OctOber 2011 eNerGY

Energy LawyersTransactionalAllford, r. bruce rba@bdplaw.com ............. 403-260-0247campbell, q.c., Harry S. hsc@bdplaw.com .............. 403-260-0281cuthbertson, q.c., John H. jhc@bdplaw.com .............. 403-260-0305Gilchrist, Mike mgilchrist@bdplaw.com .............. 403-260-0280Houston, Mark t. mth@bdplaw.com .............. 403-260-0375Inch, Julie J. jinch@bdplaw.com .............. 403-806-7808Johnson, q.c., cal D. cdj@bdplaw.com .............. 403-260-0203Jones, candice J. cjj@bdplaw.com .............. 403-260-0109Money, J. Stuart jsm@bdplaw.com .............. 403-260-0312Pettie, q.c., Alan t. atp@bdplaw.com .............. 403-260-0127richardson, tim trichardson@bdplaw.com .............. 403-260-0170Quesnel, Alicia K. akq@bdplaw.com .............. 403-260-0233rogers, Aaron M. arogers@bdplaw.com .............. 403-806-7806Saffery, Hazel hsaffery@bdplaw.com .............. 403-260-0173taylor, John K. jkt@bdplaw.com .............. 403-260-0386twa, q.c., Allan r. art@bdplaw.com .............. 403-260-0221Weldon, Ashley aweldon@bdplaw.com .............. 403-260-0125Wivcharuk, Jody L. jlw@bdplaw.com .............. 403-260-0129Wright, carolyn A. caw@bdplaw.com .............. 403-260-5721

Regulatorybarretto, Jeremy jbarretto@bdplaw.com .............. 403-260-0207Miller, Keith F. kfm@bdplaw.com .............. 403-260-0153Quinton-campbell, Patricia pqc@bdplaw.com .............. 403-260-0308Saffery, Hazel hsaffery@bdplaw.com .............. 403-260-0173Wright, carolyn A. caw@bdplaw.com .............. 403-260-5721

Litigationbatty, trevor A. tbatty@bdplaw.com .............. 403-260-0263beke, Paul A. pab@bdplaw.com .............. 403-260-0216burron, Kevin S. kburron@bdplaw.com .............. 403-260-0189

chernichen, q.c., Donald J. djc@bdplaw.com .............. 403-260-0101crump, barry r. brc@bdplaw.com .............. 403-260-0352Donaldson, Michael J. mjd@bdplaw.com .............. 403-260-0228Haigh, q.c., David H. drh@bdplaw.com .............. 403-260-0135Hannan, Kelly khannan@bdplaw.com .............. 403-260-0126Hayes, Shannon shayes@bdplaw.com .............. 403-260-0237Inch, Julie J. jinch@bdplaw.com .............. 403-806-7808McDonald, q.c., Daniel J. djm@bdplaw.com .............. 403-260-5724McDonald, trevor r. trm@bdplaw.com .............. 403-260-0378McGillivray, q.c., Douglas A. dam@bdplaw.com .............. 403-260-0349Mills, Douglas G. dgm@bdplaw.com .............. 403-260-0226Murphy, James D. jdm@bdplaw.com .............. 403-260-0152Nishimura, Doug S. dsn@bdplaw.com .............. 403-260-0269Novinger Grant, Louise lng@bdplaw.com .............. 403-260-0163richardson, tim trichardson@bdplaw.com .............. 403-260-0170rojas, romeo A. rrojas@bdplaw.com .............. 403-260-0293Sharpe, Jeff e. jes@bdplaw.com .............. 403-260-0176Smyth, Stephen ssmyth@bdplaw.com .............. 403-260-0143Steele, richard F. rfs@bdplaw.com .............. 403-260-0051Strand, David H. dhs@bdplaw.com .............. 403-260-0259Varzari, Jennifer K. jkv@bdplaw.com .............. 403-260-0286Vogeli, L. Grant lgv@bdplaw.com .............. 403-260-0171Wray, Shannon L. slw@bdplaw.com .............. 403-260-0245

Climate Change & Emmisions TradingGrout, David A. dag@bdplaw.com .............. 403-260-0326Houston, Mark t. mth@bdplaw.com .............. 403-260-0375Jones, candice J. cjj@bdplaw.com .............. 403-260-0109Pettie, q.c., Alan t. atp@bdplaw.com .............. 403-260-0127rogers, Aaron M. arogers@bdplaw.com .............. 403-806-7806taylor, John K. jkt@bdplaw.com .............. 403-260-0386Winters, bill H. whw@bdplaw.com .............. 403-260-0248

Energy and other issues of On Record are available on our web site www.bdplaw.com

Energy, Editors-in-ChiefJohn H. cuthbertson, q.c.jhc@bdplaw.com403-260-0305

Alicia K. Quesnelakq@bdplaw.com403-260-0233

Energy, Managing Editorrhonda G. Wishartrwishart@bdplaw.com403-260-0268

Contributing Writers and Researchers:Alicia Quesnel, Aaron rogers, Jeremy barretto, Heather Mueller.

ContactFor additional copies, address changes, or to suggest articles for future consideration, please contact the Managing editor.

General NoticeOn record is published by bD&P to provide our clients with timely information as a value-added service. the articles contained here should not be considered as legal advice due to their general nature. Please contact the authors, or other members of our energy team directly for more detailed information or specific professional advice.

If you would like any further information on any members of our team, such as a more detailed resume, please feel free to contact the team member or the Managing editor. You may also refer to our website at www.bdplaw.com.

On Record Contents:

Prepare to be challenged! Is Your Well “capable of Producing” Leased Substances?

Page 1

the Good, the bad and the Uncertainbill 10: Alberta Land Stewardship Amendment Act, 2011

Page 3

capturing Market Share in Unconventional OilIf You build A better Mousetrap, Protect It!

Page 6

caribou: A Species at risk?

Page 8

2400, 525-8th Avenue SW, calgary, Alberta t2P 1G1Phone: 403-260-0100 Fax: 403-260-0332

www.bdplaw.com

1

On September 7, 2011, the Court of Appeal of Alberta (“the Court”) released its long-awaited decision of OMERS Energy Inc. v. Energy Resources Conservation Board and Montane Resources Ltd.1 (the “OMERS (CA) Decision”), an appeal of Decision 2009-0372 (the “OMERS (ERCB) Decision”) of the Energy Resources Conservation Board (the “ERCB” or the “Board”). The OMERS (CA) Decision is an important decision that will have significant implications for industry. It appears that the concerns expressed in our April 2011 Energy Newsletter about the pending potential precedent have now been realized.

The OMERS (ERCB) Decision and its CriticsIn the OMERS (ERCB) Decision, the ERCB was required to interpret the phrase “capable of producing the leased substances” as the phrase is used in the shut-in clause in the CAPL 91 Alberta form of freehold oil and gas lease. In a somewhat controversial decision, the Board made two findings. First, the ERCB held that “capable” meant “a present or existing ability or fitness of a thing to perform its purpose in the manner intended”. In the case of a well, the well “must have that ability [to produce] in its

existing configuration and state of completion”. In other words, the ERCB found that the well had to have the ability to be “turned on” without requiring any further operations (as defined in the applicable lease) to achieve production. Second, the Board held that, in order for a well to be considered to be “capable of producing the leased substances”, it had to be capable of producing a “material, as in a meaningful, volume of production”.

The OMERS (ERCB) Decision has been criticized by some legal practitioners for lacking foundation in existing law; in particular, for the failure of the Board to cite any case law in support of its positions. It has been noted that, while there is no specific case law directly on point, there are a number of Canadian cases the ERCB could have looked to for assistance in its determination, none of which appear to have been considered. Although the Board cited U.S. law for its foundational support in an earlier decision3 (“the Desoto Decision”) involving similar issues, its reliance on the U.S. law has also been criticized. It has been suggested that the Board overlooked the existence of an implied duty to market the petroleum substance which factored significantly in the particular U.S. decisions cited. Canadian courts, by contrast,

have expressly held that there is no implied duty to market petroleum substances. Further, the lease provisions in the U.S. cases relied upon by the Board required that the well be capable of production “in paying quantities”. There was not, in either the Desoto Decision or the OMERS (ERCB) Decision, any express requirement to produce a quantitative amount.

It has been argued that the emphasis of the Board on the physical readiness of the well and its existing state of completion, ignored the prior focus of courts in both Canada and the United States on the existence of reserves rather than the state of completion of a well. In addition, the ERCB’s willingness to imply that the well had to be capable of producing a “meaningful quantity” of resource, despite that the parties to the lease had chosen not to include any such quantitative requirement in the terms of the lease, represented a departure from the normally strict and literal interpretation given to freehold leases by the courts. The new unexplained standard of a “meaningful quantity” of production was also thought to create uncertainty by imposing a standard that was distinct from the more commonly used terms “paying quantities” and “commercial quantities”, the meanings of which are generally well understood in the industry.

Prepare To Be Challenged!Is Your Well “Capable of Producing” Leased Substances?By Alicia Quesnel & Aaron Rogers

The OMERS (CA) DecisionThe decision of the ERCB was upheld by the Court which agreed that “capable” meant “that a well could produce in its existing state and configuration, without requiring further operations to produce”, in particular of the kind listed in the definition of “operations” in the lease. It also agreed with the Board’s finding that a well had to be able to produce a “meaningful” quantity of production in order to be considered “capable of producing”.

The findings of the Court appear to have been strongly influenced by the policy consideration of avoiding resource stagnation. This is clearly evident in the Court’s statements that “the purpose and goal of parties entering into such a lease is to develop the resource for the purpose of making a profit” and that “the parties would have anticipated production of something more than trivial or miniscule production”. As a result, the Court found that “the well must be capable of producing a volumetric quantity that would encourage both production and operations to maximize that production”. The Court was strongly against the position that a shut-in clause, even one that did not contain an express minimum production requirement, could be used to enable a lessee to sustain a lease using a well that was not commercially viable. It further stated that:

It strains common sense to think that a lessor would agree to tie up its land past the primary term, and perhaps indefinitely, for a lessee’s speculative purposes only and for a well that lacks commercial viability … It was never intended that the shut-in well clause could allow a lessee to hold a property purely for speculative purposes.4

Thus, the Court generally took the position that, subject to its specific terms, a lease may be subject to termination unless the lessee takes steps to ensure that production can be achieved so that the intent of the parties to the lease, as described by the Court, are fulfilled. While it stopped short of holding that lessees have an “implied duty to market petroleum substances”, there appears to be little practical difference between the two concepts.

The Court did not specifically define the term “meaningful quantity” of production. However, it did cite with approval, a test of “whether there is a reasonable basis for the expectation

of profitable returns from the well” to determine whether the “meaningful quantity” standard was satisfied. With respect to the application of the test, the Court suggested that it would be an overall assessment over time and not a moment-by-moment consideration and would not be significantly different from the more commonly used “paying quantities” standard. It further suggested that a relevant inquiry when applying the test would be “would a reasonably prudent operator, for the purpose of making a profit and not merely for speculation, continue to operate a well in the manner that it does?”

A further consideration that was unfortunately not directly addressed by the Court of Appeal is that of a natural gas well that is otherwise completed and would be capable of producing in at least “meaningful quantities” but for the fact that it is not tied in to a pipeline. In the OMERS (ERCB) Decision, the ERCB suggested that to be capable of producing, a well must be tied-in; however, this matter was not in issue in the case and so was not dealt with further by the ERCB. A similar finding was made in the Desoto Decision relying on U.S. case law.

The Court had earlier addressed the issue of a pipeline tie-in in Bearspaw Petroleum Ltd. v. Encana Corporation (“Bearspaw”)5 where the relevant wells were otherwise completed but not connected to a pipeline. Significantly, however, Bearspaw dealt with a lease that required the leased substances to be “producible”, not “capable of production”. In that case, the Court held that “producible” meant that a well could produce if further actions (including the construction of a tie-in pipeline) were conducted. However, when that finding from Bearspaw was put to the Court in the ERCB (CA) Decision, the Court distinguished Bearspaw, somewhat unsatisfactorily. The Court held that,

In Bearspaw, the well was acknowledged to be capable of producing, in that it was ready and able to produce gas at the tap. The issue of whether the well was capable of producing gas and in what quantities was not engaged, whereas that is the very issue in this appeal.6

We are therefore left with uncertainty on this important issue. Can a well be “capable of producing the leased substances” despite that a pipeline tie-in will be required to transport production? Is it a well that is able to produce

in its “existing state and configuration”? What if there is not yet an established distribution network in the area and such a tie-in is not even possible at the present time?

Implications for the IndustryThe implications of the Court decision for industry are significant. There are many instances in Alberta and neighbouring provinces where freehold leases are considered to have been continued on the basis of a shut-in well. Where the governing lease contains the requirement that the well be “capable of producing the leased substances”, lessees will need to carefully consider whether the above requirements endorsed by the Court have been satisfied as of the end of the primary period to the present time. If such requirements have not been satisfied at a particular time, the lease may have terminated unless relief can be found in the other terms of the lease. This may not be a problem for wells on marginal leases upon which an operator does not intend to invest further capital. But it is a major problem for leases that have been continued on the basis of a single shut-in well and which, as a result of recent technological advances, have become highly productive as a result of additional drilling beyond the primary term. Such leases may well have terminated many years ago, raising questions of trespass by the lessee and damages owing to the lessor as a result of production after the expiry of the lease.

We anticipate that over the next few years, there will be a significant amount of value lost and gained as a result of this decision. The validity of many freehold leases will be challenged and “top leasing” will become a much more common practice.

Despite the pro development emphasis of the Court in the OMERS (CA) Decision, lessees will also be likely to restrict further development of freehold leases that they consider to be potentially in jeopardy.

Footnotes

1 OMERS Energy Inc. v. Energy Resources Conservation Board and Montane Resources Ltd., 2011 ABCA 251.

2 Energy Resources and Conservation Board Decision 2009-037, OMERS Energy Inc., Section 39 Review of Well Licenses No. 0336235 and No. 0392996 (May 12, 2009).

3 Energy Resources and Conservation Board Decision 2008-047, Desoto Resources Limited, Section 40 Review of Well License No. 0361258 Joffre Field

4 Supra, Note 1, at para.955 2011 ABCA 7 (C.A.) 6 Supra, Note 1, at para.84

2 ENERGY

the validity of many freehold leases will be challenged and “top leasing” will become a much more common practice.

3

On April 12, 2011, Bill 10: Alberta Land Stewardship Amendment Act, 2011 (“Bill 10”) passed second reading in the Alberta Legislature. Bill 10 is the Government of Alberta’s attempt to clarify the original intent of the Alberta Land Stewardship Act (the “Act”), which came into force on April 1, 2010 amid significant controversy.

The purpose of the Act is to balance the development of public and private lands with consideration for public, economic, environmental and social needs. Commendably, the planning and development process provided by the Act represents a broad based shift to integrated, regionally based land-use planning that looks beyond the traditional and short sighted project-by-project assessment process. The Act strives to incorporate cumulative effects management and an integrated ecosystem management philosophy. Sadly, passage of the Act generated almost immediate criticism of government heavy handedness, and subsequently degenerated further into allegations of government conspiracies against land owners.

“Extinguishing” Existing RightsThe Act generated concerns among land owners, mineral leaseholders and surface users that statutory consents such as certificates of title and mineral, grazing, timber and water leases and licenses could be unilaterally cancelled at the discretion of the Government.

Bill 10 confirms that certificates of title for both surface and freehold minerals are not included under the term “statutory consent” and, as such, cannot be extinguished under section 11 of the Act. It further removes the term “extinguish” in section 11 and replaces it with the term “rescind”. However, the purpose and effect of such change (other than to make section 11 sound less draconian) is unclear.

This “change” may be more apparent than real given how truly unlikely it was in the first place that the Act would have been intended to allow the Government to extinguish a certificate of title to land or minerals. Of note, Bill 10 does little to assuage the key concerns of two other important groups: lessees of both surface land and mines and minerals. In particular, the proposed changes to the Act do not prevent mineral, grazing, timber and water leases and licenses on either freehold or Crown lands from being affected, amended or rescinded to the extent that they are not issued under or authorized by the Land Titles Act or other legislation specified in the definition of “statutory consent”.

The significance of this fact was brought home in dramatic fashion on April 5th, 2011 when the Government released a draft of the Lower Athabasca Regional Plan (the “LARP”), the first regional plan to be proposed pursuant to the Act. In conjunction with the establishment of a conservation area of approximately 20,000 km2 in the north-eastern portion of Alberta, the LARP makes it clear that existing oil sands leases held by companies within designated conservation areas will be cancelled. Although the Act clearly provides for such drastic action in order to accomplish the goals of a regional plan, the announcement

The Good, the Bad and the Uncertainbill 10: Alberta Land Stewardship Amendment Act, 2011By Aaron Rogers*

4 ENERGY

nevertheless generated comments of “confiscation” and “expropriation” from some predictable industry sources. These comments were surprising given that the initial recommendations of the Regional Advisory Council last year were more extensive with a much broader impact. We understand the Province subsequently invited and received consultation from industry and the resulting LARP represents a reduced, and more focused, impact on lease holdings. Some industry participants may be somewhat relieved by the draft LARP.

With respect to conventional oil and gas rights, existing Crown mineral tenure will continue to be honoured consistent with the current practices for exploration in environmentally-sensitive areas. New conventional leases and licenses will also be permitted in conservation areas, although surface access will be prohibited.

Compensation – What is the Model?The second primary area of concern raised with respect to the Act is that the cancellation of existing “statutory consents” could occur with limited or no compensation. This concern is somewhat unfounded, as the Act provides title holders with the right to apply for compensation. The term “title holder” is broadly defined and includes holders of freehold surface and mineral titles, freehold mines and mineral licenses, surface leases on freehold land and Crown land, and other registered interests in land such as royalty owners.

However, “title holder” expressly excludes the holders of Crown mineral leases or licenses, who will not be entitled to apply for compensation under the Act if their rights become subject to a conservation directive. Even so, it would be incorrect to suggest that such parties have no right to compensation. Compensation may be available under other existing

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legislation and regulations. In particular, the Mines and Minerals Act requires compensation to be paid to the holder of Crown mineral tenure that is cancelled by the Minister of Energy on the basis that further development of such tenure is not in the public’s interest.

The LARP clearly expresses the intent of the Government to compensate oil sands lessees whose leases are cancelled. A bigger issue for affected companies, however, appears to be the amount of compensation that they will receive. The Government has suggested that compensation may be made in line with the compensation provisions contained in the Mines and Minerals Act, which bases compensation on bonus and rental payments made by the holder of cancelled tenure plus costs incurred for development and reclamation, together with a provision for interest.

In response, however, various industry participants have publicly stated that compensation should be based on the prospective value of the lost leases rather than the historical cost. Compensation determined in this fashion would be much more costly for the Government and is not contemplated by existing regulations.

Lack of an Appeal ProcessThe third significant area of concern is that the Act does not currently contain a process to review or amend a regional plan other than the requirement of the Government to review a regional plan at least once every ten years.

Bill 10 attempts to address the issue by providing a title holder with the ability to apply for a variation of any restriction, limitation or requirement regarding a land area or subsisting land use under a regional plan that affects that title owner. A variance can be granted if the Minister is of the opinion that the proposed variance meets certain criteria in relation to the regional plan. As noted above, however, the definition of a “title holder” excludes Crown mineral lessees and therefore parties holding oil sands leases in the Athabasca area will not be able to apply for a variance.

Bill 10 also contains a new section that provides a person directly and adversely affected by a regional plan with the ability to request a review of that regional plan. Upon receiving such a request, the Minister is required to establish a panel to conduct a review of the regional plan, the results of which will be made public and will be presented to the provincial cabinet. Since the right to request a review is available to any “person”, it appears that Crown mineral lessees would be able to exercise such right. Bill 10 is silent, however, on the extent to which the findings of any review requested will be required to be implemented.

Although the proposed new sections appear to establish additional avenues for review, a significant amount of discretion is maintained regarding the implementation of any proposed variance of, or the findings of any review of, a regional plan. As a result, while the Bill 10 amendments seem to provide an avenue for affected persons to vent their frustrations and be heard, it is unclear whether these new sections will ultimately provide a satisfactory result for those affected by a regional plan. It also seems almost certain that this new ability to apply for variances and reviews will result in a high number of such applications, increasing the cost and time involved in administering and enforcing the Act.

ConclusionWhether one views the Act as a reasonable limitation on land use rights or an unconscionable interference with private property, likely depends on one’s opinion on environmental stewardship and what role government should play in preserving and protecting Alberta’s agricultural lands and environmentally sensitive sites. While it is clear that the Act may adversely impact the rights of statutory consent holders, it also appears clear that some of the criticisms of the Act, and now Bill 10, have been exaggerated and subject to a significant amount of partisan rhetoric. Whether the actual impacts of the Act are as minimal as its defenders suggest or as significant as its detractors claim, will remain to be seen when the first regional plans are implemented under the Act. That is, if the Act survives the chopping block of the next Premier of the province.

Footnotes

* With acknowledgement to Jerrad Kubik, formerly of BD&P, now of Penn West Exploration

What are the Issues?Innovation in the upstream oil and gas sector is typically driven by specific problems presented by a particular reservoir, operation, or situation. Historically, attempts to maintain the confidential nature of such developments may not have been consistently or formally practiced, potentially resulting in a failure to secure enforceable protection for the innovation. When a series of improvements to a technology are made in rapid succession in a collaborative environment, early documentation of the development will facilitate assessment and development of a corporate strategy to secure legal protection for the innovation, if appropriate.

Questions of inventorship and ownership are difficult to address in hindsight. Often, by the time the innovating company seeks advice regarding protection of the idea or concept, the innovation has already been publicly used, and is being copied by competitors.

There are numerous ways in which valuable rights of inventorship and ownership can be lost. One or more of the inventors may have left the employ of the innovating company, taking proprietary information to their new employment with a competitor. Does a company own an invention made by an employee, even if the employee has left to work elsewhere? Most companies are surprised to find out that, absent an agreement to the contrary, the inventor is the first owner of an invention. This fact underscores the need for adequate employment and contractor agreements, including confidentiality and intellectual property ownership provisions in favour of the company.

When conducting field tests, maintaining confidentiality is unlikely given the number of third party individuals typically present. Simply transporting a new tool assembly to a testing site may result in an inadvertent (and non-confidential) disclosure to a competitor, should the tool assembly be visible during transport. As well, disclosures made to government regulatory bodies prior to field testing should be

carefully screened for confidential information prior to submission; as such disclosures are often made public without specific notice to the submitting party.

Keeping accurate records of research, tool design, field tests, and the like may be critical to proving ownership should the need ever arise. It is in the best interest of the employee and the company to document the confidential nature of any technology developments, and to ensure they are shared only with parties obligated to keep such information confidential.

A proactive approach to research and development can maximize the global exploitation of many technologies, resulting in significant worldwide licensing revenues. With the rapid development of new techniques for extraction of unconventional oil, companies who do not innovate may be left behind, or forced to pay significant license fees to gain access to critical technologies.

Maintaining Confidentiality – Trade SecretsProtection of corporate innovations should be considered well before there is any significant risk of disclosure to the public. Given the obvious need to advance prototyping and testing of new technology, how does the innovator do so and avoid the loss of valuable exclusivity rights?

In some circumstances, companies may wish to protect innovations by holding them as trade secrets. However, trade secrets are only a suitable form of protection when access to the critical components of the innovation can be tightly controlled for an indefinite period. For instance, suppose a company selling slotted liners for use in SAGD operations has developed a proprietary system for achieving superior quality slots in the tubing. The innovation of the system lies in a particular lubricant composition applied to the blade during slot cutting, combined with additional cutting conditions and processing steps for completing the superior slotted liner.

Capturing Market Share in Unconventional OilIf You Build A Better Mousetrap, Protect It! By Heather Mueller, Patent Agent

6 ENERGY

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Protection of this innovative system as a trade secret could be possible if each proprietary step in the process is held by only one or two individuals. The company would have to contractually obligate these individuals to confidentiality, and may choose to carry out each proprietary step of the process in separate facilities, controlling access to each. By protecting the system as a trade secret, the duration of protection depends directly on the ability to maintain this confidentiality, and any breach of these conditions would result in loss of the company’s proprietary position.

Protection of Innovations Through PatentsBy contrast, patent protection requires disclosure of the innovation to the public, providing the patentee with a limited period of exclusivity. That is, once a patent is granted, the patentee can take legal action against any third party who makes, uses, or sells the patented invention during the term of the patent (generally twenty years from the filing date).

An innovation is patentable if it is new, useful, and inventive (not merely an obvious improvement of an existing technology). These requirements are described briefly below.

Novelty: In order for an invention to be deemed novel, the invention must not have been available to the public prior to the filing date of the patent application. Any non-confidential communication or public use of an invention, including presentations, project submissions, field testing, and even informal conversations or dissemination of preliminary drawings, may constitute public disclosure of the invention.

A one year grace period for prior public disclosure of the invention by the inventor is provided in Canada, and a similar grace period is provided in the U.S. However, in most other countries, patent protection will not be available if the invention was disclosed prior to filing a first patent application.

Obviousness: A patent will not be granted if the claimed invention would have been obvious to a person of ordinary skill at the time the application was filed.

Utility: The patent must describe an operable invention, and sufficient detail must be provided to enable a person of ordinary skill in the field to practice the invention. Typically, if an operational prototype has been made or a computer simulation completed, the utility requirement has been met.

When considering whether to patent a new technology, a company will generally seek professional counsel, and request that a patentability search be carried out to determine the risk that the technology would not meet the above-noted criteria for patentability. A patent application would then be drafted and filed in the Patent Office, at which point the technology may be marketed as patent-pending. Following a subsequent period of negotiation between the Patent Examiner and the Applicant, a patent may ultimately be granted and enforced.

Global Considerations A patent may be enforced only in the countries in which it has issued. Accordingly, patent protection in several countries is usually desired.

Early evaluation of research and development initiatives will maximize the ability to protect an invention in all countries of interest. That is, if a patent application is filed prior to any public disclosure of the invention, the Applicant will be able to protect the technology in virtually any country of the world. By contrast, very few countries offer reasonable options for protecting inventions that have been previously disclosed to the public, used commercially, or sold.

Fortunately, Applicants are not required to file in each country of interest immediately. The Paris Convention for the Protection of Industrial Property (1883) allows an Applicant to file a first patent application in one member country, and defer the filing of corresponding applications in any other member countries of interest for up to twelve months. During this twelve month period, the Applicant may disclose the invention and market their product as “patent pending”. At the one-year date, a decision can be made as to which additional countries patent protection should be secured. As of January, 2011, the Paris Convention has been ratified in 173 countries. Notably, most countries with oil sands reserves or oil shale resources appear to be members of the Paris Convention.

With many companies seeking to exploit innovations in the unconventional oil sector, global partnerships, joint ventures, and opportunities should be carefully considered. Prior to proceeding, it should be clear how innovations arising from the new relationship will be assessed and protected, and who will own and control rights to these innovations. Expert advice should be sought at an early stage when negotiating such arrangements.

It is clear that companies with policies and procedures in place to address technology issues will be better positioned to capitalize on any competitive advantage offered by their innovations. As significant opportunities exist to develop and globally exploit technologies in unconventional oil, a proactive corporate approach to innovation is required to allow key technologies to be appropriately protected and exploited.

Capturing Market Share in Unconventional OilIf You Build A Better Mousetrap, Protect It! By Heather Mueller, Patent Agent

8 ENERGY

A recent decision of the Federal Court, Adam v. Canada (Environment)1 (“Adam”), provides valuable insight into the Species at Risk Act2 (“SARA”), both in terms of its application and its impact on the energy and resource production sectors in Northern Alberta. The Adam decision set aside the federal Environment Minister’s (“the Minister”) decision not to issue an emergency protection order in relation to the protection of the habitat of woodland caribou in Alberta.

Introduction to the Species at Risk ActSARA is the key federal legislation aimed at preventing Canadian wildlife species from becoming extinct and ensuring necessary actions

for the recovery of a species. SARA defines a statutory process for the protection of species at risk, such as the caribou, and their habitat.

Key to the application of SARA’s legal protections is the listing of a species on Schedule 1 of the Act. There are four categories of species listed under SARA. This article focuses on the regulations for three of the categories which receive similar treatment pursuant to the legislation — namely threatened, endangered and extirpated species (all three referred to as “Listed Species”). A species becomes listed after it is classified as a species at risk by the Committee on the Status of Endangered Wildlife in Canada (COSEWIC). A recommendation from COSEWIC becomes law unless the federal cabinet decides otherwise within 9 months.

Once a species is listed, it becomes illegal to kill, harm, harass or capture that species. SARA also prohibits the destruction of a Listed Species’ residence. Residence is defined as a dwelling-place such as a den, nest or other similar area or place that is occupied by a species.

Habitat is the physical environment that surrounds a species and is generally larger than its residence. The destruction of Listed Species “critical habitat” is prohibited under Section 58 of SARA. “Critical habitat” is broadly defined in SARA as “habitat that is necessary for the survival or recovery of a listed wildlife species and that is identified in the recovery strategy or in an action plan for the species”

Caribou:

A Species at risk?By Jeremy Barretto*

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While a species is protected when it is listed, a species’ habitat is only protected after it is defined. Critical habitat must be identified in federal government recovery strategies or action plans before it is legally protected under SARA. The protection of critical habitat is essential to achieving the recovery of a species at risk because habitat loss is the primary cause of species loss and decline.

Notwithstanding these protections, the application of SARA is itself limited by jurisdiction. The protections under SARA only apply to lands and waters that are considered “federal jurisdiction”; essentially, lands and waters controlled by the federal government. In Alberta, examples of these federal controlled lands are national parks, military bases, navigable waterways, and First Nations reserves. Therefore, while a Listed Species such as the caribou is protected under SARA, those protections generally apply only where caribou exist on federally controlled lands.

However, there is an exception where the federal government has the ability to extend the habitat protections under SARA from federally controlled lands to private and provincial lands. Under section 34 there are discretionary federal “Safety Net” provisions. These provisions enable the extension of protections by SARA to provincial lands if the laws of that province are found to ineffectively protect a listed species. An Emergency Protection Order may apply to both federal and provincial lands if the Minister is of the opinion that a listed species faces “imminent threats to its survival or recovery” and makes a recommendation to the federal cabinet. And while this provision has yet to be used… this is the very issue being considered in the Adam decision discussed further below.

Recent DecisionsThe Federal Court has increasingly given SARA a robust interpretation in terms of how it is to be applied in the field. The Federal Court has repeatedly required the federal government to identify critical habitat for the endangered Greater Sage Grouse3, and more broadly designate critical habitat for the endangered Nooksack Dace4 (a minnow). In the Resident Killer Whale decision5, the Federal Court held that the federal government acted unlawfully in limiting protection orders to limited aspects of the whales’ critical habitat and for relying

too much on policies, guidelines or future legal protections rather than focusing on present laws and requirements.

The Greater Sage Grouse, Nooksack Dace, and Resident Killer Whale cases all suggest that the Federal Court is directing that SARA must increasingly be utilized to spur government actions to recover species at risk by protecting their critical habitat. The Adam case is no different.

The Caribou DecisionThe boreal caribou of Northern Alberta are one of six distinct populations of woodland caribou distributed in 57 herds across Canada and are listed as a threatened species under SARA. Boreal caribou require large areas of suitable habitat, low levels of human disturbance and low numbers of predators to thrive. Seven of the herds which reside in north and north-eastern Alberta are considered to have insufficient populations to sustain the herd in the future.

In Adam, several environmental groups and First Nations sought an order from the Federal Court that would have compelled the Minster to recommend an Emergency Protection Order for the boreal caribou in northern Alberta. The effect of such an order would have been to identify habitat that is necessary for the recovery of the boreal caribou and limit activities, such as energy and resource development that may have an adverse affect on the caribou and its critical habitat.

The Adam decision continues the Federal Court’s trend of general dissatisfaction with the federal government’s interpretation and application of SARA. While the Federal Court refused to compel the Minister to recommend an Emergency Protection Order to the federal cabinet, the Federal Court found that the Minister had failed to provide a meaningful explanation of the Minister’s failure to issue such an order. The Minister’s decision was set aside and remitted back to the Minster for reconsideration. The Federal Court deferred making an order contingent on the Minister posting a Recovery Strategy before September 1, 2011.

Caribou Recovery StrategyThe federal government released a draft Recovery Strategy for the Woodland Caribou, Boreal Population in Canada on August 26, 2011. The main thrust of the Recovery Strategy is to manage

the “unnaturally high predation rates” resulting from boreal caribou habitat loss. Wolves are one of the boreal caribou’s natural predators and the strategy calls for their populations to be managed. Critical habitat protection varies under the Recovery Strategy but seems to very much play a secondary role to the focus on the issue of predation. One of the Applicants in Adam criticized the Recovery Strategy as being essentially a “write off” of virtually all the habitat that supports Alberta’s caribou.6

Thoughts Going ForwardSpurred by recent Federal Court decisions noted above, unless amendments are made to SARA itself, the hands of the federal and provincial governments may well be forced to take an increased role in protecting species at risk and critical habitat.

More stringent critical habitat protections for a variety of listed species could affect a range of resource developers. For example, forestry, oil and gas, mining and hydro-electric developments are identified in the Woodland Caribou Recovery Strategy as having an adverse effect on caribou populations across Canada. The onus is on resource developers to determine if a protected species or a protected species habitat exists on their lands and if their presence could potentially affect operations. Resource developers should monitor ongoing SARA developments and plan for possible impacts

As of July 2010, there were at least 34 current or approved oil sands projects and 12 proposed projects within the boreal caribou herds’ ranges.7 The Adam decision and Recovery Strategy are unlikely to be the final word on the recovery of Alberta’s caribou herds.

Resource developers in Northern Alberta should stay informed of emerging caribou protections to avoid putting their projects at risk.

Footnotes

* With acknowledgement to Jerrad Kubik, formerly of BD&P, now of Penn West Exploration

1 2011 FC 962.2 SC 2002, c 29.3 2009 FC 710.4 2009 FC 878.5 2010 FC 1233.6 The Pembina Institute, “Pembina reacts to draft Woodland Caribou Recovery Strategy” (26 August 2011).

7 Ecojustice, “Caribou backgrounder” (June 2011).

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