Court rules that oil and gas production lease does not grant gas storage rights

This is another decision in the ongoing McKinley Farms and Tribute Resources battle over gas storage rights on 200 acres of land in Huron County.  Tribute, through its predecessor(s), had obtained an oil and gas lease and a gas storage lease for the land in question.  The Court of Appeal has earlier ruled that the 1998 gas storage lease is no longer valid, but the Court upheld the oil and gas lease. 

 

Tribute now argues that it has gas storage rights under the oil and gas lease.  However, in the meantime, McKinley Farms has granted a gas storage lease to a different numbered company and now seeks an order from the Court that this lease is the only lease of the McKinley Farms lands that validly grants storage rights.  Justice Rady of the Superior Court of Justice in London has granted this order.

 

Justice Rady agreed with Tribute that its oil and gas lease contained language that could be interpreted to convey rights to storage; but she also concluded that the storage lease agreement (which was found by the Court of Appeal to be invalid or expired) was intended by the parties to replace those rights. 

Read the decision at: 2195002 Ontario Inc. v. Tribute Resources Inc.

OEB dismisses most of gas storage compensation claim

The Ontario Energy Board (OEB) has recently decided a gas storage case that follows on the heels of a Court of Appeal decision that determined that the OEB has exclusive jurisdiction to decide questions of compensation.  The applicants before the OEB were the claimants in the case dismissed by the Court of Appeal.  The applicants made an application to the OEB under section 19 and section 38(2) of the Ontario Energy Board Act, 1998 for a number of heads of relief.  In particular, the application under section 19 was for an order of the OEB determining that the contracts between the applicants and Union Gas Limited have been terminated.  The application under section 38(2) was for an order determining the quantum of compensation to which the applicants were entitled.

The OEB has now partially dismissed the application on a motion for summary judgment filed by Union Gas Limited.  In doing so, the OEB applied the test under Rule 20 of the Ontario Rules of Civil Procedure.  The OEB was satisfied that there was no genuine issue requiring trial with respect to at least part of the claim made by the applicants.  Union made two arguments on why the application should not be heard by the OEB.  Firstly, Union argued that there was significant delay on the part of the applicants bringing the application.  Secondly, union argued that it had binding compensation agreements with the applicants, which, together with the OEB's 1993 gas storage area designation order, have superseded any prior agreement between Union, its predecessors, and the applicants.

The OEB found that Union's rights to inject gas into, store gas in and remove gas from the Edys Mill Pool, and to enter into and upon the land in the area and use land for such purposes was governed solely by the designation order, and has been since 1993.  The designation order supersedes any previous agreement with respect to Unions rights to inject store and remove gas.  Whether previous contracts between the parties relating to the right to inject, store or remove gas have been formally canceled or not is essentially irrelevant as these rights are now governed by the designation order.

It was also noted by the OEB that the applicants' allegations of unspecified breaches of the designation order were not supported by any evidence or particulars.  Even if there had been breaches of the designation order, it was not clear to the OEB that such breaches would be the proper subject of a hearing under section 38 of the Act.  As there was no basis for any finding in this proceeding that Union had committed any breaches of the designation order, the OEB dismissed claims based on those alleged breaches.

With respect to just and equitable compensation under section 38 of the Act, the OEB determined that it had no jurisdiction over gas storage on the applicants' lands during the period prior to the designation order.  During the period from the designation order in 1993 to 1999, the OEB determined that the applicants had been paid compensation by Union pursuant to Unions gas storage leases.  Therefore, the OEB dismissed the claims for compensation for the period 1993 to 1999.

The period 1999 to 2008 was covered by a compensation order made by the OEB.  The applicants were members of the Lambton County Storage Association (LCSA), which had negotiated an agreement with Union with respect to compensation.  The board ruled that it had dealt with compensation issues in that order in a final manner and that no party affected by it may seek additional or other relief for the period of time it covers.  The fact that the OEB has jurisdiction over compensation does not mean that the OEB can revisit the issue.

The OEB accepted that it could hear an application with respect to compensation owed to some of the applicants for the post-2008 period.  There was no agreement in place between Union and some of the applicants and the OEB could set the level of compensation under section 38 of the Act.

Read the OEB decision at: Knight et al. v. Union Gas.

Dawn Gateway conducts open season for proposed pipeline

Dawn Gateway Pipeline Limited Partnership and Dawn Gateway Pipeline, LLC (collectively “Dawn Gateway”) is conducting a binding open season for firm transportation between MichCon’s Belle River facility and Union Gas’ Dawn Hub (“Dawn”). At least 80,000 Dth/d is available for a minimum term of 7 years.  Dawn Gateway first announced its international pipeline project in September 2008, and sought to have the pipeline regulated by the federal National Energy Board (NEB).  As a result of interventions before the Ontario Energy Board (OEB) by consumer groups and directly affected landowners, it was determined that the Dawn Gateway pipeline will fall within provincial jurisdiction.

The initial open season resulted in the sale of approximately 80% of the available capacity. In March 2010, Dawn Gateway received all required OEB approvals for the Canadian portion of the pipeline. Shortly thereafter, Dawn Gateway was approached by the anchor Shippers requesting a delay of the in-service date, delaying the construction of the pipeline.

Read more about the open season at: Dawn Gateway Open Season.

Utility Corridor Regulation in Canada: Shifting Jurisdictions

Read my article published in the Spring 2010 Newsletter of the Ontario Expropriation Association about the effect of shifting regulatory jurisdictions on easement agreements and landowners at: OEA Spring 2010 Newsletter.

Ont. C.A. confirms Ontario Energy Board exclusive jurisdiction over gas storage

The Ontario Court of Appeal has dismissed an appeal by several Lambton County gas storage landowners of the summary dismissal of their claims against Union Gas Limited (Union) for:

• breach of contract - the appellants claim that Union, in breach of their gas storage leases (GSLs), has failed to properly compensate them for crop loss and other lost income arising from Union’s storage operations (statement of claim, at paras. 26-27);

• unjust enrichment - the appellants claim that Union has been unjustly enriched by storing gas on and in the appellants’ land (statement of claim, at para. 28(b));

• nuisance - the appellants claim that Union’s storage operations, which have decreased the profitability of their land, caused damage to their land and decreased their enjoyment of the land, constitute a nuisance (statement of claim, at para. 36);

• negligence - the appellants claim that due to Union’s storage operations, oil has not been produced from the Edys Mills Storage Pool since 1993 and, as a result, the appellants have not received royalty payments since that time (statement of claim, at para. 37(c)); and

• termination of contract - the appellants seek a declaration that their GSLs were terminated in 2006, along with compensation from Union on the basis that it is storing gas without a contract (statement of claim, at paras. 34-35).

In September 2008, Union moved for summary judgment dismissing the action against it on several grounds, namely: (i) that the Superior Court has no jurisdiction to entertain the claim, as it falls within the exclusive jurisdiction of the Ontario Energy Board (OEB); (ii) that the claims are statute-barred under the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B (the “LTA”); and (iii) that the claims are barred by the doctrines of res judicata or abuse of process.

The Court of Appeal dealt only with the issue of the OEB's jurisdiction, which was the basis on which the Superior Court had initially dismissed the landowners' action.  Under the Act, the Board has broad jurisdiction to regulate the storage of natural gas, to designate an area as a gas storage area, to authorize the injection of gas into that area, and to order the person so authorized to pay just and equitable compensation to the owners of the property overlaying the storage area.  Section 38(3) of the OEB Act provides that no civil proceeding may be commenced in order to determine that compensation.  On these and other bases, the Court of Appeal found that the OEB has exclusive jurisdiction to determine all issues of law and fact arising from the appellants' claim against Union, including the validity of gas storage contracts. 

Read the Court of Appeal decision at: Snopko v. Union Gas Limited.