In a recent decision of the Alberta Court of Queen's Bench,
Kasten Energy Inc. v. Shamrock Oil & Gas
Ltd.1, an oil and gas lease was characterized as a
form of personal property subject to the Alberta PPSA.2
The case appears to broaden the scope of assets that are
characterized as personal property, and therefore may be secured by
a typical general security agreement
The Alberta Court of Queen's Bench (the
"Court") considered an application by
Kasten Energy Inc. ("Kasten") to appoint
a receiver and manager pursuant to the Judicature
Act3 over all of the assets of Shamrock Oil &
Gas Ltd. ("Shamrock"). Shamrock held a
Crown petroleum and natural gas lease (the
"Lease") for the development of an oil
well in Alberta. Shamrock executed a GSA in favour of Kasten's
predecessor which granted a security interest in all of
Shamrock's present and after acquired personal property. The
GSA was subsequently assigned to Kasten.
In considering Kasten's application for the appointment of a
receiver and manager, the Court summarized the applicable test for
the appointment of a receiver, namely, whether the appointment is
"just or convenient"4. The Court concluded
that the appointment of a receiver was just, convenient and
appropriate in the circumstances.
What is remarkable about this case is the Court's
consideration of the question of whether the Lease was covered by
Kasten's GSA. Shamrock contended that the Lease is a profit
à prendre (ie. the right to enter someone else's
land and work and remove a valuable resource), which is an interest
in land excluded from "personal property" pursuant to the
Alberta PPSA. Kasten acknowledged that the GSA is not enforceable
against the oil and gas in the ground, but argued that once the oil
and gas is extracted from the ground by Shamrock, it becomes
intangible personal property subject to the GSA. The Court relied
on the reasoning of the Supreme Court of Canada in
Saulnier5, where the term "property"
was considered in the context of a commercial fishing licence under
the Bankruptcy and Insolvency Act6 and the Nova
Scotia PPSA.7 In that case, the Supreme Court found that
the subject matter of the licence (ie. the right to participate in
a fishery that is exclusive to licence holders) coupled with a
proprietary interest in the fish caught "bears a reasonable
analogy to rights traditionally considered at common law to be
proprietary in nature".8 Therefore, the Court in
KastenEnergy held that an oil and gas lease is
analogical to a commercial fishing licence, since the leaseholder
has a beneficial interest in the earnings generated by its oil and
gas lease during the leasehold term. The Court concluded that,
"within the purposive contemplation of Alberta's
[PPSA]" the Lease is an intangible form of personal property
subject to both the GSA and the PPSA and fell within the power and
authority of a court-appointed Receiver.
Some commentators have suggested that the Court found it
necessary to shoehorn the Lease, Shamrock's principal asset,
into the category of personal property in order to reach the
conclusion that it had the authority to appoint the receiver,
although there is no such requirement under the Judicature
The Court's judgment in Kasten Energy appears to be
contrary to previous authority indicating that a Crown oil and gas
lease is not a form of personal property.9 Prior to this
decision, it was generally understood that an oil and gas lease is
an interest in land, and security interests in an individual oil
and gas lease were perfected by registration either at the Alberta
Land Titles Office (for freehold leases) or at Alberta Energy (for
Crown leases). This case may cause confusion for lenders, as it
suggests a security interest in an oil and gas lease can also be
perfected at the Personal Property Registry
("PPR"). Kasten Energy may also
lead to uncertain priority disputes between parties who have
registered in the PPR and those who have registered at the Land
Titles Office or Alberta Energy. Further, transferees of such
leases may need to obtain "no interest" letters from
creditors with registered GSAs to ensure the lease, as intangible
personal property, is not encumbered.
It remains to be seen whether Kasten Energy will be
followed, distinguished or ignored.
1. 2013 ABQB 63 [Kasten
2. Personal Property Security Act, RSA 2000, c
P-7 [Alberta PPSA].
3. Judicature Act, RSA 2000, c J-2.
4. Judicature Act, s 13(2).
5. Saulnier v. Royal Bank of Canada, 2008 SCC 58
6. RSC 1985, c B-3, as amended.
7. Personal Property Security Act, SNS 1995-96,
8. Saulnier, at para. 34.
9. For example, see R v Industrial Coal and
Minerals,  4 WWR 35, rev'd on other grounds, 
5 WWR 103 (Alta App Div).
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