In the recent decision of Davidson Well Drilling Limited (Re), 2016 ABQB 416 (“Davidson”) the Court of Queen’s Bench of Alberta held that the 90-day lien period to register a lien against an “oil or gas well” or “oil or gas well site” applies to drilling on oil sands mines. The Court also concluded that the costs of trucking equipment away from a project site after it is completed may, in certain circumstances, be properly included in a builders’ lien.
Under Section 41 of the Builders’ Lien Act, RSA 2000 c B-7 (“BLA”), a lien for materials or the performance of services must, in almost every instance, be filed within the 45-day lien period starting from the day that the last of the materials or services are provided or the relevant contract is abandoned. The BLA does, however, provide a special exception respecting liens for improvements to an “oil or gas well” or “to an oil or gas well site”, by extending the lien period to 90 days. As the terms “oil or gas well” and “oil or gas well site” are not defined terms in the BLA, the prevailing legal and oil industry wisdom, prior to Davidson, has been that the extended 90-day period does not apply to non-traditional oil and gas extraction methods, such as the open pit mining methods often used on oil sands sites.
In Davidson, Davidson Well Drilling Limited was contracted to perform work on two Syncrude Canada Limited (“Syncrude “) open pit oil sands mining sites (the “Syncrude Lands”), which consisted of resource coring, geotechnical testing, sonic/auger rig drilling, dewatering/depressurizing and exploration work (the “Work”). Importantly, the Work involved drilling wells for resource coring to explore the location of bitumen from which oil would be processed. The Work was exploratory and there was no mineral extraction or direct recovery of oil and gas from these wells. Davidson subcontracted the Work to a number of subtrades (the “Subcontractors”).
Syncrude terminated its agreement with Davidson on February 25, 2013 and a receiver (the “Receiver”) was appointed on April 16, 2013. A number of the Subcontractors liened the Syncrude Lands.
On application by the Receiver seeking approval of its proposed distribution of the lien funds (pursuant to a settlement agreement with Syncrude that validated some but not all of the liens) and a cross-application by the Subcontractors to have their liens declared valid, the primary issue before the Court was whether the Work was done respecting improvements to an “oil or gas well” or to an “oil or gas well site”. The answer to this question was important as it would determine whether the 45-day or the 90-day lien period applied and whether the Subcontractors lien claims registered after the 45-day period (but before the 90-day lien period) were valid.
At the hearing of the application, the Receiver’s position was that the Syncrude Lands were open pit mines, not oil or gas wells or well sites and that in any event the work done to the sites was not in relation to the extraction of oil or gas. In contrast, the Subcontractors argued that the purpose of the extended 90-day lien period was to benefit contractors that drill oil or gas wells or service oil or gas well sites. As such, the Subcontractors argued, it is the activity of oil or gas well drilling and servicing of such sites that matters, and not the location of the Work that triggers the extended 90-day lien period.
In its written decision, the Court agreed with the Subcontractors, finding that the 90-day lien period for improvements to an oil or gas well or to an oil or gas well site required a liberal interpretation, consistent with the remedial purpose of the BLA. The Court further accepted that the Alberta Hansard record indicates that the 90-day lien period was enacted by the Alberta Legislature for the purpose of reflecting the unique industry payment practices affecting contractors that drill oil and gas wells or service oil and gas well sites, and the industry associated with those activities. The Court held that nothing in Hansard or the language of the BLA suggests that the lien rights of drillers should be restricted depending on the location of their work. The Court further found that, in this case, the drilling of exploratory oil or gas wells was for the purpose of locating bitumen, from which oil would be processed therefore bringing the exploratory wells “within the ordinary and grammatical meaning of oil or gas wells”. As there was the “potential” that oil or gas could be discovered, the lien period for the drilling on the oil sands mines was found to be 90 days.
The Court’s secondary finding was that demobilization costs are included as work on or in respect of an improvement. In Schlumberger Holdings (Bermuda) Ltd v Merit Energy Ltd,  10 WWR 631 (“Schlumberger”), the Court held that transportation of equipment to a site was essential to the performance of work on an improvement but did not apply the same reasoning to transportation of equipment away from a site. The Court in Davidson disagreed with the decision in Schlumberger, finding that the equipment is required on a temporary site for the purpose of construction and essential to the completion of the improvement. Consequently, both the delivery of the equipment and the removal from a site afterwards give rise to lien rights.
Major Findings and Recommendations:
- It is the active work of oil or gas well drilling and the active work of oil or gas well site servicing, and not the location of the work that will give rise to the extended 90-day lien period;
- As always, the “work requirement” (which mandates that work must be in respect of an “improvement”) must be met in order to give rise to entitlement for either the 45-day or a 90-day lien period;
- Most non-drilling related work on an oil sands site, will remain subject to the 45-day lien period;
- Accordingly, where work is not obviously related to drilling or servicing an oil or gas well or site, it is still best practice to register a builders’ lien on non-traditional oil and gas extraction projects within the 45-day lien period; and
- The costs of removing trucking equipment away from a site may be considered essential to the performance of work on an improvement to the land and, as such, properly included in a builders’ lien.
Bryan West (with assistance from Danielle Douglas)