instructed to attempt to acquire the Deep
Hills, Alberta, including 1-65-16 W5M (the “Shallow
Rights and report back in a few hours.
Rights”). The Plaintiff, Xerex Exploration Ltd. (“Xerex”),
That morning, contact was made with the
held a licence to explore and exploit the deeper zones
principal shareholder, officer and directing mind of
including 1-65-16 W5M (the “Deep Rights”).
Xerex. At that time, at least regarding the Shallow
Rights and the Deep Rights, Petro-Canada and
Xerex were strangers. Unbeknownst to the Petro-
well into its Shallow Rights. Pursuant to AEUB Guide
Canada landman, as the Court expressly found,
56, the Oil and Gas Conservation Regulations and the
the principal of Xerex was “a highly experienced oil
drilling licence, Petro‑Canada was given permission to
man”, who was “accustomed to making significant
continue drilling below the Shallow Rights, 15 metres
transactional and drilling decisions based on anal-
WRITTEN BY
into the Deep Rights. The purpose for this over-
ysis and inference from technical information”.
Bryan Duguid
hole allowance was to accommodate Petro‑Canada’s
He was described by the Court as a sophisticated
19
THE NE GOTI ATOR / NOVEMBER 20 05
On November 13, 1996, the AEUB issued a drilling
licence to Petro-Canada, allowing it to drill the 1-1
businessman. He had risen through the ranks of Scurry-Rainbow
Xerex eventually learned that Petro-Canada had drilled and
Oil Ltd., and became its President and CEO in 1970. When Scurry-
logged the hole prior to acquiring the Deep Rights licence from
Rainbow was taken over in 1974, he formed Xerex.
Xerex. Xerex then commenced an action against Petro‑Canada,
During the call, the Xerex principal declined Petro-Canada’s
offer to purchase the Deep Rights for cash. A gross overriding
alleging various causes of action including trespass, conversion,
breach of confidence, and misrepresentation.
royalty (“GORR”) was discussed instead, but there was no agreement reached at that time. The Court of Appeal found that, during
Trial and Appellate Decisions
this conversation, though Petro-Canada’s landman knew that
The trial justice found Petro-Canada liable in trespass, conver-
Petro-Canada had drilled 15 metres into the Deep Rights and that
sion and misrepresentation by incomplete disclosure. Based on
there were significant oil shows, when questioned, he had said
the misrepresentation, Xerex had claimed for rescission of the
that Petro-Canada had not drilled into the Deep Rights.
agreement transferring the Deep Rights licence to Petro-Canada.
Later on that same date, though an agreement had not been
Because Petro‑Canada had in the meantime transferred the
reached regarding the Deep Rights, Petro-Canada resumed drilling
resulting lease to a third party, the trial justice determined that
at the 1-1 well, penetrating a further seven metres into the Deep
it would not be appropriate to restore the Deep Rights to Xerex.
Rights, beyond the 15 metre over-hole allowance. More samples
Instead, the trial Court heard evidence about, and decided, what
were taken. Two days later, on November 22, 1996, Xerex and
Xerex would have done if the misrepresentation had not occurred.
Petro-Canada agreed that the Deep Rights would be transferred to
The conclusion was that Xerex would have negotiated a better
Petro-Canada in exchange for a three percent GORR. On November
deal, in the form of a 50-50% farmout arrangement. An award of
27, 1996, Petro-Canada wrote to Alberta Energy advising that a
damages of approximately $8.1 million was granted, representing
well had been drilled with evaluated petroleum sufficient to meet
one-half of the past and future net profit from the well.
regulatory requirements, and asking that its newly‑acquired Deep
THE NEGOTIATOR / NOVEMBE R 2005
Rights licence be converted to a lease. That request was granted.
20
The Court of Appeal upheld the result of the trial decision,
including the precise basis for liability, and also the type and
The Deep Rights licence would have expired on December 3,
amount of the relief granted. In addition to upholding the finding
1996 unless, prior to that date, a well had been drilled showing
at trial of misrepresentation by incomplete disclosure, the Court
sufficient hydrocarbons.
of Appeal found actual misrepresentation as an additional reason
for upholding the trial decision. The Court of Appeal also provided
fundamental impact on the oil and gas industry” because it would
a further basis. Both the trial Court and the Court of Appeal had
“undermine the legitimate objective of certainty of obligations.”5
expressly noted the sophistication and experience of the principal
The basis for imposing the fiduciary duties in the Xerex case
of Xerex, and the arm’s length nature of the relationship between
seems to be that, because of the over‑hole allowance, Petro-
these commercial parties. Nonetheless, the Court of Appeal found
Canada had the authority to drill into the Deep Rights without
that, because Petro-Canada had drilled the 15 metre over‑hole
Xerex’s knowledge or permission, and gain information about
allowance, Petro-Canada owed Xerex fiduciary duties in conduct-
the presence of hydrocarbons in the deeper zone. The Court of
ing the negotiation to acquire the Deep Rights.
Appeal concluded that this put Xerex in an “extremely vulnerable position” which was exacerbated when Petro-Canada
Analysis
initiated contact with Xerex to negotiate the purchase and sale
Based on the facts as found by the trial justice and the Court of
of the Deep Rights. While it seems clear that Petro‑Canada did
Appeal about misrepresentation, there is little room for debate
not have the right to the information derived from drilling in (or
about the actual result of the decision. It is understood that
beyond) the 15 metre over-hole allowance and was entitled to
Petro‑Canada has decided not to seek leave to appeal the matter
use the over-hole allowance only for the purposes intended, it
further. However, the additional finding of a fiduciary duty in
is not clear how the prescribed use of the over-hole allowance
these circumstances is a development in the law likely to have
could convert an oil and gas company into a selfless fiduciary. In
far‑reaching ramifications.
fact, the evidence was that there was no industry practice nor
Generally, the courts express a great hesitancy in concluding
any statutory or regulatory obligation to disclose, to deep rights
that a fiduciary relationship exists between sophisticated arm’s
holders, information obtained while drilling in accordance with
length commercial entities. This extreme caution in the commer-
the over‑hole allowance. Also, Xerex and the public would only
cial context results from the recognition by the Courts that the
be entitled to the information from Petro-Canada’s drilling when
“fiduciary standard is one of selflessness and utmost loyalty,
the 1-1 well came off of its “tight hole” status. The Court heard
which is prima facie contrary to the Western commercial concept
evidence that industry practice and Alberta law recognizes such
of free enterprise in a capitalist society,” and is the antithesis of
information as confidential to the party drilling the well.
2
most commercial interactions between parties at arm’s length
Nonetheless, the Court of Appeal found implicitly that, when the
“which normally derive their social utility from the pursuit of
Xerex principal was contacted by a Petro‑Canada landman wanting
self-interest.”3 As a result, outside of the recognized fiduciary
to conclude a deal to purchase the Deep Rights, he could reasonably
categories, among other things, the Courts require evidence of a
have expected that Petro-Canada would be acting selflessly, in his best
mutual understanding that one party has relinquished its own
interests. Specifically, the Court of Appeal found that Petro-Canada
self-interest and agreed to act solely on behalf of the other party.
had a positive duty to disclose to Xerex that it had entered the Deep
In addition, vulnerability is an important indicator of the existence
Rights and, if asked, what information it had discovered when it did
of a fiduciary relationship. Since vulnerability is often lacking
so. Remember, at the time of this phone conversation, Petro-Canada
in commercial settings, the Alberta Court of Appeal stated in
had not drilled beyond the 15 metre over-hole allowance.
another matter that “courts invoke the fiduciary concept sparingly,
The Court provided its view that these positive fiduciary duties
opting instead to uphold the inviolability of business enterprise.”4
on the part of Petro-Canada were necessary so that there would
Indeed, approximately a decade ago, in Luscar v. Pembina, the
not be an encouragement of (what it referred to as) “the practice
Alberta Court of Appeal stressed that fiduciary duties grafted
in the industry of ignoring licences and legal boundaries in pursuit
onto an arm’s length commercial arrangement “would have a
of self-interest.”
THE NE GOTI ATOR / NOVEMBER 20 05
21
Implications to the Industry
Deep Rights drilling had occurred), so it could be argued that
While there is language in the Xerex decision suggesting that the
the Court of Appeal was intending to set ground rules more
decision might be limited to the facts of the case at hand, it seems
generally applicable.
difficult to expect that it will be dismissed by the Courts in future
cases as being limited to its precise facts. For instance:
•The Court of Appeal directly queried whether a party in PetroCanada’s position could simply have waited until the Deep
Rights licence would have expired and then acquire the licence
•The Court found that fiduciary duties were owed to (what it
for itself, without undertaking negotiations and making the
found to be) a highly experienced and sophisticated, arm’s
disclosure. However, given the finding that Petro-Canada was
length, commercial party. The “extreme vulnerability” arose
a fiduciary, and especially the particular nature of the fidu-
from the mere fact that Petro-Canada gained the information
ciary duties found, it now appears that a deep rights owner
about the hydrocarbons in the deeper zone while drilling in
can argue that the shallow rights owner has a positive duty to
the over-hole allowance, as it was unquestionably entitled
disclose that information before the Deep Rights expire.
to do. Therefore, it could certainly be argued that the case
•The Court of Appeal expressly identified that, in imposing
stands for the general proposition that all shallow rights
fiduciary duties in this case, a number of other questions
holders, availing themselves of the over-hole allowance, are
arise, including whether a general duty falls upon a shallow
fiduciaries to holders of the deep rights below.
rights holder to disclose when nothing particularly useful is
•There is no apparent reason in principle why a fiduciary duty
would not be imposed in the converse situations involving a
observed, or if the shallow rights holder does not intend to
make use of the information obtained.
deep rights holder drilling through shallow zones covered by
a licence in favour of another party. According to the Oil and
In conclusion, the recent decision by the Alberta Court of Appeal
Gas Conservation Regulations and the applicable AEUB Guide,
in Xerex and the fiduciary duties imposed in that case should
with some exceptions, the licensee of a well is required to take
be considered, certainly in conjunction with any over-hole drill-
and submit samples of drill cuttings in five metre intervals. In
ing by shallow rights holders, and also in relation to a range of
fulfilling this requirement, a deep rights holder undertaking
other activities that might be found to attract fiduciary duties to
through-drilling would (intentionally or not) acquire geologi-
sophisticated, arm’s length, commercial participants in the oil
cal information about the shallow zones. Applying the Xerex
decision, one might expect that the deep rights holder would
and gas industry. m
be similarly encumbered with fiduciary duties to the shallow
Notes
rights holder, requiring it to act selflessly in the best inter-
1. Xerex Exploration v. Petro-Canada, 2005 ABCA 224.
2. Galaxy Sports Inc (Re), 2005 BCSC 278 para. 115.
ests of the shallow rights holder, including the requirement
3. Ironside v. Smith, 1998 ABCA 366 para. 76.
to disclose the information not only to the AEUB, but also
4.155569 Canada Ltd. v. 248524 Alberta Ltd., 2000 ABCA 41 para. 91.
directly to the shallow rights holder.
5.Luscar Ltd. and Norcen Energy Resources Ltd. v. Pembina Resources Ltd. (1994),
162 A.R. 35 (C.A.) at para. 92.
•The Court of Appeal found that the scope of the fiduciary
duties owed by Petro‑Canada would have required Petro-
THE NEGOTIATOR / NOVEMBE R 2005
Canada to answer any questions Xerex might have had
22
Bryan C. Duguid is a litigation partner with Blake,
about what might have been seen or discovered when it
Cassels & Graydon LLP in Calgary, acting as counsel
drilled into the Deep Rights. However, Xerex did not ask any
in oil and gas, corporate/commercial and international
such questions (because it did not know at the time that
disputes before the courts and in arbitrations.
2005 10k
Road Race
and Fun
Run
Wednesday September 14, 2005
marked the second year that
members of the CAPL were
invited to attend and participate in the CSPG/CSEG 10km road
race and fun run. This year’s run
enjoyed ideal running conditions with
calm winds and cloudy skies. Over 170
members of the CSPG, CSEG, CAPL and
… and they’re off …
the general public took part in the 17th
annual event. The race is along the Bow
organized event proves to be one of the
Services (1986) Ltd., Scott Land & Lease
River pathway system: west from the Eau
best bargains on Calgary’s road race
Ltd., Standard Land Company Inc. and
Claire YMCA to Lowery Gardens on the
calendar. For $35.00, CAPL participants
Township Land Co. Ltd. Kellie and Ken
east end of Edworthy Park and then back
received a reduced entry fee, souvenir
will no doubt have to return next year
to Eau Claire YMCA.
T-shirt, free pizza and refreshments
to defend their titles.
This race has something for all
levels of runners. The serious runners
have plenty of competition as the
and a chance to win one of the many
category awards and draw prizes.
The winners in the CAPL female
category
men and under 40 minutes for women.
Stephanie Hay and Margaret Ariss.
However, a majority prefer to enjoy the
The winners in the CAPL male category
beautiful autumn scenery at a more
were Ken Young, Dave Bracey and Dave
Dave Bracey
reasonable pace.
Boisjolie. Kellie and Ken’s names will
Chairman
participants
Kellie
D’Hondt,
event that will be held on Wednesday
winning time is under 35 minutes for
Afterwards,
were
Make sure to watch the May/June
2006 Negotiator for details on the 2006
were
be inscribed on the trophies that were
invited to Quincy’s for dinner. This well
kindly donated last year by Petroland
September 13, 2006. We look forward to
seeing you at next year’s race. m
THE NE GOTI ATOR / NOVEMBER 20 05
23
Roster Updates
On the Move
Mark Atkinson
IHS Energy (Canada) Ltd.
Maureen Keough
Independent
to Boreal Energy Corporation
to EnCana Corporation
Glenn Booth, P.Land
Mustang Resources Inc.
Nathan Laviolette
Devon Canada Resources
to Peyto Exploration & Development Corp.
to Real Resources Inc.
Gary Browne
Independent
Christopher Lizotte
C.J. Lizotte Land Ltd.
to Energy 51 Inc.
to Hunt Oil Company of Canada, Inc.
Peter Carwardine
Virtus Energy Ltd.
Gordon MacLeod
Independent
to Baycrest Energy Ltd.
to Auriga Energy Inc.
B.J. Cavers
Independent
Nancy Marano
Marnell Resources Ltd.
to Kelso Energy Inc.
to Valiant Energy Inc.
Patricia Clark
Independent
Nance McCollom
Dynamic Oil & Gas, Inc.
to WPC Inc.
to Independent
Colleen Cochrane, P.Land Paramount Energy Trust
Mark Miller
Penn West Petroleum Ltd.
to Enerplus Group
to Mystique Energy, Inc.
Doug Errico
Shiningbank Energy Ltd.
Morley Mychaluk
Independent
to Celtic Exploration Ltd.
to Sierra Vista Energy Ltd.
Randall Faminow
Energy Explorer Inc.
Denise Nelson
Enerplus Group
to Great Plains Exploration Inc.
to BG Canada Exploration
and Production, Inc.
Glen Richardson
Independent
to Yangarra Resources Inc.
Marj Smith
Samson Canada, Ltd.
to Penn West Petroleum Ltd.
Lori Stern
L. Stern Consulting Ltd.
to West Energy Ltd.
Rob Garrison
Pengrowth Corporation
to BG Canada Exploration and Production, Inc.
Percy Herring
Independent
to Wave Energy Ltd.
David Holmes, P.Land
Canadian Landmasters Resource THE NEGOTIATOR / NOVEMBE R 2005
Services Ltd.to Aztek Energy Ltd.
24
Rob Kendel
MacKenzie Gas Project
to Racing Resources Ltd.
James Thomson, P.Land
Independent
to Dyno Energy Ltd.
Griff Witcher
Independent
to Petrofund Energy Trust
m
New Members
The following members were approved by a Motion
on September 19, 2005:
Applicant
Current Employer
Sponsors
Holt, Anne-Marie Bounty DevelopmentsHarold Hegland
Ltd.
Bob Peers
Kim Schumann
Lewis, William
D.R. Hurl & Associates Ltd.Mike Bellefeuille
Bob Garies, P.Land
Craig Pittman, P.Land
Li, Ada
Talisman Energy Inc.
Cynthia Aksenchuk
John Gemmel
Susan Underwood
Milbak, Kevin
D.R. Hurl & Associates Ltd.Mike Bellefeuille
Allan Gagne
Murray, Tyler
Devon Canada CorporationDennis Eisner, P.Land
Lawrence Fisher
Niles, Audrey
Thompson-Niles Mike Bellefeuille
Consulting Inc.
Bob Garies, P.Land
Chris Koichopolos
Brad Goodfellow
Shawn Irwin
Orman, Rick
Exceed Energy Inc.
Rick Cheetham, P.Land
Dennis Harder
Pitchford, Rob
Petroland Services Mike Flanagan, P.Land
(1986) Ltd.Shawn Irwin
Len Moriarity
Rand, Nielsen
Diamond Tree Resources Ltd.Larry Buzan, P.Land
Cliff Smiley, P.Land
Cam Weston, P.Land
Treble, Nolan
D.R. Hurl & Associates Ltd.
Chris Adkins
Mike Bellefeuille
Wiest, Trent
D.R. Hurl & Associates Ltd.Mike Bellefeuille
Allan Gagne
Bob Garies, P.Land
Wylegly, Barb
EnCana Corporation
John Covey
James Carriere
Craig Pittman, P.Land
Jim Mak
Phil Plotkins, P.Land
m
25
THE NE GOTI ATOR / NOVEMBER 20 05
Annual CAPL Christmas Party
Wednesday, December 7, 2005
Featuring a Silent Auction to benefit the Canadian
Petroleum Landmen’s Scholarship Trust Fund.
The CAPL Meetings Committee is actively seeking prize donations for this event from CAPL
members and member companies. For further
information or to donate a Silent Auction item
please contact:
Lance Petersen
LanceP@ketchtrust.com
781-8608
Jim Moore
jmoore@gladiusenergy.com
265-5404
Kevin Burke-Gaffney
kburkegaffney@escavarenergy.com
410-4078
Petroleum ad
1/14/05
11:11 AM
Page 1
PROFESSIONAL LAND SURVEYORS
THE NEGOTIATOR / NOVEMBE R 2005
We Know
the Territory
403 244 7471 • 1 800 387 3032
mail@midwestsurveys.com www.midwestsurveys.com
CALGARY
BROOKS
EDMONTON
26
ESTEVAN
GRANDE PRAIRIE
LLOYDMINSTER
MAPLE CREEK
MEDICINE HAT
PEACE RIVER
CAPL Contributes
To Hurricane
Katrina Relief
Fund
The devastation of life and land in Louisiana,
Alabama and Mississippi brought about by
Hurricane Katrina has left us all shocked and saddened.
At the CAPL Conference meeting of the Board of Directors, it
was agreed that a contribution towards the relief effort would be
representative of all CAPL members wanting to help those detrimentally affected by the storm.
In response to the incredible impact of Katrina on the
lives, property and financial situation of many landmen, the
American Association of Professional Landmen (AAPL) established
a Hurricane Relief Task Force to provide direct and immediate
financial aid to displaced AAPL members.
The Task Force was formed with a donation of $100,000 from
the AAPL, who in turn invited local associations to collectively
match their contribution. They have also invited individuals and
President, David Frye, at the General Meeting held at the CAPL
companies to contribute to the effort, with a goal of $400,000.
Conference in September, 2005.
The primary objective of the fund is to assist our fellow landmen,
Individual members desiring to make personal or corporate
however any surplus funds from donations attributed to the fund
donations to the Task Force may do so, either through the CAPL
will go to the Red Cross, Salvation Army and Habitat for Humanity
office (237-6635), or directly to the fund: AAPL Hurricane Katrina
in equal shares, specifically designated for Katrina relief.
Relief Fund, 4100 Fossil Creek Blvd., Forth Worth, TX 76137.
Due in part to our industry’s financial strength, and in part
to our overwhelming empathy and willingness to help as many
unfortunate victims as possible, the CAPL has stepped up to the
plate with an Association donation of $7,500.00. The gift was
Task Force Chairman, Houston Kaufmann, may be contacted at
houston@landman.org or 817-231-4559. m
Suzanne Stahl
presented by CAPL President, Guy Anderson, directly to AAPL
THE NE GOTI ATOR / NOVEMBER 20 05
27
CAPL Calendar November Meeting
of Events
Wednesday, November 23, 2005
Networking Evening
November
15 Reception:5:00 p.m. – 9:00 p.m.
Tuesday Principles
of Contract Drafting
Location: Artists of the World, 514 – 11 Avenue S.W.
and Interpretation
Check out their website: www.artistsoftheworld.com
Alberta Land Sale
Cost:
No Charge for Members, Guests $48.15 includes GST
16 Wednesday 18 Friday 22 Tuesday Fiduciary Duties (A.M.)
22 Tuesday Ethics (P.M.)
23 Wednesday 25 Friday 29 Tuesday 30 Wednesday The Law of Pooling
email. Only guests are required to purchase a ticket. Please fax or email
General Meeting
request and guest tickets will be sent to your office with an invoice. Please
The Law of Pooling
Geophysics
Alberta Land Sale
m
December
6 Tuesday Saskatchewan Land Sale
7
Wednesday Northern Issues
7
Wednesday
General Meeting & Christmas Dinner
14 Wednesday Alberta Land Sale
14
Wednesday
BC Land Sale
25 Sunday Christmas Day
26
Monday Boxing Day
All members are required to confirm their attendance by return fax or
confirm your attendance by faxing your response to the CAPL office at
263-1620 before noon on Friday, November 18, 2005. m
December Meeting
Wednesday, December 7, 2005
CAPL Christmas Dinner & Silent Auction
m
Cocktails: 5:00 p.m.
Dinner:
6:30 p.m.
Location: The Westin Calgary
320 – 4 Avenue S.W.
Cost:
No Charge for Members, Guests $64.20 includes GST
All members are required to confirm their attendance by return fax or
email. Only guests are required to purchase a ticket. Guest tickets will
be sent to the member with an invoice. Please fax or email request
and guest tickets will be sent to your office with an invoice. Please
confirm your attendance by faxing your response to the CAPL office at
263-1620 before noon on Thursday, December 1, 2005. m
THE NEGOTIATOR / NOVEMBE R 2005
The Freehold Leasing Experts
In a competitive play, the difference between leasing the land or losing it
can be the broker you choose! Find out why more and more successful oil
companies use Scott Land & Lease. For more information call 261-1000 or
visit us at www.scottland.ca.
Gregg Scott, President
900, 202-6th Avenue SW
Calgary, Alberta T2P 2R9
Telephone: 403-261-1000
Fax: 403-263-5263
Call us to discuss your next important play!
Edmonton
Telephone: (780) 428-2212
Terry Wark
28
L l oy d m i n s t e r
Telephone: (780) 875-7201
H o wa rd Pa r k y n
G ra n d e P ra i r i e
Telephone: (780) 513-8540
Barb Raskauskas
Regina
Telephone: (306) 359-9000
M i ke Te m p l e t o n
Fort St. John
Telephone: (250) 787-2722
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