An Alberta court recently decided a case where it was asked to determine ownership of a contaminated site and other well sites in what the court described as “a legal cast on the old game of hot potato”.
What Happened?
A well site and its associated sump pit located in the Mackenzie Delta had been leaking contaminants for decades. No company stepped forward to remediate the contamination. Instead, two companies pointed the finger at the other as the owner responsible for the clean-up. The action was started in 2014 and, five years later, remediation had still not occurred.
ConocoPhillips Canada Resources Corp. (“Conoco”) sought a declaration that Shell Canada Limited (“Shell”) was the owner of five wells (and their associated sump pits) in the Mackenzie Delta. It alleged the wells were transferred to Shell by Conoco’s predecessor, Gulf Canada Resources Ltd. (“Gulf”), in 1991 as part of a sale of rights over certain Significant Discovery Areas, and therefore Shell was the owner and as such was responsible for remediating any environmental contamination. Conoco withdrew its claim for damages incurred in relation to the wells prior to the issuance of the Statement of Claim and only sought subsequent damages.
In brief, Conoco took the position that Gulf transferred all of its interests, including the wells and drilling fluid sumps to Shell, but in light of the fact that the well termination records had not been filed for all of the wells, it agreed to continue to be liable for six months to allow Shell to view the sites itself and ensure there were no environmental issues. Shell took the position that the wells and drilling fluid sumps were never transferred, and even if they were, there was an ancillary agreement made that Gulf would file the missing well termination reports within a reasonable period of time and thereby provide confirmation of regulatory signoff on the wells and sump pits, and it failed to do so.
Ultimately, the court had to determine ownership of both the contaminated site and other well sites.
Decision
On the issue of determining whether the Purchase and Sale Agreement (“PSA”)and associated agreements transferred the interests of Gulf in the wells and the sumps to Shell, the court reviewed the contracts themselves, taking into account the principles of contractual interpretation. After reviewing the contracts, the court found that the wells and associated sumps were included in the definition of “assets” either implicitly as “petroleum and natural gas rights” or explicitly as “miscellaneous interests”, a determination which was supported by the indemnity provisions of the PSA. Even after considering subsequent conduct, the court stated:
“[T]o find that the wells and sumps were not transferred to Shell would make the terms of the PSA an absurdity. The PSA, read as a whole and looked at in its context, leads to the conclusion that the objective intention of the parties was to transfer the wells and the sumps to Shell.”
Turning to the question of whetherthe remedies sought by Conoco were barred by the Limitations Act, the court stated because Conoco sought a declaration, not a remedial order, its claim was not barred.
As a result, the application for a declaration that Shell owned the wells and sumps in issue was granted.
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When disputes arise in the oil and gas industry they can be complex, involving international parties and various pieces of specialized legislation. If you are involved in such a dispute, it’s important for you to have a legal team in place who knows how these interests and laws work together and can help you navigate this intricate terrain.
At DBH Law, our Calgary-based lawyers are uniquely positioned to advise clients on issues that may arise in oil and gas. We have worked with clients in Alberta, across Canada, and around the world and are intimately familiar with the global nature of this ever-changing industry.
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