Letter from Grant Thornton proposing to resiliate lease agreement

I am forwarding an email from Keith Wilson concerning attempts by Verity to resiliate (cancel) a surface lease so they no longer have to pay annual rentals, and possibly may no longer need to reclaim it as well.

I am becoming very concerned with the Oil Industry’s attempts to circumvent the intent of the Surface Rights Act and other legislation put in place to protect landowners when Industry comes on there land.

There are four main areas where the SRB and Industry is circumventing the intent of the SRA.

1)  The Board refuses to deal with Section 36 applications where the Operator has bankruptcy protection.

2)  The Board commonly only awards 25% of what is owed in Section 36 Recovery of Rentals owing.

3)  The Board apparently is stating that it cannot order the Minister of Finance to pay landowner legal costs for dealing with any Orphan or Bankrupt company situations.

4)  Oil companies are attempting to cancel leases so that they will not have to pay landowner annual compensation, and possibly will not need to reclaim surface leases.

It looks like there will be hundreds of Oil and Gas companies going bankrupt and they are seeking to leave landowners holding the bag.  The PC government was warned that this could happen and they did nothing to protect landowners.  It remains to be seen what the NDP government will do.

In the meantime, the Surface Rights Associations are going to need to fund some legal challenges, or at least help pay landowner legal fees in challenging some of these Operator tactics.  This is simply too important and will have serious repercussions if not stopped.

Please circulate this to your SRA directors and landowners who may be willing to help fund these legal challenges.

Daryl Bennett

The Companies Creditors Arrangement Act is more complex and uncertain than the Bankruptcy and Insolvency Act.

It is not clear that the Verity can resile (cancel) the leases.  It may be possible to convince a court that leases have to remain in place.

It is possible that if the leases are cancelled under the CCAA that the Board may not award any further compensation under section 36 and the landowners will be left on the hook.

If the court is made to understand that these are not ordinary commercial leases (see arguments in Lemke) and if the court is made aware of the provincial statutory provisions prohibiting the cancellation of leases without there being a reclamation certificate, and if the court is informed of the hardship that the landowners will suffer, the court may deny Verity’s plan to cancel the leases.

A lawyer would need to serve immediate notice on Verity, the monitor and parties that an application will be made to the court to challenge the plan.  That notice would have to be circulated tomorrow, Friday, June 5th, 2015.  Then an application would have to be brought forward in the Court of Queen’s Bench in Calgary before June 22, 2015.

Immediate action needs to be taken.

I have hearings starting on June 15th and would not be able to bring the application to the court on the Verity matter.  Alex Mosaico, the lawyer who has been assisting me on the sec. 36 matter, may be in a positon to take this on.

I have copied Alex with this email.

Let me know your thoughts on this.


Keith Wilson