Lonely Oak

Lonely Oak

Thursday, December 5, 2013

Oil and Gas Lease: Operate at a loss or nominal return or lose your lease?

This case involves five freehold petroleum and natural gas (PNG) leases that cover most of a section of land in Alberta.  The Plaintiffs are some of the current owners of the land plus a top-lessee, whose lease will only become effective if it is determined that the five existing leases have terminated.  The main issue in the case was whether those leases terminated as a result of the stoppage of operation and production from a well on the land between 1995 and 2001.  More specifically, the Court asked whether the Defendants (or their predecessors) were required to operate the well at a loss or nominal return during those years in order to preserve and continue the leases.

The Alberta Court of Queen's Bench heard evidence from a number of factual and expert witnesses about the decision made to shut-in the well in question for economic reasons.  In the end, the Court ruled that the well was shut-in for reasons permitted under the leases, and the leases did not terminate as a result of the cessation in operations and production.  The Plaintiffs' action was dismissed as a result.

Read the decision at: Stewart Estate v TAQA North Ltd.