Alberta Court of Appeal Confirms the Difficulty of Obtaining Summary Judgment in Terminating an Oil and Gas Lease


The Court of Appeal of Alberta recently released its decision in the case of P. Burns Resources Limited v Locke, Stock & Barrel Company Ltd., (2014 ABCA 40). The decision dealt with an oilfield lease held by Locke, Stock & Barrel Company Ltd. (“LSB”) that the lessor, P. Burns Resources Limited (“PBR”), was successful in terminating by summary judgment in the Court of Queen’s Bench.

The decision centred on the habendum clause for a secondary term of the lease, where time would not run against the lessor if there was no production from a well. The lease provided that time would not run if:

1. LSB was conducting “working operations without interruptions of more than 90 consecutive days”;
2. “drilling or working operations were interrupted or suspended as the result of any cause whatsoever beyond [LSB]’s reasonable control”; or
3. any portion of the lands were “shut-in, suspended or otherwise not produced for any cause whatsoever which is in accordance with good oil field practice[.]”

LSB provided affidavit evidence before the chambers judge that the pumper was on-site every day during the two 90-day periods in question. The pumper testified that he turned the pump on and off, used hot oil to clear wax accumulations in the pump, circulated diesel oil, etc., all in an effort to get some production from the well. The pumper’s evidence was consistent with the expert evidence that LSB produced in a further affidavit, stating that the actions were consistent with industry practice in getting production from a low-producing well.

The Court of Appeal concluded that the chambers judge had ignored the evidence of the pumper and of the expert, and had made findings of fact as to whether or not LSB’s actions constituted good oilfield practice. The Court held that these findings of fact were beyond the scope of a summary judgment, which should have been directed at assessing whether the evidence raised a triable issue. The Court of Appeal therefore overturned the summary judgment declaring the lease terminated.

This decision confirms the difficulty of obtaining summary judgment in a complex oil and gas dispute.

If given a full trial at the Queen’s Bench level, this case could be an important decision for oil and gas companies , as it could set a legal precedent in terms of what constitutes “good oilfield practice” for future cases and contracts.
 

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