Originally published in Blakes Bulletin on
Energy–Oil & Gas: March 2008
In the recent application brought before the Alberta Court
of Queen's Bench in Nexen Inc. v. Fort Energy
Corp., that Court was asked to rule on matters pertaining
to the scope of operatorship rights accorded to a non-operator
of a joint venture who had commenced independent operations
pursuant to the 1990 CAPL Operating Procedure (the Operating
The facts were that Nexen Inc. (Nexen) commenced independent
operations on certain lands (13-2) pursuant to a farmout
arrangement with Fort Energy Corp. and 981405 Alberta Ltd.
(collectively, Fort), as well as Canadian Natural Resources
Limited (CNRL). Although the independent operations commenced
by Nexen pertained to drilling on lands covered by the farmout
arrangement among Nexen, Fort and CNRL, the well to be drilled
was a trilateral horizontal well, the surface location for such
well being located on a parcel of land (4-1) which was covered
by a separate joint venture agreement between Nexen and Fort
Accordingly, there were two agreements which were relevant
to the situation at hand – one among Nexen, Fort and
CNRL covering 13-2, and the other between just Nexen and Fort
covering 4-1. Nexen only served an independent operations
notice under the farmout agreement relating to 13-2.
One of the questions brought before the Court by Nexen was
the issue of whether Fort, as operator, was required to
transfer surface and other access rights to Nexen as
independent operator for the drilling of the well at 13-2
In answering this question, the Court looked at the
interplay between Article 1004 and Article 308 of the Operating
Procedure. Article 1004 provided that: "Notwithstanding
anything to the contrary contained in this Operating Procedure,
the proposing party shall be the Operator with respect to any
operation proposed as an independent operation, unless the
parties otherwise agree or the proposing party would be
disqualified from serving as Operator pursuant to Subclause
Article 308 required the operator to acquire and maintain
for the joint account (i.e., for the benefit, interest,
ownership, risk, cost, expense and obligation of the parties in
proportion to their respective working interests), all
necessary surface rights.
Upon examining these two provisions, the Court was clear
that, upon serving an independent operations notice, the
Operating Procedure entitles the succeeding operator to a
corresponding transfer of the surface rights. Under Article
308, the surface rights are acquired for the joint account and
do not belong solely to the prior operator of the lands. When a
new operator takes over operations as a result of an
independent operations notice, that independent operator is
entitled to the surface rights for the joint account.
The problem for Nexen in the dispute before the Court was
that the relevant surface rights were for 4-1, which were not
the subject of the independent operations notice served by
Nexen under the farmout agreement. Accordingly, Nexen had not
become operator with respect to 4-1 under Article X of the
The Court held that Article 308, which again states that
surface rights are acquired and maintained by the operator for
the joint account, was not sufficiently broad to cover surface
rights for another piece of land governed by another agreement.
Article 308 of the farmout agreement under which Nexen served
the independent operations notice would have required the
surface rights for 13-2 to be transferred to Nexen, not the
surface rights for 4-1.
If the dispute between Nexen and Fort had involved the
surface rights to 13-2 (i.e., the lands for which Nexen had
served an independent operations notice), the Court would have
required Fort to transfer the surface rights for 13-2 to Nexen.
An operator under Article X (Independent Operations) of the
Operating Procedure is entitled to the benefit of the surface
rights acquired and maintained for the joint account.
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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