This case speaks to the responsibilities and liabilities of operators in pooling arrangements.
A series of companies referred to as "Mutiny" (Mutiny) beneficially owned a mine and minerals lease interest in the north half of a section in Alberta. Trident Exploration Corp. (Trident), Bearspaw Petroleum Ltd. (Bearspaw) and F.M. Kaplan Technical Services Ltd. (Kaplan) were lessees of the south half. The four executed a pooling agreement, appointing Trident as the operator. Pursuant to the agreement, Trident was required to do all things necessary to maintain title documents in good standing and in full force and effect. Trident's liability to its partners was limited to gross negligence.
After the pooling agreement was entered, Alberta Energy issued a Gas Offset Notice to each of the owners stating that their respective leases were subject to an offset obligation as a result of gas production on land adjacent to the pooled lands. The notice described potential courses of action available to the parties, including notifying Alberta Energy that there was a well on production from the offset zone or electing to pay offset compensation. If a lessee failed to respond within six months, the lease would essentially be lost.
Trident wrote to Mutiny, Bearspaw and Kaplan a month before the expiry of the six month period advising that the well would not be in production for another two to six months and recommending that the offset compensation be paid. Trident advised that it would make the payment, and invoice the partners at their pooled interest share. Mutiny received the letter, but did not respond to it. A witness for Mutiny testified that she had been advised of Trident's recommended course of action during a phone call with Trident the week before and had agreed. She did not think further agreement was necessary.
Bearspaw responded to Trident's letter and advised that it did not want Trident to respond on its behalf and that each partner should look after its own lease. Accordingly, Trident did not respond to the offset notice on behalf of the other partners. However, Trident failed to advise Mutiny of the change in plans and Mutiny's lease was terminated. The land was reposted for sale and Mutiny bid on the land, but was outbid by Bearspaw.
In the circumstances, the Court of the Queen's Bench of Alberta found that Trident's failure to advise Mutiny that Mutiny was responsible for responding to the offset notice amounted to gross negligence.
Trident had written a letter that could reasonably be interpreted as meaning that it would respond to the offset notice on behalf of all partners. Trident could have easily advised Mutiny of the change in plans after receiving word from Bearspaw and failed to do so. In the result, Trident was held 100% liable for Mutiny's losses.
To view original article, please click here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
