Update: Stewart Estate v TAQA North Ltd, The Finale
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 this decision. 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 (docket number 36810), for leave to appeal the decision in Stewart Estate v TAQA North Ltd, 2015 ABCA 357, 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. On June 30, 2016, the Supreme Court of Canada denied leave to appeal with costs. No reasons were given.
The decision of the Alberta Court of Appeal in Stewart Estate v TAQA North Ltd, 2015 ABCA 357 remains the current law with the following industry implications from a legal and practical perspective (reproduced from our initial commentary):
The wording in historic oil and gas leases, especially where original lessees and lessors are unavailable, will be interpreted, "as they might have been objectively understood by an informed person reading them when they were executed, not how they would be read today." And the Court of Appeal may very well be the effective decision-maker as it appears it will apply a correctness standard to its review. In interpreting the applicability of the shut-in provision in a lease, the Courts may first focus on the actual subjective analysis by the lessee to determine the reasons for the shut-in at the time, and will not focus on, or will give much less weight to, expert evidence analyzing the economic performance of the well after the fact. Lessees should be very careful in documenting the reasons for shut-in should they later wish to take the position that the shut-in was due to market circumstances or other circumstances out of the lessee's control. Lessees should operate under the assumption that under standard oil and gas leases, once a lessee concludes that a well is not...
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