Omers Energy Inc. v. Alberta (Energy Resources Conservation Board)

_______________________________________________________Reasons for Judgment Reserved ofThe Honourable Madam Justice Conrad_______________________________________________________I. Introduction[1] The appellant, Omers Energy Inc. (Omers), appeals a decision of the Energy ResourcesConservation Board (the Board) suspending two gas well licences because the underlying lease hadexpired. Omers had sought to rely on the Suspended Wells Clause in the lease to extend its term.That clause continues a lease as though operations were being conducted, provided the well was“capable of producing the leased substances”. The Board found, however, that the words “capableof producing the leased substances” meant being capable of producing the leased substances in“meaningful quantities” in its present state and configuration, a test that Omers did not meet.II. Issue[2] Leave to appeal was granted on the sole issue of whether the Board erred in its interpretationof the phrase “capable of producing the leased substances”.III. Decision[3] The appeal is dismissed. The Board did not err in finding that the phrase “capable ofproducing the leased substances” means the “demonstrated, present ability of a well on the lands toproduce the leased substances in a meaningful quantity within the time frames contemplated in thelease.” (Board Decision 2009-037 at 9, hereafter Board Decision) The lease is a contract throughwhich the lessor and lessee agreed to develop the leased substances for mutual benefit. This purposewould be defeated if the lease were interpreted in a manner that allowed it to continue almostindefinitely at a time when a drilled well is incapable of producing a meaningful quantity of oil orgas in its present state and operations are not being conducted to make it produce. Requiring a“meaningful” volumetric quantity was sufficient to determine this case. Considering each lease andits surrounding circumstances will allow this test to develop in a contextual setting.IV. Background[4] On February 8, 2001, Dennis John Cymbaluk and Heritage Freehold Specialists & Co.entered into a freehold Petroleum and Natural Gas Lease (Cymbaluk Lease). They used the CAPL91 Alberta Form lease – a form commonly used in the industry and one which has been andcontinues to be amended. The Cymbaluk Lease granted the lessee 100 per cent of the freeholdmineral owner’s interest in the northwest quarter of Section 4-54-14 W4M for a primary term of fiveyears, and thereafter as provided, in exchange for a royalty. A caveat was registered at the AlbertaLand Titles to protect this interest. After a succession of transfers, Omers eventually became thelessee.