Canada: Lien Periods For Work Done On Oil Sands Projects In Alberta

In Davidson Well Drilling Ltd. (Receiver of) v Bank of Montreal, 2016 ABQB 416 (the "Davidson Well Case"), the Alberta Court of Queen's Bench indicated that general improvements on oil sands mining projects that involve the drilling of exploratory oil or gas wells qualified for the extended 90-day lien registration period under the Alberta Builders' Lien Act, R.S.A 2000 c B-7 (the "BLA"), and acknowledged that, as a consequence, the 45-day lien period may apply to work done on a different part of the project site.

The Davidson Well Case provides a long-awaited judicial precedent from the Alberta Courts interpreting "oil or gas well" or "oil or gas well site" and whether or not it excludes certain work on oil sands sites. Since 2001, when the BLA was amended to include an extended registration period for liens on an "oil or gas well" or an "oil or gas well site", it has been unclear whether oil sands projects qualify for the extended period. The BLA does not contain statutory definitions for these terms and the Alberta Courts have provided minimal judicial interpretation or guidance regarding the terms.

This has been concerning for oil sands project owners, contractors, and subcontractors, especially since oil sands production has increased dramatically since 2001, and now exceeds conventional oil extraction by approximately 4 times as many barrels of oil per day. In 2014, oil sands production rate was 2.3 million barrels/day and conventional extraction production was 591,260 barrels/day ("Alberta Conventional Oil Statistics", http://www.energy.alberta.ca/Oil/763.asp, [August 9, 2016]).

Legislation

Section 41 of the BLA sets out two time periods in which a lien must be registered – 45 days and 90 days. Generally, a lien in respect of work or materials supplied to an improvement on land must be registered within 45 days from the date the last materials, services or wages were provided or the contract was abandoned. However, a lien may be registered within 90 days if the improvement is on an "oil or gas well" or an "oil or gas well site".

Pursuant to section 42 of the BLA, if a lien is not registered against the title to the lands within the time periods set out in section 41, the lien ceases to exist.

Davidson Well Drilling Ltd. (Receiver of) v Bank of Montreal

In the Davidson Well Case, the Court presumed that non-well-related improvements on an oil sands mining site did not qualify for the extended 90-day registration period.

The Court considered lien claims related to the Receiver's exploratory well-drilling work done on Syncrude's open-pit mine sites. The wells were for resource coring to explore the location of bitumen, and penetrated a stratum capable of containing a pool or oil sands deposit.

The Court found that the drilling work done on the exploratory wells in question constituted preparatory services for improvements to an "oil or gas well" or an "oil or gas well sites" because oil or gas could have been discovered. The Court was careful to distinguish between bitumen-related wells and "oil or gas wells", explaining that the potential for oil or gas discovery brought the wells within the ordinary and grammatical meaning of "oil or gas wells".

In its decision, the Court did not directly interpret the terms "oil well" or "oil well site" and did not explicitly state that the Syncrude sites were not "oil or gas well sites". However, the Court found that the work performed "involved the drilling of exploratory oil or gas wells" which had the "potential that oil or gas could be discovered". As such, the Court held that the 90-day period applied to services and materials provided for the exploratory wells. The Court stated that construction on Syncrude's sites that was unrelated to the drilling of wells would be subject to the 45-day lien period, which indicates that oil sands mining sites may not otherwise be considered "oil or gas wells" or "oil or gas well sites".

Acknowledging that distinguishing well-related work from other work on the oil sands mining sites may result in different lien periods applying to different aspects of work on a single site, the Court explained that this is "a natural consequence of the legislation".

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.

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