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relative to the document; (iii) an overview of changes relative to the fall . However, the CAPL Operating Procedure and other industry form and/or downloading in the NEXUS Archive section on. CAPLA's website. Clause of the CAPL Operating Procedure took this one step further. That document added a definition of “abandonment” that included an obligation. Save this PDF as: WORD PNG TXT JPG. Size: px. Start display at page: Download "CAPL Professional Education Program (, PSL) Course Credit Procedure CAPL Freehold Mineral Lease CAPL Operating Procedure.

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In this article, the author compares the and CAPL Operating PDF. How to Cite. MacLean, J. A. (1). The CAPL Operating Procedure: An. CAPL Operating Procedure . We mention the Operating Procedure because of its enduring The and Operating Procedures. Business Forms downloaded from this CAPL Website not be used in any publication, and not be This is the sixth version of the CAPL Operating Procedure, with previous based on industry's experiences with the document.

This can save all parties considerable time and effort while still achieving the desired benefits. General Principles: The courts have expressed a general expectation that all participants in a joint operation will keep confidential all activities or results of the joint operation until such time as it is public knowledge. This is irrespective of whether the governing agreements have confidentiality clauses or not. Some joint interest agreements have a paragraph on confidentiality, while the underlying land or exploration agreements typically the CAPL operating procedure have more extensive confidentiality provisions. Past Use of Confidentiality Agreements: Given the principles above, then why do we need confidentiality agreements and standards of behavior for joint interest auditors that includes confidentiality requirements? Joint interest auditors can be exposed to an operator's confidential information that is unrelated to the joint operation being audited.

The court held that the Plaintiff was able to hold the Operator to a good and a workmanlike standard. The duty of the Operator to monitor and report on the tracking of actual compared to anticipated drilling costs was also high-lighted in both the Morrison Petroleums decision and the Saskatchewan Coachlight Resources decision.

The court in Coachlight Resources had stated that it "agree[d] entirely with the interpretation of Clause of CAPL as found in Morrison" - namely "that an operator under CAPL is required to obtain authorization from the Joint operators prior to incurring expenditures in excess of the AFE and is also required to issue an AFE for the excess expenditures. Further, the court said that it is "the Operator's responsibility to advise its Joint Operators when to expect that they would be incurring overexpenditures.

The timing and burden of this requirement may come as a surprise to many operators and lend further credence to the petroleum's engineer's worry that accounting has come to dominate the energy business. The legal requirement upon the Operator to be proactive by considering and communicating with their participants promptly about "expected" cost overruns is in stark contrast with the common practice of issuing supplementary AFEs only once final figures are received, until then relying on participants to draw appropriate conclusions from the cumulative costs reported to them through daily drilling and completion reports.

Continuous cost monitoring and coordination between operational and accounting functions by an Operator are obviously required in such situations in order for the Operator to undertake promptly the discussions with and approvals from participants made legally necessary once any over expenditure of an AFE seems likely.

Better still, before proceeding with any operations governed by earlier versions of the CAPL Procedure, it would be better for the Operator to amend the applicable operating procedure to the CAPL Procedure, or some other acceptable version.

The old Renaissance Resources Ltd. Metalore Resources Ltd. Unfortunately for operators, the more recent Alberta caselaw considering the CAPL and supplementary AFE requirements reached the opposite conclusion. This needs to be recognized and taken into account until there is further appellate consideration of the issue ruling differently.

Guidance is offered by the decision of the Alberta Supreme Court in Challand v. Bell regarding the appropriate approach to be taken by a court when assessing whether due care has been exercised in situations where a measure of subjective judgment by the Operator is involved.

This case involved a claim for negligence against a medical practitioner; however, the court's comments regarding the standard of care and expert opinion appear equally applicable to the situation of an oil and gas Operator. Wilson: [i]n the presence of such a delicate balance of factors, the surgeon is placed in a situation of extreme difficulty; whatever is done runs many hazards from causes which may only be guessed at: what standard does the law require of him in meeting it?

What the surgeon by his ordinary engagement undertakes with the patient is that he possesses the skill, knowledge and judgment of the generality or average of the special group or class of technicians to which he belongs and will faithfully exercise them.

In a given situation some may differ from others in that exercise, depending on the significance they attribute to the different factors in the light of their own experience.

The dynamics of the human body of each individual are themselves individual and there are lines of doubt and uncertainty at which a clear course of action may be precluded. There is here only the question of judgment; what of that? The test can be no more than this: Was the decision the result of the exercise of the surgical intelligence professed?

Or was what was done such that, disregarding it may be the exceptional case or individual, in all the circumstances, at least the preponderant opinion of the group would have been against it? If a substantial opinion confirms it, there is no breach or failure. An error in judgment has long been distinguished from an act of unskilfulness or carelessness or due to lack of knowledge.

Although universally accepted procedures must be observed, they furnish little or no assistance in resolving such a predicament as faced the surgeon here. In such a situation a decision must be made without delay based on limited known and unknown factors; and the honest and intelligent exercise of judgment has long been recognized as satisfying the professional obligation.

Drilling consultants and operators may differ in the methods employed or the actions taken, depending upon each individual's appraisal of any particular situation. Like the human body, each well is somewhat unique. There are often different ways to drill or complete a well or cope with rapidly emerging problems.

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The very nature of working miles beneath the surface of the earth makes it impossible to know precisely what an Operator will encounter. As in most problematic circumstances, this usually precludes one single course of action as obvious or correct.

As the above quotation indicates, an error in judgment should not constitute negligence. An Operator may make certain decisions relying on the skill and experience of its personnel which after the fact turn out not to have been the best strategy; however, such lack of perfection should not constitute breach of this standard of care. Liability should not be imposed simply because an initiative went badly unless it was demonstrably careless to undertake the procedure in the first place.

In Challand, Riley J. And further: [n]o medical practitioner becomes an insurer that he will effect a cure, nor do the courts condemn an honest exercise of judgment even though other practitioners may disagree with that judgment. Though courts are supposed to assess an Operator's conduct from the perspective of the Operator at the outset when faced with alternative courses of action with uncertain outcomes, it often seems in practice that courts impose liability for actions taken by an Operator expecting a level of perfection only attainable using hindsight.

Where there is credible technical evidence supporting operating decisions taken by an Operator, a court should not readily condemn an honest exercise of judgment simply because other experts testify after the fact that the Operator should have taken a different course of action with better results.

One final observation may be useful regarding the subject of the expert evidence required in legal action by an Operator to recover joint venture expenditures.

As a practical matter a joint venture audit is required whenever an Operator sues its participants to recover joint venture debts to prove the expenditures incurred for the joint venture. The auditor engaged for this assignment should preferably be independent, highly qualified and experienced, and an articulate witness instilling confidence in his opinions. In the author's experience, such expert testimony is essential to the effective presentation of such claims and formal proof establishing how much is owed.

Breach of Duty of Care as Impediment to Cost Recovery by Operator: From a practical perspective, lawsuits initiated by Operators typically result after an unsuccessful operation when an Operator sues disgruntled working interest owners to recover unpaid joint venture expenses resulting when expenditures exceeded amounts originally approved by AFE.

The defence from participants frequently alleges that the Operator breached its duty of care and caused the over-expenditures, thus extinguishing the participant's liability to pay for such cost overruns. As a general proposition, absent request or agreement to reimburse it from other owners, a joint owner of property has no legal right to recovery expenditures made on joint property from the other owners, especially where the value of the joint property has not been increased in the process.

Thus the first issue in most joint venture disputes is whether all of the expenditures claimed by the Operator were properly authorized by the participants in accordance with the requirements of the applicable operating procedure. In this context the Operator's duty to track expenditures and issue a supplemental AFE as soon as cost overruns are expected becomes more critical.

Failing receipt of the approved supplementary AFE, in cases involving the CAPL Procedure, it is hazardous for an Operator to proceed with further operations beyond such point without receiving written acknowledgement approving any further steps proposed - as impractical as this course of action may be. While this gives the now unwilling participant an unintended veto over completion of the operation originally planned, this appears to be the result dictated by these two court decisions.

Notwithstanding that an Operator has obtained authorization for certain expenditures, breaches of the Operator's standard of care may still be alleged by its participants as the basis for counterclaim. If upheld, such counterclaim can not only extinguish liability for the expenditures incurred which relate to the breach but also further amounts owed to the Operator if there are greater damages caused by the breach.

Revisions made to the CAPL Procedure will hopefully suffice to overcome the conclusion reached in Erehwon Exploration and other cases imposing an ordinary negligence standard of care upon the Operator. In this case, the parties had entered into a gas exploration agreement incorporating the CAPL.

Various problems began to arise after a number of years of successful joint operations. The Plaintiff claimed among other allegations that the Defendant had acted inappropriately as operator by overcharging for certain activities and overpaying royalties. In her analysis endeavouring to reconcile the standard of "diligently, in a good and workmanlike manner, in accordance with good oilfield practice" with the "gross negligence" one, she concluded that: Most importantly, I reject the suggestion that Art.

IV was meant to relate to the standard of care applicable to the relations between the CAPL parties themselves, and in particular to the Operator's duty to the Non-Operators in carrying out the joint operations.

In my opinion, Art. IV is most likely intended to deal with third party losses. Clause obliges the Operator to carry out all operations "diligently, in a good and workmanlike manner, in accordance with good oilfield practices". With this starting point, it is hard to imagine that the parties could have intended Art. IV to mean that the Operator could then carry out its accounting obligations in a grossly negligent fashion. That they would agree, by contract, to stand behind the Operator for uninsured third party losses arising from actions that are "negligent" as opposed to "grossly negligent" is more understandable.

Many operations carried out under CAPL are high-risk and the Non-Operators may be willing to accept that, as a "first among equals" acting on behalf of co-venturers, it would be expecting too much for the Operator to have responsibility for losses caused by its negligence. Proponents of the gross negligence standard tried to argue that this precedent was restricted in its application to joint venture accounting, a subject which admittedly permits of greater precision than the risky and unpredictable business of oil and gas exploration and development.

This distinction was rejected by Justice Moshansky in the Morrison Petroleums decision. There he wrote: [a]lthough the Erehwon Exploration case dealt with "accounting matters", I am of the view that the reasoning of Hunt J. Clearly, if the plaintiff had intended that the defendants were to relieve it from liability for losses caused by its own negligence, other than third party claims, that could have been accomplished by requiring from the defendants an undertaking in the Participation Agreement not to sue for anything except wilful or gross negligence.

Clause in the version of the CAPL Procedure, quoted above, was revised in three important respects with the objective of limiting the Operator's general liability to the gross negligence or wilful misconduct standard of care. In an effort to negate by contractual drafting the effect of Erehwon and Morrison rulings, the language in bold type above was added. As indicated by the marginal notes to the CAPL Procedure, "notwithstanding Clause and " was added at the beginning of Clause , presumably to override the legal effect given these Clauses by the Erehwon and Morrison decisions.

It is Clause which specifies the good and workmanlike manner and good oilfield practice standard of care by the Operator. Further additional language "whether contractual or tortious" is added in the fourth line and "whether negligent or otherwise" in the sixth line, presumably to overcome other aspects of the Erehwon rationale and to deter courts from interpreting Clause as applicable solely to tortious liability. These drafting changes will hopefully persuade Alberta Courts in future cases to impose upon an Operator acting pursuant to the CAPL Procedure the more lenient gross negligence standard of care - as intended by the oil and gas industry; however, these changes do not operate to lessen the duty of care imposed upon an Operator acting under earlier versions of the CAPL Procedure or other operating procedures.

He received his designation as Queen's Counsel in His practice focuses primarily on commercial litigation including oil and gas industry disputes. Robertson , 79 S. Murray, [] S. Wilson , 18 W. Bell , 27 W. Explorations , 3 A. Abbey , D. San Antonio Explorations Ltd. I Erehwon Exploration Ltd. Ortynsky Exploration Ltd. Phoenix Canada Oil Co. Duce Oil Ltd.

CAPL Professional Education Program (P.Land, PSL ) Course Credit Description/Category

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The area is mainly muskeg, which means winter access. Over the longer term, if a development programme is undertaken, then the eventual outcome will be the production of petroleum up to the point where depletion of the reserves means that it is no longer economic to continue. The JOA should contain the provisions necessary to facilitate these alterations and should also be able to respond to the introduction of new parties which might have different operational and economic philosophies from the traditional norm see below.

Thus, the JOA might need to manage the opportunity for the parties to offer the use of their petroleum production, processing, storage or transportation infrastructure to a third party in exchange for a suitable tariff or the introduction of a unitisation programme 28 Peter Roberts see Appendix D , in which case the role of the JOA will need to be reconciled with the wider UUOA; or it may be that the parties decide to transform the overall petroleum production project into a quite different form of project 4.

The JOA will need to be able to respond to the emergence of each of these various phases in the lifecycle of the petroleum project.

Where a party comes to hold an interest in another concession, that party may become interested to exercise its rights and to perform its obligations in respect of that other concession in preference to the concession to which the JOA relates. This transition could open the door to investment by new entrants into those provinces.

These new entrants might be smaller, more entrepreneurial energy companies in respect of which several factors must be considered in comparison with the participants of yore: they may be less financially sound than has been the norm; they may be less concerned by the risk of adverse reputational damage consequent upon a failure to perform their obligations in respect of a particular project; and their perception of what is customary in the negotiation and management of the traditional JOA relationship between the parties might be different.

This is not to say that any new entrant will lack the capacity to perform its obligations in a particular project, but the aggregation of commitments across a portfolio of projects could be a stretch and so the new entrant might apply some selective ordering as to how or indeed whether it chooses to meet all of those obligations.

Taken together, these factors represent a risk that a party might at some point fail to perform its obligations in a particular project — a risk which the JOA that relates to such a project will need to address.

Joint Interest Auditor Code of Conduct: Background

However, the JOA will not lend itself readily to being a vehicle which will address the risk to the parties of the expropriation of their concession interests.

This is a matter which is better dealt with in the concession or under a separate investment protection agreement. The cost profile of the operations under the JOA will vary according to the nature of the activities to be undertaken.

However, there will be relatively little capital expenditure, as the parties will rarely buy capital items at this stage. There will be no revenues from the production of petroleum which the parties can apply against their expenditures. In the development phase there will be no, or very low, operating expenditure and significant capital expenditure, as the necessary petroleum production, processing, storage and transportation infrastructure is acquired, constructed and installed; there will still be no revenues from the production of petroleum for the benefit of the parties.

In the production phase there will be the inevitable ongoing operational expenditure incurred in connection with running the petroleum production project, but no capital expenditure unless further development phase activities are undertaken or any installed infrastructure requires modification. However, during this phase the parties should see the benefit of revenues from the production of petroleum, although these will eventually tail off as the rate of production from the petroleum deposit gradually declines.

During this phase there will be no revenues from the production of petroleum for the benefit of the parties. Duration In order to govern the inception of the JOA, the JOA will recite the date upon which the JOA is signed by the authorised representatives of the parties, and will also define the date upon which the JOA actually becomes effective and binding between the parties which might be later than the date of signature of the JOA in certain circumstances.

The JOA will have a duration which principally tracks the duration of the underlying concession, although the duration of the JOA can precede and will go beyond the existence of the concession in certain circumstances, and certain of the terms of the JOA might also be declared to have continuing existence notwithstanding the termination of the JOA.

Consideration should also be given to the necessity for an agreement between the parties which regulates their relationship prior to the JOA coming into existence. Because the business of the JOA is to enable the effective performance of the underlying concession 1.

This will entail the simultaneous signature of the concession and the JOA, such that both documents have the same execution date. If the duration of the concession is extended because of force majeure If for any reason the JOA is not ready to be signed by the parties on the same day that the concession is signed, the parties can always sign the JOA with a later execution date, but record their agreement that the JOA is deemed to have come into force on the earlier date which is the execution date of the concession.

To suggest that the JOA would be deemed to have been effective back to the date on which the concession was originally granted to the first party would be too much of an artificiality and would cause the incoming party to be concerned about the allocation of historical liabilities which might have arisen in that intervening period. The alternative option for timing the execution of the JOA is to provide that the parties will sign the JOA in advance of the award of the concession, and the JOA will recite a condition precedent to its effectiveness notably, that the concession is granted to the parties, with acceptable commercial terms, and is executed by the government and the parties as the holders of the concession.

When the concession is granted and is executed, this condition precedent will have been fulfilled and the JOA will automatically become live and effective between the parties. A further condition precedent which might be considered for insertion into the JOA is one which relates to the approval of the terms of the JOA by any government agency which has such responsibility, where the terms of the prevailing mineral law or of the concession so require,2 although as a practical measure the draft of the proposed JOA can be so approved before the JOA is actually signed by the parties such that the condition precedent will not be necessary.

The insertion of a condition precedent into any commercial agreement inevitably introduces a measure of uncertainty and for that reason the JOA should be careful to limit the number and scope of the conditions precedent which it imports. These additional conditions should be resisted, not least since they are unlikely also to appear as conditions precedent to the effectiveness of the concession and so they should not appear in the JOA for the sake of consistency.

Rather, the AIPN JOA assumes that the parties have already entered into the concession, and that the JOA will have effect from what 2 34 MC 40 5 , and the approval so required will be deemed given if the form of the JOA meets the defined minimum standards specified in the Open Permission Operating Agreements granted by the secretary of state for energy and climate change originally effective from December and reissued in April The relationship between the concession and the JOA has been commented on previously 1.

The JOA will generally not subsist if the concession to which the JOA relates is terminated, since the essential purpose of the JOA ie, to regulate the horizontal relationship of the parties in respect of the vertical relationship with the concession will have been extinguished.

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However, it is possible for the concession to exist without the JOA. The JOA is, after all, an agreement which the parties have agreed to enter into in order to better regulate their inter-relationship and it is advisable, but not compulsory, that the parties enter into a JOA for that purpose.

If there is a point at which the concession is extended or renewed beyond its original term, the duration of the JOA should also be extended so as to track that extension or renewal. The voting control regime in the operating committee OpCom see Chapter 7 will apply to determine the basis on which the parties will be entitled to vote in favour of extending or renewing the concession and so extending or renewing the JOA. Similar principles will apply where there are different concessions for different phases of the joint operations 1.

Termination of the interests of an individual party under the JOA can be effected where a party transfers its interests in the JOA see Chapter 10 , or withdraws from the JOA see Chapter 11 , or defaults and has its interests forfeited see Chapter 14 ; but rarely will the JOA contain detailed provisions regarding the circumstances in which the JOA can be terminated in its entirety by and in respect of all of the parties, unless the parties votively elect to take such a step.

It will always be an option for the parties to vote to terminate the JOA, which may well be reserved as an item requiring unanimity of voting between the parties 7.