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OIL AND GAS - Joint ventures - Contracts - Breach and default - Damages

Friday, December 04, 2020 @ 6:05 AM  


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Appeal by Husky Oil and cross-appeal by Canadian Natural Resources Limited (CNRL) from the trial judgment with respect to a 1964 joint operating agreement. The joint operating agreement provided for the extraction of natural gas and other petroleum substances. Under an amendment to the agreement, non-operator’s lands, including those of CNRL, were committed until such times as the lands produced their allocated reserves. CNRL lands produced their reserves by 1997. Husky was the operator under the agreement. By 1998, CNRL had concerns that the distribution under the agreement was inequitable as it was receiving five per cent of natural gas production. In 2008, CNRL received the amended agreement and requested its lands be removed after learning of its right to remove them. It commenced its claim in December 2008. The trial judge found CNRL’s claim was not statute-barred and awarded it damages of $11,220,648 as CNRL should have received 100 per cent of the production from its own lands from 1997, the date it was entitled to remove its lands from the agreement. The trial judge further found Husky was not a fiduciary of CNRL or negligent in fulfillment of its operating duties under the joint operating agreement.

HELD: Appeal and cross-appeal dismissed. With due diligence, CNRL should not have been expected to have uncovered the amendment until it was provided with a copy in 2008. Its claim was within the limitation period. The trial judge did not err in finding Husky failed to conduct redeterminations after 1997 to ensure reserves were properly accessed so that parties received their equitable shares. Husky had no right to continue to allocate production from CNRL’s lands to others after the lands produced their allocated reserves. The trial judge’s damages calculation was entitled to deference.

Canadian Natural Resources Ltd. v. Husky Oil Operations Ltd., [2020] A.J. No. 1158, Alberta Court of Appeal, B.L. Veldhuis, F.L. Schutz and K.P. Feehan JJ.A., October 30, 2020. Digest No. TLD-November302020009