UPDATE: Stewart Estate v Taqa North Ltd

In November 2015, the Alberta Court of Appeal issued its decision in Stewart Estate v TAQA North Ltd, 2015 ABCA 357, which addressed a number of issues significant to the oil and gas industry. We previously commented on the Alberta Court of Appeal decision in STEWART ESTATE v TAQA NORTH LTD: Three Alberta Court of Appeal Justices Weigh in on Critical Oil and Gas Lease Issues. Since our previous commentary there have been further decisions and developments respecting this action.

Application for Leave to Appeal to the Supreme Court of Canada

In January 2016, ExxonMobil Canada Ltd. ("Exxon"), Nexen Inc. ("Nexen"), Bonavista Energy Corporation ("Bonavista"), Coastal Resources Limited ("Coastal") and Pengrowth Energy Corporation, as successor to Esprit Exploration Ltd. ("Esprit/Pengrowth"), filed applications with the Supreme Court of Canada for leave to appeal, citing the need for clarification of:

the proper measure of damages in mineral trespass cases; the standard of review applicable to interpretation of oil and natural gas leases and clarification of Sattva Capital Corp. v Creston Moly Corp. 2014 SCC 53; and whether a gross overriding royalty (GORR) holder has a duty to account for GORR payments to the lessor under the lease from which the GORR is carved. The Supreme Court of Canada decision on the leave application is expected shortly.

Court of Appeal Judgment Roll Decision

Clarification of GORR Holder Liability

On May 6, 2016, the Alberta Court of Appeal issued its decision in Stewart Estate v TAQA North Ltd, 2016 ABCA 143, respecting the form of the Judgment Roll. The draft Judgment Roll totaled $22,192,303.77 in damages, excluding interest and the decision addressed the following specific issues.

As discussed in our initial commentary of Stewart Estate v TAQA North Ltd, 2015 ABCA 357, the majority of the Court of Appeal (O'Ferrall J.A. and McDonald J.A.) concluded that a GORR carved out of the lessee's working interest and entitling the holder to receive a portion of the lessee's production revenue, is limited in duration to the life of the lease from which it is carved. The GORR expires once the lease expires. A GORR holder is not a working interest owner and is not jointly and severally liable for the value of natural gas wrongfully converted under an expired lease, but the GORR holder may have to account to the lessor for royalty payments received once the lease terminates.(para 465-467) In this case, the GORR holder (Esprit/Pengrowth) received benefits of production after the leases terminated. The majority of the Court of Appeal held that this benefit was something that had to be accounted for back to the lessor, either by the lessee (Bonavista) or the GORR holder (Esprit/Pengrowth).

In its more recent decision, the Court of Appeal clarified that the lessee (Bonavista) and the GORR holder (Esprit/Pengrowth) were jointly and severally liable to the lessors for the value of the royalty volumes in the aggregate amount of $1,357,703. The Court offered no further clarification on the cause of action giving rise to the GORR holders' liability but explained the liability to account to the lessor for the GORR payments as follows:

[12] Bonavista, as lessee, is liable for the tortious conversion of the lessors' natural gas and Esprit/Pengrowth, as the...