Decision Date: March 2, 2017

Panel: Alan Andison

Keywords: Oil and Gas Activities Act – s. 72(3); preliminary decision; stay; oil and gas well; permit; water resources; RJR-MacDonald Inc. v. Canada (Attorney General) (1994), 111 D.L.R. (4th) 385 (S.C.C.)

Penalty Ranch Ltd. (the “Appellant”) filed separate appeals against three permits issued by the Oil and Gas Commission (“Commission”). The permits authorize Crew Energy Inc. (“Crew”) to drill and operate a total of six oil and gas wells on certain Crown lands subject to a number of conditions. The wells authorized by the permits were to be drilled on two existing well pads where Crew had already drilled wells.

The Appellant holds an agricultural lease over the Crown lands covered by Crew’s permits. The Appellant conducts ranching and farming operations on the Crown lands. A family owns and operates the Appellant, and owns and occupies a home on private land adjacent to the Crown lands covered by the permits. Four unnamed natural springs and a marsh are located on the Crown lands covered by the permits, and the Appellant relies on at least one of those springs for livestock and domestic use.

Two of the permits were appealed in June 2016, and one permit was appealed in late December 2016. In mid-January 2017, the Appellant requested a stay of all three permits. The Tribunal offered all parties an opportunity to make written submissions on the stay applications. When those submissions concluded in mid-February 2017, Crew had already commenced drilling activities under the two permits issued in June 2016, but had not yet commenced activities under the third permit. The appeals were scheduled to be heard together in April 2017.

In determining whether a stay ought to be granted, the Tribunal applied the three-part test set out in the Tribunal’s Rules of Practice and Procedure. That three-part test is based on the Supreme Court of Canada’s decision in RJR-MacDonald Inc. v. Canada (Attorney General).

With respect to the first part of the test, the Tribunal found that the appeals raised serious issues. The primary issue was whether the Commission gave due regard to the Appellant’s written submissions before the permits were issued. The Appellant’s submissions had expressed concerns about contamination of the springs that the ranch relies on, due to the risk that Crew’s drilling activities pose to the aquifer and marsh. The Appellant also raised concerns about air pollution and flaring. The Tribunal found that the issues raised by the appeals were not frivolous, vexatious or pure questions of law.

Turning to the second part of the test, the Appellant had to establish that its interests would likely suffer irreparable harm unless a stay was granted. The Appellant raised concerns about a recent incident that led to Crew abandoning five wells it drilled on one of the pads where the appealed permits authorized new wells to be drilled. The incident involved Crew losing control of drilling fluid underground, and ultimately deciding to abandon the five wells. The Appellant also submitted that recent earthquakes in the area appeared to be related to Crew’s drilling activities. The Appellant argued that these events indicated that requirements in the permits for Crew to monitor water quality and flow at the springs, as well as monitoring seismic events, could not prevent groundwater contamination. The Appellant also submitted that a spring in another area dried up after Crew drilled a well in 2008. In addition, the Appellant provided photographs showing lined containment ponds near the marsh, which the Appellant asserted could leak or wash out.

The Tribunal held that permanent harm to a water source or other natural resources would constitute irreparable harm. However, there was insufficient evidence or information for the Tribunal to conclude that denying a stay, and allowing the permitted activities to proceed pending the conclusion of the appeal, would likely result in permanent contamination or harm to water resources. Specifically, the Tribunal found that there was evidence from the Commission and Crew that the loss of drilling fluid occurred in a deep geological formation, below the depth where useable groundwater occurs, and it is unlikely that there are faults or other pathways for contaminants to reach the aquifer. In addition, monitoring results from the four springs indicated that the water flow and quality had remained consistent since Crew began taking samples in 2014, up to December 2016. There was no evidence to support the Appellant’s assertion that Crew’s drilling of a well in another area in 2008 caused a spring to cease flowing. Overall, there was insufficient evidence to indicate that the regulatory requirements that applied to Crew’s activities, as well as the permit requirements, were likely to be insufficient to protect water resources, pending a decision on the merits of the appeals. However, the Tribunal cautioned that those findings were made for the limited purpose of deciding the stay applications, and had no bearing on the merits of the appeals.

Turning to the third part of the test, the Tribunal concluded that the balance of convenience weighed in favour of denying a stay. The Tribunal found that Crew had provided evidence that it would suffer increased costs if a stay was granted and it had to suspend its drilling operations until the appeals were decided. Such costs were unlikely to be compensable if the appeals were unsuccessful. The Tribunal found that the risk of financial harm to Crew’s interests, if a stay was granted, outweighed the potential harm to Appellant’s interests if a stay was denied.

Accordingly, the stay applications were denied.