In a recent decision, the Alberta Court of Queen's Bench
recognized midstream operators' need for prompt payment from
gas producers, when it gave effect to 30-day payment clauses
in gas processing and contract operating service agreements. In
doing so, the Court affirmed of the common "pay first, audit
later" arrangement and recognized the importance of this kind
of arrangement in assuring a reliable cash flow for midstream
operators. This decision, SemCAMS ULC v Blaze Energy Ltd. 2015 ABQB
218 ("SemCAMS") will be important for many industry
players seeking to enforce payment terms in their agreements.
In SemCAMS, SemCAMS ULC asked for summary judgement against
Blaze Energy Ltd ("Blaze") for amounts owing on six
agreements including agreements for the processing and
transportation of gas (the "Agreements"). SemCAMS ULC
provided services to Blaze under the Agreements and issued monthly
invoices to Blaze. Blaze did not pay as required, and SemCAMS ULC
As is common in the industry, the Agreements required Blaze to
pay bills within 30 days of receiving them. Some provided Blaze had
no right to withhold amounts in dispute and others allowed SemCAMS
ULC to sue on its invoices and be paid immediately. Blaze had audit
rights under the Agreements, but, as the Court ultimately held, its
audit rights did not change its obligation to pay within 30 days.
The Agreements amounted to a "pay first, audit later"
arrangement, where the party receiving services is required to pay
immediately, with an adjustment later if an audit turns up an
Ultimately, Justice Strekaf ordered Blaze to pay SemCAMS ULC the
amounts invoiced, even though Blaze disputed the amounts owing and
had initiated audits under the agreements. Justice Strekaf noted
that, in other cases, the party seeking payment would not be able
to get summary judgment where the amounts actually owing under the
agreement were in dispute. However, because SemCAMS ULC and Blaze
had agreed to allocate the risk that Blaze might pay amounts it
didn't owe, which would have to be refunded later, the Court
respected their allocation. Although Blaze argued that this would
be a commercially unreasonable result, Justice Strekaf disagreed,
noting that, as an operator of a facility serving multiple
customers, SemCAMS ULC needed "to be able to rely on a
reliable cash flow."
We note that similar "pay first, audit later"
arrangements are present in other industry agreements, including
the 1996 PASC Accounting Procedure (clauses 102, 104, 106, and 107)
which is incorporated by reference into the 1990 and 2007 CAPL
Operating Procedures. As such, although the specific words of each
contract will govern, the SemCAMS case may have implications
for many industry players. For producers contracting with midstream
operators (or, joint interest owners in a joint operating
agreement), SemCAMS suggests that an audit, or potentially another
verification method, is not enough to suspend the obligation to pay
invoices within the time specified by the agreement. For midstream
producers (and operators under joint operating agreements), SemCAMS
will likely make it easier to obtain judgment on delinquent
invoices, regardless of any dispute over the actual amount
In this time of depressed commodity prices, where ready access
to cash will be important to many players' industry
participants SemCAMS helps provide some certainty over payments
made under a standard industry arrangements. This means that
parties to contracts may have to pay invoices even where there is a
legitimate dispute, and will have to rely on audit and refund
provisions as their remedy.
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The Government of Alberta recently announced a number of policy changes that will impact the Alberta Electricity Market, composed of its generators, transmitters, distributors, retailers, electricity consumers and wholesale electricity market.
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