Canada: The Inconvenient Joint Operating Agreement

Last Updated: March 16 2017
Article by Fraser Wayne (Student)


Disputes can become very complicated when two energy companies enter into a joint operating agreement and then proceed to operate in accordance with a completely different set of rules. The recent case of Eon Energy Ltd v Ferrybank Resources Ltd,1 illustrates this point. The case represents a cautionary tale for those tempted to treat an operating agreement as a mere formality. The facts of this case are convoluted, but the key lesson learned is simple: in the event of a dispute, signed agreements will form the primary basis for determining the rights and duties of the parties even if their conduct largely deviates from the agreements.


Ferrybank Resources Ltd. (Ferrybank) and Eon Energy Ltd. (Eon) (collectively, the Parties) entered into a Joint Operating Agreement (JOA) confirming their respective working interests in the petroleum substances of a number of wells (90% for Eon, 10% for Ferrybank). Despite being the minority owner, Ferrybank was designated Operator of the wells under the JOA and as such was the registered licensee of the wells for the purpose of the LLR Program.

The JOA, however, appointed Eon as Ferrybank's "agent" with full discretion to manage the wells, thus making Eon the de facto operator and Ferrybank the registered Operator.

The unusual arrangement was designed to accommodate the Parties' precarious positions. At the time the Parties entered into the JOA, the predecessor of the Alberta Energy Regulator was implementing changes to the Licensee Liability Rating Program (LLR Program) requiring licensees

to pay a deposit to the Regulator if the combined LLR of a licensee's wells falls below a certain threshold. Ferrybank separately owned some poor quality wells and wanted to improve its LLR under the LLR Program to avoid having to pay a deposit to the Regulator. At the same time, the principal of Eon was planning to move to British Columbia and the Parties believed that this would disqualify Eon from being the registered Operator of the wells pursuant to the Oil and Gas Conservation Act.2 Thus, the arrangement enabled Ferrybank to maintain its LLR by combining these wells with its poor quality wells while also allowing Eon to exercise control over the jointly acquired wells despite being ineligible to do so.

Right from the start the conduct of the Parties did not track the JOA. Ferrybank, despite having a 10% working interest in the JOA, neither received any oil revenues nor contributed to the costs of production, which were borne fully by Eon.

The first disputes arose when the Parties engaged in negotiations to sell some of the wells. Ferrybank claimed it was entitled to 10% of the gross sales proceeds. Eon disputed that Ferrybank was entitled to any sale proceeds because Ferrybank's 10% working interest under the JOA was merely a necessary formality under their scheme.

The Decision

The Court addressed a plethora of issues in the full decision. Salient among them was determining the ownership interests of each party, including which Party was entitled to operate and manage the wells.

Eon did not deny that Ferrybank initially acquired a 10% working interest under the JOA. Rather, Eon asserted that the Parties amended the JOA by subsequent oral agreement whereby Ferrybank relinquished its working interest in exchange for not having to contribute its share of production costs. Again, this assertion was supported by the Parties' conduct.

Relying on the "Entire Agreement Clause" in the JOA, which stated that the JOA represented the entire agreement and any subsequent changes must be made in writing, the Court rejected Eon's claim and held that the Parties were each entitled to their respective working interest as provided under the JOA. Simply put, the Court opted to rely on the clear wording of the JOA rather than Parties' subsequent conduct even though the subsequent conduct clearly supported Eon's position. This ruling would have entitled Ferrybank to receive net oil revenues from Eon for several years of past production. The Court determined that this would not be a fair outcome given that Ferrybank had not paid its share of costs along the way, and drawing on the principle of "estoppels by convention", the Court determined that Ferrybank could not benefit by receiving oil revenues retroactively (i.e. before the statement of claim was filed).

Both Parties sought to remove the other Party from their designated roles under the JOA so that they could manage the wells in accordance with their respective interests. Ferrybank asked the Court to remove Eon as "agent" on the basis that Eon, as an agent, had breached its duty to act in good faith. The Court held that Eon was not a "true agent" under common law and, even if it were, it did not breach any duty to Ferrybank. Eon sought to remove Ferrybank as registered Operator by asserting several fiduciary and contractual breaches by Ferrybank. The Court painstakingly addressed these arguments before ultimately deciding once again to rely on the wording of the JOA, which resulted in both Parties retaining their respective roles of registered and de facto Operators.

Concluding Thoughts

The lengthy decision is challenging to follow at times, perhaps primarily because the Court was tasked with making sense of nonsensical circumstances. In doing so, the Court opted to rely primarily on the wording of the JOA, resorting to common law principles such as estoppels only where it became necessary for equitable reasons.

It is fair to wonder in this case whether the protracted legal proceedings were worth pursuing. Either way, the case serves as a reminder that the relationship between the parties is important and if the parties cannot get along, then what could have been a very lucrative endeavor, could prove quite costly.


1 2016 ABQB 585.

2 RSA 2000, c O-6, s 91(2).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.