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Between:
2011 ABQB 658 (*)
Plaintiffs
- and -
Defendants
And Between:
Plaintiff by Counterclaim
- and -
Defendants by Counterclaim
Introduction
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page: 10
2011 ABQB 658 (*)
Overview. Page: 10
Parties. Page: 11
Operations. Page: 12
Claims. Page: 13
Roll’n v. Blaze action. Page: 13
Horizon v. Blaze action. Page: 14
Defences of Devon, Canyon and Detector. Page: 15
Drilling Program. Page: 15
AEUB regulations and industry recommended practices. Page: 15
Geological information. Page: 16
Description of the equipment. Page: 16
Re-entry Operations. Page: 16
Qualifications and experience of wellsite personnel. Page: 18
Well licence granted on basis of Blaze Drilling Program. Page: 19
Applicable AEUB Guides/Directives and Industry Recommended Practices
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page: 19
Directive 36. Page: 19
Interim Directive 97-6. Page: 20
IRP Vol. 1 - Critical Sour Drilling - Industry Recommended Practices,
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page: 21
Industry Recommended Practice,. Page: 25
Industry Directive 90-1. Page: 25
Well Operations Reports. Page: 26
Witnesses. Page: 27
Roll’n’s witnesses. Page: 27
Blaze’s witnesses. Page: 29
Horizon’s witnesses. Page: 31
Issues. Page: 31
Issue 1: Should an adverse inference be drawn against Roll’n or Blaze for failure to call certain witnesses? Page: 32
Parties’ positions. Page: 32
Facts. Page: 33
Law and Analysis. Page: 33
Conclusion. Page: 35
Issue 2: Did Roll’n make pre-contractual misrepresentations to Blaze that caused it to suffer the damages it alleges? Page: 35
Parties’ positions. Page: 35
Law. Page: 36
Pre-contractual statements and the parol evidence rule Page: 36
2011 ABQB 658 (*)
Misrepresentation. Page: 36
Negligent misrepresentation. Page: 37
Was there a duty of care owed by Roll’n to Blaze based on a “special relationship”? Page: 38
Were the representations in question untrue, inaccurate, or misleading? Page: 39
Nature and accuracy of representations re similarity of Blaze operations to Rosetta operations. Page: 39
Evidence re pre-contractual representations made
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page: 40
Evidence re similarity of Rosetta job. Page: 41
Evidence re similarity of Rosetta crew. Page: 44
Conclusions. Page: 44
Nature and accuracy of representations re experience of crew that Blaze required. Page: 45
Evidence re pre-contractual representations made
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page: 45
Evidence re Roll’n crew experience. Page: 45
Conclusions. Page: 47
Nature and accuracy of representations re capacity of Rig 4 to conduct the Blaze operations. Page: 47
Evidence re pre-contractual representations made
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page: 47
Evidence re capacity of Rig 4. Page: 48
Conclusions. Page: 49
Nature and accuracy of representations re BOP tickets required by Roll’n crew Page: 49
Evidence re pre-contractual representations made
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page: 49
October 24, 2005 conversation between Buan and Mills
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page: 50
October 25 meeting between Buan, Mills and Mele
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page: 51
October 26, 2005 communications between Buan, Rowbotham and Mills. Page: 51
Buan’s evidence regarding exemption. Page: 54
Rowbotham’s evidence re knowledge and exemptions from
Guide 36 Page: 55
Conversations between Mills and Rowbotham re Guide 36
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page: 55
Anderson’s evidence re his understanding of exemption
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page: 57
Anderson’s communications re exemption. Page: 58
2011 ABQB 658 (*)
Communications re December 9, 2005 AEUB shut-down
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page: 59
Conclusions. Page: 62
Summary Conclusions. Page: 65
Did Roll’n act negligently in making the alleged misrepresentations? Page: 65
Did Blaze rely on any alleged negligent misrepresentations?
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page: 65
Was the reliance detrimental? Page: 66
Is liability for misrepresentation limited by the “entire agreement” clause Page: 66
Conclusions re pre-contractual negligent misrepresentations. Page: 68
Issue 3: Did the MWS Contract incorporate the Blaze Drilling Program? Page: 68
Parties’ positions. Page: 68
Terms of the MWS Contract. Page: 68
Law and Analysis. Page: 71
Intention that contract embody entire agreement. Page: 72
Independent collateral contract. Page: 73
Implication to provide business efficacy Page: 73
Implication to effect completeness or give effect to intention of the parties
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page: 74
Intention to imply terms in express wording of agreement. Page: 74
Surrounding circumstances. Page: 74
Decision to use a service rig Page: 74
Decision to accept the Drilling Program. Page: 75
Circumstances surrounding execution. Page: 76
Discrepancies between Blaze Program and programs sent to Roll’n and Horizon. Page: 78
Decisions made contrary to Program. Page: 79
Previous dealings. Page: 79
Custom. Page: 79
Statute. Page: 79
Conclusions. Page: 79
Issue 4: Did Roll’n willfully or intentionally fail to comply with AEUB and OH&S legislation. Page: 80
Parties’ positions. Page: 80
Facts. Page: 80
Guides 36/Oil and Gas Conservation Act requirements and Roll’n’s efforts to comply Page: 80
Compliance with Occupational Health and Safety Act and Regulations
2011 ABQB 658 (*)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page: 84
November 9, 2005 “safety stand down”. Page: 85
OH&S inspection and reports. Page: 88
Law and Analysis. Page: 90
Traditional constructionist approach. Page: 90
Modern policy approach. Page: 92
Illegal contract vs. illegal performance. Page: 93
Summary Page: 94
Conclusions. Page: 96
Issue 5: Did Roll’n breach the MWS Contract? Page: 96
Parties’ positions. Page: 96
Facts. Page: 97
Failure to provide crew with first and second-line BOP tickets. Page: 100
Facts. Page: 100
Conclusions. Page: 101
Advice to use 10,000 psi BOP. Page: 102
Facts. Page: 102
AEUB Directives. Page: 102
Information in Blaze Drilling Program. Page: 103
Information in Blaze Abandonment Program. Page: 104
Pressure rating of casing bowl. Page: 105
Pressure rating of Roll’n mud pump manifold. Page: 106
BOP used in prior and subsequent Well operations
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page: 107
Conclusions. Page: 108
Alleged false representations re prior use and required modifications to accommodate BOP. Page: 108
Facts. Page: 109
Alleged representations. Page: 109
Extent of modifications required. Page: 111
Conclusions. Page: 111
Performance of Abandonment Operations. Page: 112
Facts. Page: 112
Conclusions. Page: 114
Assembly and pressure testing of BOP and testing of accumulator
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page: 114
Facts. Page: 115
Conclusions. Page: 119
Continued use of 10,000 psi BOP after knowledge of concerns
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page: 120
Facts. Page: 120
2011 ABQB 658 (*)
Conclusions. Page: 120
Capacity of Roll’n Rig 4 to perform operations. Page: 121
Facts. Page: 121
Conclusions. Page: 122
Unsafe working conditions. Page: 123
Facts. Page: 123
Tarps to keep BOP warm. Page: 123
Size of rig floor. Page: 123
Height of rig floor above driller’s pad. Page: 123
Floorhand’s escape route from rig floor. Page: 124
November 9, 2005 safety “stand down” Page: 124
Hydromatic brakes. Page: 125
Failure to conduct safety inspections. Page: 126
Release of safety trailer. Page: 127
Static arm modifications. Page: 127
Strain on Rig due to jarring operations. Page: 127
Safety generally Page: 127
Conclusions. Page: 128
Failure to properly maintain and repair Rig and equipment. Page: 128
Facts. Page: 128
Conclusions. Page: 130
Failure to provide mud pumps with required capacity Page: 130
Facts. Page: 130
Super 48 Pump. Page: 130
OPI 700 pump. Page: 131
Pump capacity required for the operations. Page: 131
Capacity delivered by pumps. Page: 133
Cost of downtime and repairs. Page: 136
Decision to continue to use pumps. Page: 137
Decision to take only one pump. Page: 137
Number of breakdowns and repairs. Page: 138
Conclusions. Page: 138
Failure to provide crew with required experience and qualifications
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page: 139
Facts. Page: 139
Experience in drilling or reentries. Page: 139
Experience with sour gas wells. Page: 140
Conclusions. Page: 141
Slow pace of operations. Page: 141
Facts. Page: 141
Conclusions. Page: 142
Cause of November 24, 2005 failure Page: 142
Facts. Page: 143
2011 ABQB 658 (*)
Conclusions. Page: 150
Cause for jar catching the rig floor. Page: 150
Facts. Page: 150
Conclusions. Page: 152
Cause for need to level Rig. Page: 152
Facts. Page: 152
Conclusions. Page: 153
Cause of difficulties with second re-entry Page: 153
Facts. Page: 153
Conclusions. Page: 155
Cause of loss due to December 9 AEUB shut-down. Page: 155
Facts. Page: 155
Conclusions. Page: 156
Cause of unsuccessful third re-entry attempt. Page: 157
Facts. Page: 157
Conclusions. Page: 158
Failure to provide daily reports. Page: 158
Facts. Page: 158
Conclusions. Page: 158
Law and Application. Page: 159
Conclusions. Page: 159
Issue 6: Did Roll’n negligently perform the MWS Contract. Page: 160
Parties’ positions. Page: 160
Law and Analysis. Page: 160
Conclusions. Page: 162
Issue 7: Did clauses in the contract exclude or limit Roll’n’s liability Page: 162
Parties’ positions. Page: 162
Facts. Page: 164
Law. Page: 166
Interpretation of exclusion clauses. Page: 167
Unconscionability Page: 168
Public policy Page: 169
Analysis. Page: 169
Conclusions. Page: 170
Issue 8: What is owing to Roll’n under its debt claim against Blaze? Page: 170
Parties’ positions. Page: 170
Facts Page: 171
Roll’n’s claim for services rendered. Page: 171
Alleged improper charges in Roll’n’s invoices to Blaze. Page: 171
Generator charges. Page: 172
2011 ABQB 658 (*)
Crew subsistence charges. Page: 172
Light plant charges. Page: 172
Pipe rack charges. Page: 173
Kilometres and vehicle charges. Page: 173
Additional Rig manager charges. Page: 174
Metal work and weight indicator charges. Page: 174
Downtime. Page: 174
Analysis. Page: 178
Conclusion. Page: 179
Issue 9: Is Roll’n entitled to interest on its debt claim? Page: 179
Parties’ positions. Page: 179
Facts. Page: 179
Blaze dispute of Roll’n’s invoices. Page: 180
Blaze offer to allow Roll’n to complete project. Page: 181
Law and Analysis. Page: 181
Conclusion. Page: 182
Issue 10: What is owing to Blaze under its counterclaim against Roll’n? Page: 182
Parties’ positions. Page: 182
Facts. Page: 183
Third party costs. Page: 183
Third party costs paid by Blaze to support Roll’n’s abandonment operations. Page: 183
Third party costs paid by Blaze to support Roll’n’s re-entry operations. Page: 184
Third party costs paid by Blaze to get to a point where re-entry operations could recommence. Page: 186
Loss of revenue. Page: 188
Evidence re prior production. Page: 188
Evidence re cost savings. Page: 189
Wrongful registration of builders’ liens. Page: 190
Loss of Tools. Page: 192
Conclusions. Page: 192
Issue 11: What were the terms of the agreement between Horizon and Blaze? Page: 193
Introduction. Page: 193
Parties’ positions. Page: 193
Facts. Page: 194
Advice re whether AEUB Guide 37 applied. Page: 194
Mills’ and Kindjerski’s prior dealings. Page: 194
Discussions re Guide 37. Page: 195
Conclusion of fact. Page: 196
2011 ABQB 658 (*)
Horizon’s acceptance of Blaze Drilling Program. Page: 197
Kindjerski’s evidence. Page: 197
Mills’ evidence Page: 199
Flynn’s evidence. Page: 199
Allen’s evidence. Page: 200
Conclusions of fact. Page: 200
Other factors. Page: 200
Mills initial request. Page: 200
Discussion on services to be provided. Page: 201
Decision to release Allen. Page: 201
Horizon did not bill Blaze for Kindjerski’s time. Page: 202
Kindjerski’s direction of Allen and Mills. Page: 202
Kindjerski’s involvement with Mills. Page: 204
Receipt of Horizon DORs. Page: 204
Horizon’s involvement after November 21, 2005. Page: 205
Reports received by Mills. Page: 205
Mills’ communications with Kindjerski. Page: 205
Expert Opinion. Page: 206
Conclusions of fact. Page: 206
Law and Analysis. Page: 207
Conclusion. Page: 209
Issue 12: Did Horizon breach its agreement with its duty of care to Blaze? Page: 209
Introduction. Page: 209
Parties’ positions. Page: 210
Law. Page: 211
Analysis. Page: 211
Failure or refusal to employ or to ensure properly qualified individuals at the Wellsite resulting in shut-down. Page: 211
Failure to ensure compliance with other AEUB directives resulting in AEUB shut- down. Page: 212
Retention of independent contractors who were no longer needed
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page: 212
Failure or refusal to properly maintain and supervise the drilling and recompletion. Page: 213
Preparation for the operations. Page: 213
Inspection and preparation of the Wellsite. Page: 214
Conduct of abandonment operations. Page: 214
Conduct of the re-entry operations. Page: 215
Conclusion. Page: 215
Failure or refusal to ensure proper equipment employed. Page: 215
Failure or refusal to properly inform and report. Page: 216
Failure to provide qualified, experienced wellsite supervisors. Page: 217
2011 ABQB 658 (*)
Is Horizon entitled to the benefit of Roll’n exclusion clauses? Page: 218
Conclusion. Page: 219
Issue 13: What is owing to Horizon under its debt claim against Blaze? Page: 219
Cost for services rendered. Page: 219
Effect of series of emails re payment. Page: 219
Service charges on overdue accounts. Page: 220
Validity of builder’s lien filed by Horizon. Page: 221
Issue 14: What is owing to Blaze under its counterclaim against Horizon? Page: 221
Conclusion. Page: 221
Blaze obtained an interest under a farmin agreement in a shut-in sour gas well near Brazeau, Alberta. In order for Blaze to earn an interest in any future production, it was required to commence operations to abandon the existing well, and drill a new well into the target zone within a relatively short period. The time line was tight and the industry was busy. After some searching, Blaze contracted with Roll’n to provide an oil and gas service rig and a crew to do the job. Blaze contracted with Horizon, an oil and gas consulting firm, to provide supervisory services. The operations were dangerous. Any gas escaping from the well would be at a concentration 175 times the lethal level. The parties encountered difficulties. Although expected to take two weeks, the operations stretched out over seven. The abandonment operations were completed in two weeks. However, despite three attempts over five more weeks, a new well had not been drilled into the target zone. Horizon’s wellsite supervisors left the wellsite and had no further involvement on the well after November 21, 2005. Blaze released Roll’n from the wellsite on December 17, 2005 and Roll’n left the wellsite on December 20, 2005 and never returned.
Blaze refuses to pay either Roll’n or Horizon for services rendered alleging that neither performed the work for which they were retained. Horizon and Roll’n each initiated separate actions and each sued Blaze in debt. Blaze defended and counterclaimed each action claiming damages and economic loss allegedly resulting from Roll’n’s and Horizon’s conduct during the operations.
The main issues in the Roll’n/Blaze action are whether Roll’n misrepresented its capability to perform the work and whether it breached its contract to such an extent that Blaze received no benefit, but in fact suffered damages, as a result. In the Blaze/Horizon action the main issue is whether Blaze or Horizon was responsible for directing the well operations and if
Horizon was responsible, whether Horizon breached its contract or duty of care by failing to act as a reasonably competent consulting firm in the circumstances.
2011 ABQB 658 (*)
The trial in this matter was lengthy, involved approximately 28 witnesses and a multitude of exhibits. There was little common ground between the parties. Most things were contested with the result that there were many issues with much evidence on each. Much of the evidence was contradictory. There were issues of credibility with respect to most of the principal witnesses. Despite the lengthy written arguments as well as the oral arguments it was sometimes unclear as to exactly what cause of action was being argued and therefore it was necessary to resort to the pleadings to ascertain that. Consequently, in order that the parties might better understand my reasons, I have quoted far more evidence and arguments than would otherwise have been necessary. For the same reasons, I have marshalled the most pertinent evidence as well as counsels’ arguments under each issue to be determined. This has meant that there is some duplication in referring to certain evidence but the intent is to make it easier for the parties to understand these reasons on an issue by issue basis.
As to the issue of credibility with respect to various witnesses, I have reminded myself that the parties and their respective witnesses were trying to arrange for men and equipment to drill a re-entry well under less than ideal circumstances. The industry was working at full capacity and thus equipment and crews were in short supply. They were not keeping or making notes and communicating with the idea that they would some day be testifying in court as to exactly what was said and when. So, when considering the various conflicts in the evidence between principal witnesses, the following observation of Mr. Jan Paulsson, a private arbitrator who was faced with significant conflicting evidence of a number of professionals involved in negotiations relative to a business venture, seem appropriate here:
...what seems operant here ... is the familiar human tendency, when recalling an initially ambiguous event in the light of their interest as revealed by subsequent litigation, to become ever more precise and ever less reliable.
The Defendant, Plaintiff by Counterclaim, Blaze Energy Ltd., carries on an oil and gas exploration business in Alberta. Biagio Mele was the President of Blaze, and Ed Mills was the Vice-President of Blaze, at all material times.
The well in which Blaze acquired its interest is legally described as 11-19-46, West of the Fifth Meridian (the Well or the Blaze Well). Blaze acquired its interest under a Farmin Agreement with Petro-Canada Oil and Gas and Devon Canada.
2011 ABQB 658 (*)
At the time it acquired its interest, Blaze already had an existing interest in the Well under a Petroleum and Natural Gas Lease dated May 18, 2000. Detector Exploration and Canyon Oil & Gas Corporation, two other defendants in this litigation, also had an interest in the Well under the same Lease: Ex. 003-046. Mills and his wife each held a 50 percent interest in Canyon, and Mills was a director of Canyon. Detector and Canyon are named because they each have either a working interest in the Well or are entitled to a gross overriding royalty from the Well production.
Blaze contracted with the Plaintiffs, as well as other third parties, to provide services, materials and equipment for the Well operations. Blaze also rented its own equipment and provided its own personnel to perform work at the Well.
The Plaintiff, Defendant by Counterclaim, Roll’n Oilfield Industries Ltd., was the owner and operator of a fleet of oil and gas service rigs. Brad Rowbotham was the General Manager of Roll’n and Rolly Buan was a marketing representative for Roll’n, at all material times: Agreed Statement of Facts, Ex. 001-002. Roll’n provided a crew and a service rig (Rig 4) and performed abandonment and re-entry drilling operations at the Well between October 27 and December 17, 2005.
The Plaintiff, Defendant by Counterclaim, Horizon Resources Management Ltd., operates an oil and gas consulting business. John Flynn was the President and Ken Kindjerski was the Vice-President of Horizon at all material times. Horizon provided Blaze with consulting services at the Well from October 27 to November 21, 2005. It did so through two subcontractors, 591696 Alberta Ltd. owned 100 percent by Mark Allen, and Bush Ape Supervision owned 100 percent by Randy Cripps. Mark Allen was at the Wellsite from October 27 to November 1, 2005. Randy Cripps was at the Wellsite from November 1 to November 21, 2005: Agreed Facts, Ex. 001-002.
The Well was originally drilled by Anderson Exploration in October 2001. It was reworked by Anderson in 2002 and by Devon, Anderson’s successor, in 2003.
Blaze acquired its interest in the Well under a Farmin Agreement on or about March 1, 2005. The Agreement stated that in order for Blaze to earn an interest it must “commence its operations to re-enter, plug back, and drill from the Existing Well” on or before December 16, 2005: see Ex. 002-016.
At the time that Blaze acquired its interest, the Well was shut-in. The existing well bore was approximately 3,800 metres deep and reached the sour gas reservoir in the Nisku geological formation. It was not feasible to produce sour gas from the existing well bore. Rather, Blaze planned to abandon that well bore and re-entered the Nisku by drilling a new well that would penetrate the Nisku at a different point. This was to be accomplished in two stages.
First, abandonment operations were to be conducted in the existing well bore. This entailed re-entering the well through the existing well casing, cleaning out the existing tubing and debris, and plugging the well bore with a cement plug at a depth of approximately 3,500 metres.
2011 ABQB 658 (*)
Second, re-entry drilling operations were to be conducted to drill a new well bore into the Nisku formation at a new location. The re-entry operations entailed dropping down through the existing well casing to a point just above the cement plug, drilling a hole from the inside to the outside of the existing well casing and drilling a new well bore from there down into the Nisku.
The abandonment and re-entry operations were expected to take two weeks.
Roll’n conducted operations at the Well for approximately seven weeks, from October 27 to December 16, 2005. Roll’n prepared the Wellsite for operations, set up its rig and performed abandonment operations from October 27 to November 11, 2005. The abandonment operations were completed on November 11, 2005 and the re-entry operations began. Roll’n conducted reentry operations from November 11 to December 17, 2005 when, after two unsuccessful attempts to re-entered the Nisku and during a third attempt but prior to completion, Blaze released Roll’n from the project. Roll’n then worked to tear down and load up its rig and left the site on December 20, 2005.
Horizon provided well supervisory services at the Well from October 27 to November 21, 2005. It was not involved in the operations after that date. Allen supervised the well operations on behalf of Horizon from October 27 to November 1, 2005. Allen left while the abandonment operations were underway and did not return to the Wellsite or provide supervisory services after that time. Cripps replaced Allen and supervised the well operations on behalf of Horizon from November 1 to 21, 2005. He supervised the remainder of the abandonment operations. Cripps then supervised the re-entry operations from November 11 to 21, 2005 when he requested to be released and was relieved by Mills. Cripps did not return to the wellsite or provide supervisory services at the Blaze Well after November 21, 2005.
Roll’n commenced its action against Blaze under Action No. 0601-03673. Horizon commenced its action against Blaze under Action No. 0601-02899.
By order of Justice B.E. Mahoney, filed December 2, 2009 Action No. 0601-02899 and Action No. 0601-03673 were consolidated and ordered to proceed as Action No. 06010-02899.
Roll’n invoiced Blaze for services rendered in November and December 2005. Blaze refused to pay. On March 21, 2006, Roll’n filed a Statement of Claim seeking judgment in debt
against Blaze for services rendered in the amount of $976,560.13, together with interest at the rate of 18 per cent per annum.
2011 ABQB 658 (*)
Roll’n also sued the Defendants, Canyon, Detector and Devon, due to their respective interests under either a working interest in, or a gross overriding royalty interest from, the Well production.
Roll’n also filed builders’ liens against all those with estates and interests in the minerals in the Alberta crown leases on which the Well is located and certificates of lis pendens with Alberta Energy and Natural Resources pursuant to s. 6 of the Builders’ Lien Act R.S.A. 2000, c. B -7.
Blaze filed a Statement of Defence and Counterclaim and a subsequent Amended Statement of Defence and Amended Amended Counterclaim, dated January 28, 2010, in which it denies owing any debt to Roll’n or, in the alternative, if any debt is owing, that the invoices submitted by Roll’n to Blaze include overcharges for downtime, double charges, and charges for equipment that was not needed for the re-entry totalling $233,956.44; and that the invoices improperly give no credit for expenditures incurred by Blaze to lease equipment because the Rig was not properly equipped and was not capable of commencing the re-entry, totalling
$74,289.99.
Blaze further denies that Roll’n performed any work or completed any work, let alone the Blaze re-entry. It alleges that to the contrary, Roll’n knowingly misrepresented its abilities, fundamentally breached its contract with Blaze, and with gross negligence, damaged the Well, needlessly causing Blaze to a) lose $375,000 worth of tools; b) incur $1,883,627 in additional charges for the re-entry; c) lose $2,500,000 in revenue from the Well; d) and suffer damages to its reputation with the AEUB and the industry of $100,000 as a result of the filing of Roll’n’s builders’ lien.
Blaze argues, in the alternative, that if Blaze is indebted to Roll’n as alleged, that Blaze be permitted to set-off any such indebtedness as against the loss and damages allegedly suffered by Blaze totalling $5,166,873.43.
Blaze claims costs against Roll’n, on a solicitor and its own client basis (full indemnity) for the costs Blaze incurred in defending this action, pursuant to s. 40 of the Builders’ Lien Act.
Roll’n defended Blaze’s Counterclaim denying Blaze’s allegations and arguing further that Blaze’s claims are precluded under several exclusion clauses in their contract.
Horizon invoiced Blaze for services rendered in November 2005. Blaze refused to pay. On March 2, 2006, Horizon filed a Statement of Claim seeking judgment for services rendered in
the amount of $39,081.35 together with service charges, or in the alternative, interest under the
Judgment Interest Act, R.S.A. 2000, c. J-1.
2011 ABQB 658 (*)
Horizon also sued the Defendants, Canyon, Detector and Devon, because of their respective interests from the Well production.
Horizon also filed builders’ liens against all those with estates and interests in the minerals in the Alberta crown leases on which the Well is located and certificates of lis pendens with Alberta Energy and Natural Resources pursuant to s. 6 of the Builders’ Lien Act.
On March 24, 2006, Blaze filed a Statement of Defence and Counterclaim, claiming judgment against Horizon, Allen, 591696 Alberta Ltd. (Allen’s company), Cripps, and Bush Ape Supervision (Cripps’ company) for damages totalling $486,061.50 in respect of alleged breaches of contract and breaches of duty of care.
In Blaze’s Amended Statement of Defence and Amended Amended Counterclaim against Horizon, Allen, 591696 Alberta Ltd. (Allen’s company), Cripps, and Bush Ape Supervision (Cripps’ company) it also increased its claim for damages to $5,266,873.43. It also alleged that the Defendants by Counterclaim were jointly and severally liable for the damages claimed and relied on the provisions of the Contributory Negligence Act, R.S.A. 2000, C. C-27. Alternatively, Blaze claimed a proportionate amount of damages as against each of the Defendants under the Tort-Feasors Act, R.S.A. 2000, c. T-5.
In late January 2010, Blaze discontinued its actions against Allen, 591696, Cripps and Bush Ape.
Devon filed a Statement of Defence on June 4, 2008 denying, inter alia, the allegations made by Roll’n. Devon pleaded in answer to the whole of Roll’n’s Statement of Claim that Roll’n has a valid lien only if Roll’n establishes that Blaze is indebted to Roll’n for work completed on the lands, and only if a portion of the price for the work completed by Roll’n under its contract with Blaze remains owing. It alleged that otherwise, Roll’n had improperly and wrongfully filed a lien against Devon’s lands when Roll’n knew or ought to have known that Roll’n had no claim whatsoever, and that Roll’n is thereby liable to Devon for the costs Devon may incur in defending this action, on a solicitor and its own client basis pursuant to s. 40 of the Builders’ Lien Act.
Devon’s counsel appeared on the first day of trial and advised the Court that Devon would not participate further in the trial and understood that it would be bound by this judgment. Counsel advised that if Roll’n proves its claim, Devon will apply for an order granting Blaze as much time to pay as possible, to prevent the Plaintiffs from looking to the land for a remedy.
Alternatively, if Blaze successfully defends the claim, Devon will seek costs against the Plaintiffs, including costs under s. 40 of the Builders’ Lien Act, for wrongful registration.
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Canyon filed a Statement of Defence on May 29, 2008 denying the allegations made by Roll’n in its Statement of Claim and in particular, denying that Roll’n had improved Canyon’s interest in the lands and that Roll’n was entitled to a builders’ lien against Canyon’s interest in the lands or that Roll’n had any interest in priority to Canyon’s interest. Counsel for Blaze also appeared on behalf of Canyon.
Detector filed a Statement of Defence on June 13, 2008 denying the allegations made by Roll’n in its Statement of Claim, stating that it had no knowledge of the allegations as to the main issues in dispute and stating that it would abide by the final order of this Court with respect to any determination regarding a lien interest on the subject lands, and demanding notice of proceedings and specific notice of any monetary claim against it in these proceedings. No one appeared at trial on behalf of Detector.
Horizon only served its Claim on Blaze but not the other Defendants and as a result, its liens will not attach the interest of the parties who were not served.
Blaze retained N. L. Fisher Supervision Ltd to prepare the Drilling Program: see Ex. 001-007.
The Drilling Program specified that operations comply or exceed the requirements of AEUB regulations and standard industry practices governing sour gas well operations including Interim Directive 97-6 (ID 97-6) , Industry Recommended Practices, Volume 1(IRP Vol. 1), and Directive/Guide 36.
The existing well was shut-in. The Blaze Drilling Program states that the existing well had a vertical depth of approximately 3,695 metres.
The Program stated that a new well was to be drilled to a measured depth of approximately 3,853 metres. The Program specified that at that depth, the bottom hole pressure (BHP) expected was 37,091kilopascals (KPA) and the maximum expected sour gas (H2S) content was 17.51 percent.
The percentage of H2S expected meant that the Well was classified as a critical sour gas well.
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Sour gas wells are equipped with a blowout preventer system (BOP) to contain the pressure of a possible well blowout and prevent the escape of sour gas. The BOP pressure needed to contain a blowout is measured in pounds per square inch (“psi”) and the size of the BOP required depends upon the force of the pressure coming from the fluids and gas in formation from which the gas is to be extracted (the target zone).
One of the issues in this litigation is whether a 5,000 psi BOP or a 10,000 psi BOP was required for the Blaze operations. The Blaze Drilling Program specified that a 5,000 psi BOP be used during the re-entry/drilling operations at the Blaze Well. The Program specified how the Well BOP was to be configured during the drilling of the critical section of the Well. The Drilling Program did not cover the abandonment operations.
The re-entry operations were to commence once the abandonment phase had been completed. The Blaze Drilling Program specified the steps involved in the re-entry operations.
The re-entry was to be conducted in two stages.
The first phase involved drilling to a point just above the Nisku. First, a hole (window) was to be drilled from the inside to the outside of the existing 177 mm. well casing at a depth of approximately 3,500 metres. Second, a new hole would be drilled starting from the window at 3,500 metres in a horizontal downward direction to 3,672 metres to a point approximately 10 metres above the Nisku formation. Third, a 114 mm. intermediate drill pipe casing (or liner) would be set in the new hole that had been drilled, cemented shut and plugged with at 10,000 psi bridge plug.
The second phase involved drilling with a smaller 95.25 mm. bit through the cement in the 114 mm casing and out its lower end into the critical sour zone of the Nisku to a depth of approximately 3,695 metres. The estimated length of the hole in the Nisku was approximately 29 metres. The distance from the window in the existing well casing at 3,500 metres to the bottom of the new well in the Nisku at a depth of 3,853 metres, was 353 metres.
The drilling of the new well bore from the hole outside the existing casing at approximately 3,500 metres down to the Nisku was referred to as “open hole” because it would not be drilled inside any well casing. Mills explained that after the 114 mm. intermediate casing or liner was set, it would be tied back into the 177 mm. casing and thus that Blaze would have “...complete integrity from the casing that’s in the well bore now to the top of the Nisku formation.”
The re-entry operation is summarized at p. 4 of the Program (the words in square brackets explain the meaning of the acronyms used; the underlined sections are my emphasis):
Operational Summary
Prepare location. Notify local authorities. Move in rotary tools.
Remove wellhead and install Class V BOP. Pressure test BOP’s and related equipment.
Pick up drill pipe and RIH [run in hole] with drill pipe and gauge ring and tag [means touch] top of bridge plug. POOH [pull out of hole] with gauge ring and pick up and RIH with one top trip whipstock. Orient whipstock with gyro and set. Mill window in casing and drill approximately two metres into competent formation with water. POOH with mills. Pick up directional tools and RIH to window. Displace well over to invert mud system as per attached program.
From KOP directionally drill to an inclination of 47.25 degrees on a
225.60 degrees azimuth heading.
Complete directionally drilling intermediate hole #3 into the non porous base rock of the Winterburn formation at ±3673mKB TVD ±10m above the Nisku formation. Trip out.
Log intermediate hole #3. Run 114.3 mm L-80 casing to ±3673mKB TVD and cement casing as per EUB G-9. Land casing with liner hanger and lap packer. Unset from hanger and circulate well. POOH with drill string. Run and set retrievable 177.8 mm 10K bridge plug at ±2000mKB.
Circulate well over to fresh water. Pressure test bridge plug. Pull out of hole and lay down drill pipe. Remove BOPs. Install wellhead. Tear out and release rig.
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Critical Sour Level 4 Classification Begins.
Move coil tubing rig. Move in safety equipment. Hold pre-penetration meeting with local authorities (ID 97-6). Provide for a minimum of 48 hours notification.
The well will be on critical status from 24 hours prior to entering the Nisku to total depth until the well is incapable of flow.
[Emphasis added]
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The Drilling Program sets out the following qualifications and experience required by wellsite personnel involved in the Blaze Well at p. 14-15. The acronym “PITS” stands for “Petroleum Industry Training Service” which at the time of trial had been replaced by “Enform”:
Wellsite Personnel:
Responsibilities:
The wellsite personnel will fulfill the roles, qualifications and responsibilities as outlined in the IRP Volume 1 and as outlined in the Site Specific Emergency Response Plan. The company’s representative(s) and all contract personnel will be experienced in drilling sour wells, and will meet or exceed the certification requirements of the IRP Volume 1.
Supervision:
Wellsite supervisor will have a current PITS Second-Line Supervisor BOP Well Control certificate, H2S Alive certification and experience in drill sour wells.
During the critical period of the drilling operation, sufficient supervision will be on site and available so that no individual supervisor is required to work a shift longer than 12 hours.
Rig Crew
On-site rig managers will have a current PITS Second-Line Supervisor BOP Well Control certificate and H2S Alive certification and experience in drilling sour wells, and drillers will have a current PITS First-Line Supervisor BOP Well Control certificate H2S Alive certification and experience in drilling sour wells.
....A minimum of five (5)-man drilling crew shall be maintained and crew members shall have H2S Alive certification.
Service Personnel
Key on-site service personnel including mud-men, loggers, geologists, etc. will have previous experience in sour well drilling operations and shall be trained in H2S safety.
Safety Specialists and Equipment
During the critical period of the drilling operation, safety personnel and adequate safety equipment for all workers will be on site as specified by the Occupational Health & Safety (OH&S) Act and Regulations.
[Emphasis added]
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The AEUB granted Blaze the well licence on October 24, 2005: see Ex. 002-014. The well licence stipulated that Blaze follow the Drilling Program.
The Drilling Program stipulated that Guide 36 applied to the Blaze drilling operations.
On December 9, 2005, the Blaze well operations were shut-down for failure to comply with Guide 36, in part, because the Roll’n rig manager and driller did not possess the blowout prevention certificates required.
Guide 36 details the minimum equipment and procedure requirements that a licensee must follow when drilling wells in the Province of Alberta. It also serves as a reference for AEUB drilling rig inspection staff to assist them in completing an, AEUB Drilling Inspection
/Investigation Report: Guide 36, s. 1 (Ex. 002-011).
Section 23.1 of Guide 36 states:
Drilling with a Service Rig
Drilling More Than 50 m or More Than One Hydrocarbon-Bearing Formation
When the licensee is conducting drilling operations with a service rig, the operation is classified as a drilling operation if
more than 50 m measured depth of new hole will be drilled, or
more than one potential hydrocarbon-bearing formation will be penetrated.
All requirements set out in Directive 36: Drilling Blowout Prevention Requirements and Procedures must be complied with.
Any modifications to these requirements by the licensee requires formal approval from the EUB Well Operations Group in Calgary.
[Emphasis added]
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Clause 10.2 of Guide 36 states that the licensee’s representative, rig manager and driller must be trained and certified by PITS in the operation of blowout prevention equipment and well control. Section 10.2.1.1 states that the driller must possess either a valid, PITS-issued, first-line supervisor’s BOP certificate (first-line BOP ticket) or valid PITS-issued, second-line supervisor’s well control certificate. Section 10.2.2.2 states that the licensee’s well-site representative and rig manager must possess valid, PITS-issued, second-line supervisor’s well control certificates (second-line BOP ticket).
The Drilling Program stipulated that ID 97-6 applied to the Blaze operations.
Interim Directive 97-6 is an AEUB interim directive governing sour gas wells including licencing applications, classifications of the level of sour gas, minimum distance requirements from residential and other developments, emergency response plans, drilling requirements for critical sour wells and enforcement provisions.
Section 1.2.5 of ID 97-6, entitled Change from Critical to Non-Critical Status, states that once the AEUB or the applicant for a well licence “has determined a well to be critical, the well is subject to all critical well requirements at the drilling, completion, workover, and production phases of the well. In order to change the classification of the well, the licencee must notify the Board’s Operations Group of the change in writing The licencee is responsible to prove at any
stage of the well (completion, workover, production) that the classification has been changed to non-critical and that critical well requirements are no longer applicable.”
Blaze was the applicant licensee in this case. Roll’n and Horizon argue that the Well was a critical sour well at all times, that Blaze did not notify the Board that its classification had changed, and that it was therefore required to meet the requirements of ID 97-6 during the abandonment operations.
Section 4 of ID 97-6, entitled Drilling Requirements at Critical Sour Wells, states that the AEUB requires “the licensee to meet or exceed the Alberta Recommended Practices (ARPs) when drilling critical sour wells. Volume 1 (Drilling) and Volume 2 (Completing and Servicing). ”
Section 4.5 of ID 97-6, entitled Personnel, stipulates the level of experience and the certifications required by personnel working on a critical sour gas well.
Section 4.5.1 of ID-97-6 requires that on-site supervisors “ must have a current PITS
Second-Line Supervisor BOP Well Control certificate, H2S Alive certification and experience in drilling sour wells.” It states that during the critical period of drilling operations, “. sufficient
supervision must be on site and available so that no individual supervisor is required to work a shift longer than 12 hours”: see also ID 90-1, s. 7.3.6.
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Roll’n and Horizon allege that Blaze contravened this requirement by having Allen and Cripps work 24-hour shifts. Mills responded that this was not a requirement until the operations reached the critical zone of the operations.
Section 4.5.2 of ID-97-6 requires rig managers, drillers and crew to have specific certifications and experience. It states that “[o]n-site rig managers must have a current [second-line BOP ticket], and drillers must have a current [first-line BOP ticket]. It also states that they must have a H2S Alive certification and experience in drilling sour wells. It states that there must be a five-man crew and that all members shall have a H2S Alive certification.
Blaze alleges that Roll’n contravened this provision because none of Roll’n’s personnel had a second-line BOP ticket.
Section 4.5.3 of ID-97-6 requires that “[k]ey on-site service personnel including mud-men, loggers, geologists, etc. shall have previous experience in sour well drilling operations” and that all well-site personnel be trained in H2S safety. Blaze alleges that the Roll’n crews conducting the Blaze operations did not have sufficient experience in sour well drilling operations.
Section 4.5.4 of ID-97-6 states that “[d]uring the critical period of the drilling operation, safety personnel and adequate safety equipment for all workers must be on site (minimum requirements are specified by the Occupational Health & Safety Act (OH&S) and Regulations.” Roll’n and Horizon allege that Blaze contravened these requirements during the Blaze operations, including during the abandonment operations, by refusing to hire and by dismissing safety personnel. Mills disagreed that safety personnel were required from the onset of the Well operations. He said that they were not required until the operations reached the critical, just prior to the time when the drilling reached the Nisku.
The Blaze Drilling Program stipulates that the Well operations are to be conducted in accordance with IRP, Volume 1. Blaze argues that although these practices are only recommended practices, they became part of the Master Well Service Contract (MWS Contract) by their inclusion as a requirement of the Program.
Enform (formerly PITS) and the Canadian Association of Oilwell Drilling Contractors (CAODC) Drilling Completion Committee, both listed on the first page of IRP, Vol. 1, were industry players and they, the AEUB and other government agencies were involved in the preparation of IRP Vol. 1.
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This document contains a set of recommended practices developed for the oil and gas industry by various bodies involved in the industry, to provide a set of best practices that will prevent a blowout while drilling a critical sour well. It covers hazard assessment, planning, casing design and metallurgy, and BOP stack requirements including their configuration and components, choke manifolds, mud gas separators, drill string design and metallurgy, welding, drilling fluids, kick detection, wellsite safety, wellsite personnel. It also specifies the responsibilities of the crew involved in drilling critical sour gas wells and the qualifications that the crew requires.
Section 1.3.1.1 1 of IRP Vol. 1, at p. 39, states that the “overall project plan [which means the Drilling Plan] and application to the appropriate regulator to undertake the drilling of a critical sour well will be developed and signed by a qualified technical expert authorized by the operator”. The Blaze Drilling Program (Ex. 001-007) is not signed by Blaze or N. L. Fisher. Mills agreed but said the Drilling Program sent to the AEUB was signed.
Section 1.3.1.1 1 of IRP Vol. 1, p. 40 states that it allows “flexibility in several instances provided a qualified technical expert relative to the practice/technology has approved the options in question”. Mills agreed that Kevin Meyers of N. L. Fisher prepared the Drilling Program and that Mills did not make inquiries as to Meyers’ qualifications.
Section 1.10.5.5 of IRP Vol. 1, p. 207 states that a “qualified drilling fluid specialist shall be on location prior to drilling into, while drilling through, and at least 100 m below the critical sour formation or at any time there are soluble sulphides in the mud filtrate.” Roll’n and Horizon allege that there was no such specialist at the Well location during the time that Roll’n was performing operations. Mills agreed but again stated that this was not required until the drilling reached the critical sour phase of the operations.
Section 1.12.1.2 of IRP Vol. 1, p. 215 1 states that “site access control personnel will deny access to anyone without certification ...” Section l.12.1.3 states that “[p]rior to drilling into the critical sour zone, a minimum of two H2S Safety Supervisors are required on 24-hour basis, each working no more than 12-hour shift while on location.” Mills agreed this applied but not when Roll’n was at the wellsite since they were not working during the critical sour phase of the operations.
Section 1.12.1.4 of IRP Vol 1, p. 216 states that “[p]rior to drilling into the critical sour zone, site access control must be in place. Only authorized personnel will be allowed on the wellsite. A record of all personnel on the wellsite must be maintained current at all times.”
Roll’n argues that this provision applied during the setup and abandonment operations as the people working at the wellsite were exposed to the critical sour gas in the Nisku formation through the existing well bore.
Section 1.13 of IRP Vol. 1, p. 218 deals with the qualifications and experience required of wellsite personnel. Section 1.13.1.1 states:
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The Operator will delegate a primary wellsite supervisor as having overall control in the chain of command.
The Primary Wellsite Supervisor has the overall responsibility to his company for the well and for compliance with all regulations relating to the operation of the well.
He must establish a chain of command and a line of communication at the wellsite.
The primary wellsite supervisor must be onsite (or readily available (can get to location with 2 hours) at all times.
Blaze argues that Horizon was the primary well supervisor when Allen and Cripps were onsite. Roll’n and Horizon argue that the primary well supervisor was Blaze.
Section 13.1.1.2 of IRP Vol. 1 deals with the rig contractor’s responsibilities and states:
1.13.1.2. IRP Rig Contractor’s Responsibilities
The Rig Contractor’s representative has the responsibility to the Operator’s representative for the operation of the rig during the drilling of the well which provides for a single chain of command for the well operations.
He is responsible to his company for the rig equipment and crew, and for compliance with all regulations relating to the operation of the rig.
1.13.1.3 IRP Shared Responsibility
The day-to-day operations on a lease are a shared responsibility between the contractor’s and operator’s representatives, but the ultimate responsibility for supervision of the well operation is assigned by the Operator to the Operator’s representative.
Section 1.13.3.1 deals with the competency required of a primary wellsite supervisor:
1.13.3.1 IRP Primary Wellsite Supervisor
The primary wellsite supervisor must be competent in the application of existing ARPs/IRPs and Emergency Response Planning.
The Primary Wellsite Supervisor must have the following minimum experience levels:
5 years Operator’s wellsite supervisory experience (or 3 years drilling engineering + 2 years wellsite supervisory experience)
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must have supervised a minimum of 5 sour drilling operations while operations were being conducted in the sour zone.
Since the complexity of a well generally increases with depth, the primary wellsite supervisory’s previous sour well experience must have been on wells of similar complexity and depth when compared to the critical sour drilling operation he/she will be supervising.
Section 1.13.3.3 deals with the minimum experience for the rig manager on a sour well:
IRP Rig Manager
The Rig Manager must have the following minimum experience levels
5 years experience as a Rig Manager or driller.
must have been involved (as rig manager or driller) in 5 drilling operations while these wells in the sour zone.
Training/certification requirements:
Second-Line BOP
H2S alive
First Aid
WHMIS
TDG
Confined Space Entry
Fall Protection
Section 1.13.3.4 of IRP Vol. 1 specifies the qualifications and experience of the drilling crew on a critical sour well:
IRP Drilling Crew
Each member must be competent to fully handle his/her individual responsibilities and to fully understand his/her responsibilities for the critical well control operation.
Drillers: must have a minimum of 3 years as a driller and/or derrick man, with experience in sour well operations. Must have First-Line BOP certification.
Derrickman/motorman: must have a minimum of 3 years rig experience, with experience in sour well operations.
Motorman/Floorhands: must demonstrate crew competency requirements re BOP and man-down drills as per IRP 1.13.3.3 BOP Drills....
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Ward said that the requirements of IRP Vol. 1 were applicable during the 2005 operations on the Blaze Well.
Mills disagreed with Roll’n’s suggestion that IRP, Vol. 1 only requires wellsite personnel to have sour gas experience and not experience in critical sour gas wells.
Industry Recommended Practice Vol. 7, Appendix A, entitled “Levels of Control and Responsibility for Safety Management”, states that the chain of command flows from the operator who is the owner and licensee of the well, in this case Blaze, to the prime contractor who is the operator unless assigned in writing, in this case Blaze, to the wellsite supervisor, the entity representing the prime contractor who directs all employers at the wellsite, in this case Horizon, through its subcontractors Allen and Cripps and their respective companies.
Blaze argues that IRP Vol. 7 was not relevant as the MWS Contract stipulated that IRP Vol. 1 governed. Cripps testified that he was aware of IRP Vol. 7 and considered himself bound by it. Ward said that IRP Vol. 7 was an industry recommended practice developed by members of the oil and gas industry setting out the standards required of operators and rig contractors conducting drilling, completion and workovers in the industry.
I find that IRP Vol. 7 is relevant although its weight is limited.
Industry Directive 90-1 deals with the completion and servicing of sour wells, s. 7.3.5 (3) of which provides:
7.3.5 (3) For new critical sour wells, the tubing head spool (above secondary seal) tubing hanger and Christmas tree assembly working pressure ratings as defined by API 6A shall be equal to or greater than the BHP of the producing formation.
(4) For new critical sour wells, the wellhead and Christmas tree assembly and other wellhead service equipment should not be exposed to operating pressures greater than their API maximum working pressures rating (MWPR).
Callicott the AEUB inspector who shut down the Well operations on December 9, 2005, said that ID 90-1 would have been in force in October and November 2005.
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Three types of reports were created to report on the Blaze Well operations over the period that Roll’n and Horizon were providing services at the Blaze Well: the Tower Reports, the computer generated Pason Reports, and the Daily Operations Reports created by Horizon, and following Horizon’s departure, by Blaze. These reports were referred to in evidence provided throughout the trial and a brief description is helpful at this preliminary stage.
The first type of reports generated were the Tower Reports: Ex. 8. They were prepared by Roll’n on Roll’n’s standard form Daily Work Report to record and report to Roll’n and Blaze on Roll’n’s daily operations. The entries are short-form, handwritten notes that were made by the Roll’n’s rig manager or drillers on duty each day. They were reviewed and executed by the Roll’n rig manager and by the onsite well supervisor in charge each day. They were also used by Roll’n’s payroll department to track the charges payable by Blaze for the services and equipment supplied by Roll’n.
The second type of reports generated were the Pason Reports: Ex. 7. They were prepared by Roll’n on computer generated, CAODC approved, standard forms, to record and report to Roll’n and Blaze on the daily operations in more detail. Pason is an electronic drilling recording system. Sensors were put on various outlets on the Rig to monitor various functions with a computer. Functions were monitored and recorded in real time. The Pason data was transmitted from the Rig to a computer in the well supervisor’s shack, the rig manager’s shack, and the driller’s shack.
It was possible for the Pason data to be transmitted from the Wellsite to Blaze’s office in Calgary. It was also transmitted and stored in a data hub in Calgary to which Blaze had access during the Well operations.
The Pason data recorded some parametres and other parametres could be keyed in by Roll’n. Only Roll’n could email the Pason Reports from the computer in the rig manager’s shack to the Blaze offices and to the data hub in Calgary.
The third type of reports generated were the Daily Operations Reports (DORs): see Ex. 002-021 for the Horizon DORs from October 28 to November 20, 2005; see Ex. 003-022 for Blaze’s DORs for November 21 to December 28, 2005. They were prepared by the onsite well supervisor on the well supervisor’s standard form Daily Operations Report to record and report to the well supervisor and Blaze on the daily operations. The entries are also short-form, hand written notes made by the well supervisor on duty each day. They were also used by Horizon to track the hours during which Allen and Cripps provided wellsite supervisory services for the purposes of invoicing Blaze for those services.
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The wellsite supervisor DORs were prepared by Allen and Cripps on Horizon’s Daily Operations Report form during the time that they were at the Wellsite. Allen created the Horizon DORs for October 28 to November 1, 2005. Cripps arrived onsite on November 1, 2005 and he and Allen created the November 1, 2005 Horizon DOR. Cripps created the Horizon DORs from November 2 until November 20, 2005.
After Cripps left the Wellsite, the well supervisor’s DORs were prepared on Blaze DORs by either Mills or other wellsite supervisors Blaze had hired.
There was a computer-generated error in the Horizon DORs showing Mills as the wellsite supervisor from November 16 to 20, 2005. Cripps was the wellsite supervisor on those dates. Mills did not take over as wellsite supervisor until November 21, 2005.
A number of witnesses were called to give evidence in support of the parties’ various claims. Given the complexity and multiplicity of actions and the number of witnesses it is helpful to summarize as a preliminary matter, on whose behalf they testified, their roles in relation to the parties and their experience. Their evidence bearing directly on the matters in issue is discussed in more detail under each issue as required.
In support of its debt claim, Roll’n called Rolly Buan and Darla Briem. Both were employees of Roll’n.
Buan was Roll’n’s marketing representative from approximately November 1999 to March 2006 when he retired. Buan negotiated the contract between Roll’n and Blaze and testified primarily regarding the circumstances around the formation of the contract. Prior to working for Roll’n, Buan had worked for another rig service company for nine years. In total he had approximately 42 years’ experience in the oil and gas industry.
Briem was Roll’n’s Certified General Accountant and its controller at all material times. Briem testified as to Roll’n’s billing procedure and how invoices were issued.
In defence of Blaze’s counterclaim, Roll’n called a number of witnesses.
It called two of its rig managers, Rob Anderson and James Yearwood.
Anderson was the Roll’n rig manager who was onsite during the Blaze operations from October 27 to November 5, 2005 and from November 15 to December 5, 2005 and provided evidence related to his first-hand knowledge of what occurred during that time.
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James Yearwood was the Roll’n rig manager onsite during the Blaze operations from November 5 to November 15, 2005. He also testified as to his first-hand knowledge of what occurred during that time.
Dan Vickers was Roll’n’s safety and human resources manager. He had worked for Roll’n in that position for 13 years at the time of trial and testified as to safety and human resources processes and his first-hand knowledge of such matters in regard to the matters in issue.
Brad Rowbotham was Roll’n’s general manager from 1996 to the date of trial. He communicated with Buan and Mills both before and after Roll’n and Blaze entered into the MWS. Although Rowbotham was never at the Blaze Well, he was in contact with the Roll’n crew at the site, as well as with Mills and other witnesses. He reviewed and was well familiar with the Tower Reports. He was an active member of the CAODC, a trade association representing the interests of contract drilling and service rig contractors across Canada. He was on the CAODC Safety and Technical Committee from the mid-1990s and the Chairman of the Committee in 2005 and 2006. In 2008, Rowbotham was also the Chairman of the CAODC Service Rig Executive Committee and was a Director of CAODC at the time of trial. He was the CAODC’s representative on the Drilling and Completions Committee, which oversees all industry recommended practices.
Roll’n called John Jacobsen who was qualified as an expert in oil and gas drilling and reentry operations, practices, equipment and personnel and contracts in western Canada. Jacobsen began his career working his way up on the rigs in the oilfield from roughneck to driller to rig manager, a position he held for nine years. Jacobsen took all the training and obtained all the certifications required for his work. In his early career he also worked as a field and drilling superintendent in Alberta and British Columbia. He worked for Precision Drilling, a drilling contractor, for 42 years and held various management positions with the company for 37 of those years. As Precision’s Senior Vice President and Vice President of Operations, he was responsible for managing its Canadian drilling fleet of 245 rigs including overseeing operations, safety and employee training. He was also responsible for Precision’s supporting business, Columbia Oilfield Supply, which supplied all the Precision rigs, for Rostel Industries, which manufactured, repaired and refurbished drilling and service rigs, and for Live Well Services, a well service company. He had also worked in management positions with corporations in which he had developed a small group of rigs that were similar to the service rigs now being used in the industry. He was one of the founding members of Alberta Learning, Rig Technician Apprenticeship Committee, which established a type of apprenticeship program for those working on drilling rigs. The program has been offered since 2007. He was the director of CAODC from May 1995 to November 2007 and Chairman of the CAODC Board in 1998, 1999, 2005 and 2006. At the time of trial, he had been an independent director of BC Oil & Gas Commission Board since June 2007, a companion organization to the Alberta ERCB. Blaze argues that Jacobsen’s evidence should be given less weight due to his lengthy affiliation with CAODC, an organization to which Roll’n belonged and whose purpose is to advocate for the
interests of its members. I see no merit to that argument. I found Jacobsen to be a knowledgeable, forthright witness. Jacobsen’s Expert Report is entered as Ex. 006-155.
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Roll’n called Mickey Sutherland who was qualified as an expert in respect of oil and gas well servicing, drilling, abandonment and re-entry operations, practices, procedures, regulations, equipment, personnel and contracts in Western Canada. Sutherland obtained a Bachelor of Science in Petroleum Engineering and had been recognized as a professional engineer and a member of the Association of Professional Engineers, Geologists, and Geophysicists of Alberta (APEGGA) since 1979. He has previously been qualified to give expert evidence on oil and gas operations by this Court. He worked as a floor hand on drilling rigs in the summers prior to receiving his degree. He had worked with his family operating contract drilling operations for two or three years. He was the Manager of Drilling and Completions with Anderson Exploration for 14 years. At the time of trial he was the sole owner of Pajak Engineering which is in the business of providing project management services and supervisors for oil and gas operations. Sutherland’s Expert Opinion was entered as Ex. 006(2)-159.
Saj Shapiro was the CAODC Manager of Economic Analysis from approximately 2000 to 2004. He had some involvement in the creation the Master Well Services Contract (MWS Contract), the standard form contract entered into by Blaze and Roll’n.
Donne Herring was the CAODC President at the time of trial, a position he had held for more than 25 years. He testified as to Roll’n’s CAODC safety record.
Paul Sharp was qualified as an expert witness for Roll’n in the quantification of lost production income from oil wells. His Expert Report is entered as Ex. 006-158.
Roll’n also relied upon portions of Blaze’s examination for discovery transcript.
In support of its defence and counterclaim, Blaze called the following witnesses.
Biagio Mele was Blaze’s President. He was in charge of Blaze’s corporate and financial affairs and testified as to the losses being claimed by Blaze.
Ed Mills was Blaze’s Vice-President. Mills negotiated the MWS Contract with Roll’n and was Blaze’s representative at the Wellsite from and including October 28 to 29, November 21 to 24, and November 28 to December 2005. He was involved in the Blaze operations throughout the period in question.
Mills received a fourth class engineer certificate from the Southern Alberta Institute of Technology in 1991. He then became a production superintendent for Northern Reef and
subsequently worked for Penn West Petroleum for three years where he was a drilling superintendent. At the time of trial he had been with Blaze for approximately 15 years.
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Mills was very experienced in drilling oil and gas wells. Prior to his involvement with the Blaze Well he said he had conducted hundreds of oil and gas re-entry operations where the hole was sidetracked off and drilled vertically or horizontally. Although he said he was not experienced with sour wells, he testified that he had conducted 30 or 40 reentries on sour wells. However, he stated that they were only one or two percent sour, as opposed to the Blaze Well, which was 17 percent sour. Of the 30 or 40 reentries Mills had conducted on sour wells, he said that two of them were with service rigs, as opposed to drilling rigs.
Mills’ resume (Ex. 006-136) states that he had 27 years experience in Western Canada oil and gas fields and “progressive experience in drilling, completions, facilities and production operations”. It states he had key strengths and demonstrated capabilities in drilling operations which were described as “planning and coordination of all drilling functions including horizontal wells, critical sour wells...” Mills testified that he had a second-line BOP ticket and prior to that a first-line BOP ticket.
Mills kept a diary in pencil which he said was made contemporaneous with the material events that occurred at the Wellsite between October 24 to December 19, 2005: see Ex. 13. During his testimony, he referred extensively to these to refresh his memory.
Blaze called Mark Allen and Randy Cripps, the individuals who provided Wellsite supervisory services on behalf of Horizon. Mark Allen was the first consultant provided by Horizon. He was present at the Wellsite from October 27 through November 2, 2005. Randy Cripps was the second consultant supplied by Horizon. He was present at the Wellsite from November 1 through November 21, 2005. As noted previously in this judgment, Blaze initially issued a counterclaim against Allen and Cripps and their respective corporations but then discontinued these actions a little more than one month before trial. Blaze then called Cripps and Allen to give evidence as part of Blaze’s defence and counterclaim.
Blaze called a number of Roll’n’s employees or former employees who had worked at the Wellsite who gave evidence as to what had occurred and their observations during that time.
Derek Domeij was a driller on one of the Roll’n crews. He was onsite from October 27, 2005 when the Rig arrived until November 9, 2005 when he left after calling a “safety stand down”. Jason Chartrand was a motorman on a Roll’n crew. Jamey Taylor was a floor hand and then the derrick man. His brother, Eric Taylor, was a floor hand on the Roll’n crew. Chartrand, Jamey Taylor and Eric Taylor all worked on Domeij’s crew and participated in the November 9, 2005 safety stand down. Adam Nadem was a derrick man on a Roll’n crew. Chad Barker was Roll’n’s field superintendent in 2005. The rig managers for 11 different service rigs, including the Rig 4 rig manager, reported to Chad Barker, except during one week per month when Chad Barker was on call and the rig managers for all of Roll’n’s 22 service rigs reported to him.
Blaze also called Bruce Cawsey who was the directional driller at the Wellsite. He was employed by a third party, Directional Plus.
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Blaze also called Guy Dorval who worked with Circle T Rental, the business that rented the 10,000 psi BOP to Blaze.
Blaze also called Tyler Callicott, the Energy Resources Conservation Board (the former AEUB) field inspector who issued the stop work order and shut-down the Blaze operations on the December 9, 2005.
Blaze called Stewart Ward who was qualified as an expert witness to provide opinion evidence in the area of oil and gas drilling and re-entry operations, practices, equipment, and personnel in western Canada and specifically in Alberta. Ward had worked in the oil and gas industry for 35 years. He testified that he had been involved in 300 to 350 drilling operations, some of which involved reentries with sidetracking operations. He testified that he had been responsible for contracting for the equipment, hiring the personnel, and supervising operations used in drilling and sidetracking operations. Ward had acted as an oil and gas drilling project manager and in that capacity had hired supervisors who reported directly to him as the project manager. Ward said that he had been involved in approximately 50 to 75 sour gas wells. He had worked with drilling programs, acted as onsite supervisor or provided supervisory or project management services on from 150 to 200 Alberta wells. Ward’s credentials and Expert Report are contained in Ex. 006-115. Ward struck me as abrupt and dogmatic in giving his evidence. I found his evidence generally less helpful and persuasive than Jacobsen’s.
Horizon called Ken Kindjerski, a partner in Horizon and a professional petroleum engineer with extensive experience in conducting oil and gas operations on sweet and sour gas wells.
Kindjerski contracted, on behalf of Horizon, to provide well supervisory services to Blaze and recommended Allen and Cripps. Kindjerski’s responsibilities at Horizon included preparing drilling programs and providing superintendent services. He had a Bachelor of Science in Petroleum Engineering, was registered as a professional engineer in Alberta and British Columbia, and at the date of trial, had been practicing as a petroleum engineer for 23 years.
Horizon called George Samaha, Horizon’s Vice-President of Business Development, who gave evidence at trial as to filing of Horizon’s builders’ liens.
The expert witnesses, Jacobsen and Sutherland, called by Roll’n also gave evidence in support of Horizon’s position.
Horizon also relied on excerpts from the transcripts of examinations for discovery of Blaze’s witnesses.
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From the evidence, pleadings and argument of counsel, I have identified the following major issues:
Should an adverse inference be drawn against Roll’n or Horizon for failure to call certain witnesses?
Did Roll’n make pre-contractual misrepresentations to Blaze that caused it to suffer the damages it alleges?
Did the MWS Contract incorporate the Blaze Drilling Program and other alleged representations?
Did Roll’n willfully or intentionally fail to comply with AEUB and OH&S legislation?
Did Roll’n breach the MWS Contract?
Did Roll’n negligently perform the MWS Contract?
Did clauses in the MWS Contract exclude or limit Roll’n’s liability?
What is owing to Roll’n under its debt claim against Blaze?
Is Roll’n entitled to interest on its debt claim?
What is owing to Blaze under its counterclaim against Roll’n?
What were the terms of the agreement between Horizon and Blaze?
Did Horizon breach its agreement with or duty of care to?
What is owing to Horizon under its debt claim against Blaze?
What is owing to Blaze under its counterclaim against Horizon?
As a preliminary issue, Blaze argues that an adverse inference should be drawn against Roll’n and Horizon for failure to call a number of witnesses.
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Roll’n argues that it was not necessary to call any of the persons identified by Blaze because the relevant evidence was before the Court through the witnesses that were called by both Roll’n and Blaze. Roll’n argues that the persons identified by Blaze as potential witnesses did not possess particularly important information uniquely available to them.
Horizon argues that it was not necessary for Flynn to testify on behalf of Horizon as Kindjerski, Allen and Cripps, all of whom did testify at trial, were the key individuals directly involved in matters bearing on the claims between Horizon and Blaze. Horizon argues that Flynn did not possess particularly important information uniquely available to him.
Roll’n and Horizon also counter that an adverse inference should also be drawn against Blaze for its failure to call Kim Materi, the author of Blaze’s Abandonment Program; Med Edel and Gordon Sinclair, two wellsite supervisors hired by Blaze after November 24, 2005; and N.L. Fisher, the engineering company that prepared Blaze’s Drilling Program.
In reply, Blaze argues that neither Edel, Sinclair nor N.L. Fisher had any involvement in the damages Blaze alleges were caused by Horizon and Roll’n, and little activity at the well was undertaken under the supervision of Edel and Sinclair.
There were a number of individuals with first-hand involvement and knowledge of the operations that were not called by Roll’n including Terry David, the rig manager on duty when the AEUB shut-down the Blaze operations on December 9, 2005; Travis Hogg, the driller on November 24, 2005 when the drill string got stuck in the hole; Dave Rowbotham, one of the Roll’n field superintendents who attended at the Wellsite and took reports from the Rig 4 managers and drillers during the Blaze operations: and other Roll’n Rig 4 crew members who were involved in the Blaze operations, including floor hands, derrick men, and drillers.
Roll’n’s most senior rig managers, Rob Anderson and James Yearwood, did testify at trial. Either Anderson or Yearwood acted as the Roll’n rig managers at the Wellsite between October 27 and December 5, 2005 and were on duty on a 24-hour basis during their rotations. However, Edel and Sinclair provided wellsite supervisory services for Blaze during that period, and Blaze did not call them to give evidence either. Roll’n did not call Dave Rowbotham. However, Blaze called Chad Barker as a witness. Barker was Roll’n’s senior field superintendent and both he and Dave Rowbotham were involved with the Blaze operations and were both onsite at the same time.
Horizon did not call Flynn, Horizon’s President and Chief Executive Officer during the period in question. Flynn was produced as the officer on Horizon for examination for discovery.
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Flynn testified in those examinations for discovery that Mills sent Kindjerski a copy of the Blaze Drilling Program via email on the morning of October 25, 2005, and that it was opened at that time. One of the issues in this litigation is whether Horizon reviewed and accepted the Drilling Program prior to contracting with Blaze. Although Flynn was present during the meeting during October 25, 2005, there is no evidence that he was present at the Wellsite or otherwise involved in the Blaze operations.
A trial judge has the discretion to draw an adverse inference against a party where that party fails, without explanation, to call a witness. This proposition finds authority in Levesque v. Comeau, [1970] S.C.R. 1010 at 1012-13, 16 D.L.R. (3d) 425. While this rule was originally interpreted by lower courts as a mandate on a trial judge to draw an adverse inference when the appropriate conditions existed, more recent authority makes it clear that a trial judge retains discretion over whether or not to draw such an inference: Ritchie v. Thompson (1994), 155 N.B.R. (2d) 35, 35 C.P.C. (3d) 333 (C.A.) at paras. 11-14, Spartan Developments Ltd. v. 206559 Developments Ltd., 2004 ABCA 12, 346 A.R. 124 at para. 9; Dabrowski v. Robertson, 2007 ABQB 522, 419 A.R. 359 at para. 64.
In Howard v. Sandau, 2008 ABQB 34, 349 A.R. 379 at para. 44, referring with approval to Mewett and Sankoff in Witnesses (Toronto: Thompson Carswell, 2007) at 2-23, Associate Chief Justice Wittmann (as he then was) stated that a court exercising this discretion should consider whether:
there is a legitimate explanation for the failure to call the witness;
the witness has material evidence to provide;
the witness is the only person or the best person who can provide the evidence; and
the witness is within the exclusive control of the party, and is not equally available to both parties.
In Spartan, Justice Paperny, in effect, referred to items (ii) and (iii) above within the singular phrase “[whether the witness has] particularly important information uniquely available to him or her”.
Applying the foregoing criteria, I am not satisfied that any adverse inference should be drawn.
First, having regard to the evidence of Flynn, I am satisfied that he did not possess particularly important information uniquely available to him. Although Flynn’s evidence in
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examinations for discovery was that he was present at the initial meeting with Mills on October 25, 2005, it was Kindjerski who initially spoke to Mills about the Blaze Well, arranged for the meeting with Mills the following day, spoke to Allen about attending the meeting and about his providing supervisory services on behalf of the Horizon. Kindjerski was also present at the meeting. Kindjerski was part owner and the Vice President of Horizon at all relevant times and Horizon’s primary contact with Mills in relation to the Blaze account. So situated, I find Kindjerski was in as good or a better position, relative to Mr. Flynn, to testify as to the roles and responsibilities of Horizon in respect of the services to be provided to Blaze. Furthermore, Blaze examined Flynn for discovery and therefore, had the ability to determine his evidence and read-in such portions as assisted its case.
Second, having regard to the various Roll’n individuals identified by Blaze as potentially useful witnesses, I am satisfied that none of these people possessed information that was not otherwise available to the Court through other witnesses. It was not necessary for the Court to hear from every person employed on Rig 4 while operations at the Wellsite were ongoing. Moreover, there is no property in witnesses. If Blaze felt there was anything further to be gained from calling Dave Rowbotham, Terry David, or any of the other individuals employed on Rig 4 at the material time, it was open to Blaze to call those witnesses directly. I do not find any of the individuals identified by Blaze were within the exclusive control of Roll’n. To the contrary, these people were available to both parties, a reality taken advantage of by Blaze who did call a number of Roll’n’s employees or former employees, such as Chad Barker and Derek Domeij.
Third, having regard to Materi, Edel, Sinclair, and N.L. Fisher, I am satisfied that none of these parties possessed any new or further material information that would have assisted the Court in determining the issues. Mills possessed the information and was involved in all matters in which these parties were also involved. Mills represented Blaze during the operations and testified as to the contents of the abandonment program. He was involved in the preparation and very familiar with the contents of the Drilling Program. He was also either onsite as the wellsite supervisor or directing operations during the time that Edel and Sinclair were acting as wellsite supervisors.
I decline Blaze’s invitation to make a general finding that all the persons involved in the Wellsite operations should have been called by Roll’n and that Flynn should have been called by Horizon. I therefore decline to draw an adverse inference against either Roll’n or Horizon for failure to call these persons as witnesses. I likewise decline to draw an adverse inference against Blaze for failure to call Materi, Edel, Sinclair or a representative of N. L. Fisher as witnesses.
If, during the course of these reasons, it is apparent to me that a person should have been called, and was not, I will comment and draw such inference as is appropriate in the circumstances.
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Blaze alleges that Roll’n made a number of pre-contractual negligent misrepresentations to Blaze regarding the similarity of the Blaze re-entry to previous reentries Roll’n had conducted, the capability of Rig 4 to conduct the Blaze operations, and the experience and qualifications of the Roll’n crew to conduct the Blaze operations. It argues that these alleged negligent misrepresentations induced Blaze to enter into the MWS Contract and that Blaze suffered damages as a result.
Roll’n argues that the facts do not support Blaze’s allegations that the said representations were made. Alternatively, it argues that if certain of the representations were made, they were not untrue, inaccurate or misleading. Alternatively, it argues that if such misrepresentations were made, Blaze did not rely on those misrepresentations in entering into the MWS Contract and did not suffer any damages as a result. Lastly, it argues that if such misrepresentation were made, Roll’n’s liability for damages is excluded under the provisions of the MWS Contract.
The classic statement of the parol evidence rule was given by Denman C.J. in Goss v. Nugent (1833), 5 B. & Ad. 58, at 64-65, cited by the Alberta Court of Appeal in Shaw United Lease Ltd. v. Cantest Production Services Ltd. (Trustee of), 178 A.R. 305, 37 Alta. L.R. (3d) 206, at para. 70:
By the general rules of the common law, if there be a contract which has been reduced into writing, verbal evidence is not allowed to be given of what passed between the parties, either before the instrument was made, or during the time that it was in a state of preparation, so as to add to, or subtract from, or in any manner to vary or qualify the written contract.
The rule applies to extrinsic evidence of any kind, not just to oral statements. Other documents are also caught by the rule.
There are numerous qualifications and exceptions to the parol evidence rule. Chief among these is that extrinsic evidence may be used to show that the contract is invalid in some way, such as where it is induced by fraud or misrepresentation: 1052276 Alberta Ltd. v. Consultant Feeds Ltd., 2007 ABPC 269, 430 A.R. 91 at paras. 9, 39. Or perhaps it is more correct to say that the admission of parol evidence where fraud or misrepresentation is alleged does not engage the rule at all, as such evidence is not admitted to alter or interpret the terms of the contract so much as to
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invalidate the whole of it: G.H.L. Fridman, The Law of Torts in Canada, 2d ed. (Toronto: Carswell, 2002) at 619-20 [Fridman, Torts]. In either case it is settled law that extrinsic, pre-contractual evidence may be used to establish that the contract is invalid by reason of fraud or misrepresentation.
From this reasoning it follows that extrinsic evidence is equally admissible where a plaintiff seeks to establish the tort of negligent misrepresentation. Again, since the evidence is not used in an attempt to vary or interpret the contract but rather to prove that the plaintiff was induced into entering into the contract by inaccurate information, the parole evidence rule is not engaged.
I conclude that the parol evidence rule is not applicable. Here, Blaze seeks to rely on extrinsic evidence, not to add to, or subtract from, or in any manner to vary or qualify the MWS Contract, but to prove that it was induced to enter into the MWS Contract by Roll’n’s alleged negligent misrepresentations.
Allegations of misrepresentation bear upon a contractual relationship in several ways. In cases where a contract is induced by fraudulent misrepresentation the contract is invalid and unenforceable. For innocent misrepresentation - that is, where there is neither fraud nor negligence - a court can exercise equitable discretion to rescind the contract. In the latter case, a victim may also obtain indemnification for liabilities imposed by the contract, but the victim may not recover for damages: G.H.L. Fridman, The Law of Contract in Canada, 5tth ed. (Toronto: Thomson Carswell, 2006) at 296-301 [Fridman, Contract]. Finally, there is the modern tort of negligent misrepresentation. If this tort is established, the plaintiff can recover damages that result from entering into the contract in reliance on the misrepresentation.
Blaze pleads that Roll’n “knowingly misrepresented” its abilities to Roll’n. Roll’n argues that Blaze never actually pleads “negligent misrepresentation”. In written submissions and in oral argument counsel for Blaze clarified that what is alleged is negligent misrepresentation and not fraudulent misrepresentation.
I conclude that there is no merit in Roll’n’s complaint that negligent misrepresentation was not plead. Given all the pleadings and argument before me, I interpret “knowingly misrepresented” as including “negligently misrepresented”. I find that Roll’n was not mislead by Blaze’s pleadings.
As fraudulent misrepresentation is not alleged and innocent representation was not addressed (and would not provide Blaze with the remedy it seeks in any event), I proceed to consider only negligent misrepresentation.
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A defendant may be liable concurrently for breach of contract and in tort for negligent misrepresentation inducing the contract: Esso Petroleum Co. v. Mardon, [1976] Q.B. 801, [1976] 2 All E.R. 5, cited in Central & Eastern Trust Co. v. Rafuse, [1986] 2 S.C.R. 147, 31 D.L.R. (4th) 481.
The Supreme Court of Canada set out the requirements for a finding of negligent representation in Queen v. Cognos Inc., [1993] 1 S.C.R. 87, 99 D.L.R. (4th) 626 at para. 34:
there must be a duty of care based on a “special relationship” between the representor and the representee;
the representation in question must be untrue, inaccurate, or misleading;
the representor must have acted negligently in making said misrepresentation;
the representee must have relied, in a reasonable manner, on said negligent misrepresentation; and
the reliance must have been detrimental to the representee in the sense that damages resulted.
Furthermore, in the context of a contract, a finding of negligent misrepresentation may be precluded if the contract contains provisions stating that representations made outside of the contract do not bind the defendant (for example, in an “entire agreement” clause), or if other contractual provisions otherwise exclude liability for negligence: Gainers Inc. v. Pocklington Holdings Inc., 2000 ABCA 251, 255 A.R. 373.
Damages for negligent misrepresentation are quantified according to the following principle, expressed by this Court in TWT Enterprises Ltd. v. Westgreen Developments (North) Ltd., 78 Alta. L.R. (2d) 62, [1991] 3 W.W.R. 80 at para. 74, aff’d 127 A.R. 353, 3 Alta. L.R. (3d) 124 (C.A.), citing V.K. Mason Construction Ltd. v. Bank of Nova Scotia, [1985] 1 S.C.R. 271, 16
D.L.R. (4th) 598:
The principle in awarding damages for tort in fraudulent or negligent misrepresentation is that the injured party be restored to the position in which he would have been if the misrepresentation had not been made.
The determination of whether a duty of care arises in a negligence case generally invokes the two-stage Anns/Kamloops analysis: Nielsen v. Kamloops (City), [1984] 2 S.C.R. 2, 10 D.L.R. (4th) 641. Its specific application in the context of representations was set out in Hercules Management Ltd. v. Ernst & Young, [1997] 2 S.C.R. 165, 146 D.L.R. (4th) 577 at para. 24:
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To my mind, proximity can be seen to inhere between a defendant-representor and a plaintiff-representee when two criteria relating to reliance may be said to exist on the facts: (a) the defendant ought reasonably to foresee that the plaintiff will rely on his or her representation; and (b) reliance by the plaintiff would, in the particular circumstances of the case, be reasonable. To use the term employed by my colleague, Iacobucci J., in Cognos, supra, at p. 110, the plaintiff and the defendant can be said to be in a “special relationship” whenever these two factors inhere.
This test for the existence of a duty of care in negligent misrepresentation cases has been cited by numerous Canadian decisions. The focus is on whether it was objectively reasonable for the representee to rely on the information or advice given, and whether such reliance was foreseeable by the provider of the information.
It would have been, in my view, foreseeable by Roll’n that Blaze might rely on statements Roll’n would make with respect to the experience and capabilities of its equipment and crew. Similarly, given Roll’n’s unique ability to know its own capabilities, it is reasonable that Blaze would have relied upon such statements. It may be less reasonable for Blaze to rely on any representations Roll’n may have made about the similarity of the Blaze operations to the Rosetta operations or the capability of Roll’n to perform the specifics of the Blaze Drilling Program. Blaze was in a better position to understand the specifics of its Drilling Program, especially during pre-contractual negotiations. On the whole, however, it seems both reasonable and foreseeable for an operator to rely on the statements of a contractor during pre-contractual negotiations. In the result, Roll’n did owe Blaze a duty of care, as least with respect to any statements made that were within Roll’n’s area of expertise (in particular regarding the general characteristics of its equipment and crew).
Blaze alleges that prior to it entering into its contract with Roll’n, Roll’n represented to Blaze that Roll’n had the proper equipment and experienced personnel available to safely re-enter the Blaze Well and to perform the operations described in the Drilling Program. It alleges that it entered into the contract with Roll’n in reliance on those representations, that they were negligent representations and that Blaze suffered damages as a result.
Blaze alleges that, contrary to the aforementioned representation of Roll’n, the available equipment and personnel of Roll’n were incapable of conducting the re-entry, the specifics of which include but are not limited to the following: a) the Rig was incapable of conducting the reentry, was in a dilapidated state, and was not properly equipped; b) the Rig was unsafe and in particular, on November 9, 2005 the entire rig crew ceased work on the re-entry and quit their employment because of the unsafe and dangerous conditions, and c) the Roll’n driller did not possess a valid first-line supervisor’s blowout prevention certificate [first-line BOP ticket] and the
rig manager did not possess a valid second-line supervisor’s well control certificate [second-line BOP ticket] and as a result on December 9, 2005 the AUEB shut-down work on the re-entry.
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Blaze further alleges that Roll’n did not perform any work at the Blaze Well but rather “knowingly misrepresented its abilities...”.
Roll’n argues first, that the allegations of Blaze are not in conformity with the facts.
Roll’n argues second, that if any pre-contractual representations were made by Roll’n to Blaze, they were not false or negligent. It argues that 1) Rig 4 and its crew had in fact just successfully performed operations for Rosetta that were similar to the Blaze operations and had in fact performed other reentries similar to the Blaze re-entry; 2) Roll’n provided Blaze with a crew experienced in performing re-entry operations on sour gas wells; 3) Roll’n provided Blaze with equipment capable of performing the Blaze operations; and 4) Roll’n provided Blaze with a crew with the proper qualifications.
The determination of this issue requires conclusions first, on what pre-contractual representations were made, and second, on whether any such representations were untrue, inaccurate or misleading.
Blaze argues that it entered into the MWS Contract in reliance on Roll’n’s negligent misrepresentation that Rig 4 and its crew had just successfully completed a similar job for Rosetta that involved a 160 metre re-entry and that it would provide Blaze with the same rig and crew to conduct the Blaze operations.
Mills testified that Buan initially telephoned him on October 24, 2005. Mills said he told Buan during that conversation that Blaze had a well to drill that involved a 3,500 meter kickoff to a depth of approximately 3,800 metres, that it involved going through a 7" casing, and that the well was critical sour.
Buan’s evidence is similar on this point, except that Buan said he did not know the Well was a critical sour well until after he and Mills had signed the MWS Contract on October 25, 2005. Baun said Mills said he needed a rig for re-entry work at a depth of 3,400 metres up to 3,820 metres. Buan said Rig 4 was capable of drilling to that depth. Buan’s October 24, 2005 handwritten notes in his Weekly Sales Summary (Ex. 003-033) state:
Blaze Energy - Ed Mills
Phoned him regarding Rig 4. Has a re-entry 3,400 m - Drill to 3820, 7" casing -Sour - Start time Thurs/Fri - Needs inventory & Footprint. Rate & Cost Summary & CAODC contract. Facsimiled inventory & footprint to him. Balance in morning.
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Mills’ evidence and Buan’s evidence conflicts as to whether Buan told Mills that Rig 4 had just completed a job for Rosetta involving a 160 metre kickout and that Rig 4 was capable of performing the Blaze operations.
Mills testified that Buan told him during their initial October 24, 2005 telephone conversation that Roll’n Rig 4 had just completed a job for Rosetta that involved drilling a 160 metre kickout. Mills testified that Buan said Rig 4 could do the work required at the Blaze Well. A notation in Mills’ diary for October 24, 2005 (Ex. 002-015) states:
Rolly Buan... 237-8995... [indiscernable] ...Edson Rig 5...GP R 4...Just did Rosetta...160m needs. 2nd line ticket.
During cross-examination, Buan testified that he could not recall speaking to Mills about the prior work that Rig 4 had done. He said he did not know whether Rig 4 had done a job for Rosetta but only that it had been at Grande Prairie. He said he did not tell Mills that Rig 4 had just come off a job involving a 160 meter re-entry. Buan was referred to the above excerpts from Mills’ October 24, 2005 diary. Baun agreed that this was Roll’n’s telephone number but stated that he did not tell Mills that Rig 4 had just come off a job for Rosetta.
Mele testified that he, Mills and Buan met in the Roll’n offices in late October 2005 and discussed the parametres of the Blaze Drilling Program, although they did not review the Program at that time. Mele said Buan mentioned that he had done a similar kind of re-entry with Rosetta and mentioned the engineer from Rosetta who was involved, Greg Kondro. Mele said this made Mills and he feel more comfortable that Roll’n could perform the work, since Kondro was a good engineer.
Buan also gave contradictory evidence at trial and during his examinations for discovery as to whether Mills told Buan he wanted an experienced crew and whether Buan told Mills that Roll’n would provide Blaze with the same crew that had worked on the Rosetta operations.
In Buan’s cross-examination at trial, Buan said he and Mills did not discuss whether Mills wanted an experienced crew.
Buan acknowledged that he had given the following testimony during his February 1, 2005 examinations for discovery:
Q Now, sir, do you recall in those early conversations with Ed Mills that one of the concerns with Blaze was that they wanted an experienced crew for this job?
A Yes, I recall that conversation with Ed. Yes.
Q Do you recall advising Ed that you did have a crew that had just finished another job with a similar re-entry?
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A That’s possible, yes.
Q Do you agree with me, sir, then that Blaze had two concerns in early October when they made the first inquiries of Roll’n? They wanted a rig that was capable of doing the program and they also wanted an experienced crew because it was a critical sour gas well; do you recall those concerns with Blaze?
A They wanted a crew that was qualified to handle a service rig, yes.
Q And that had experience with re-entries? A Yes.
Q Do you recall advising Blaze that Roll’n had such a crew and such a service rig available?
A I don’t recall the exact words, comments that I made to Ed, but I indicated that the crew that was on the last job with that rig were available to do . . .
Blaze argues that the Blaze Well operations and the Rosetta operations were not the same. It argues that the important dissimilarities were that the Blaze operations involved open hole drilling operations while the Rosetta job involved drilling inside the well casing, the Blaze operations involved sidetracking and directional drilling while the Rosetta job did not, and that the Blaze Well involved the use of a Super 48 mud pump while the Rosetta project involved the use of an OP650 mud pump.
The Tower Sheets for the Rosetta job (Ex. 006-154) contain very little information on the operations. Anderson testified that this was because the work done for Rosetta was confidential, and Roll’n had been instructed to limit the information recorded.
Anderson testified as to the similarities between the Rosetta job and the Blaze job. He said that in both jobs Roll’n drilled with a bit and drill pipe, used a power swivel as the power source for rotating the equipment, drilled outside the well casing (drilling out of the bottom of the casing on the Rosetta job and through the side of the casing on the Blaze job), drilled sideways with the pipe running on a horizontal plane, and used accumulator BOPs with the same functions.
Anderson testified that the equipment used on the Rosetta well and the Blaze Well was also similar. Roll’n rented the BOP used in both operations from a third party. He said the equipment provided to Blaze and listed in the Roll’n Rig 4 Service Rig Inventory (Ex. 001-003) was the same as the equipment used on the Rosetta well, with the exception of the 5,000 psi BOP and 5,000 psi pump valve used on the Blaze job.
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Anderson said there were two main dissimilarities between to two jobs. First, Roll’n used a 5,000 psi BOP on the Rosetta job while it used a 10,000 psi BOP on the Blaze project. Second, Roll’n only used a mud pump to drill through the well casing on the Rosetta job. The remainder of the drilling was drilled under-balanced and was performed by Weatherford. Roll’n used a mud pump for the entire Blaze Well.
Ward, opined that, based on the Tower Reports completed by Roll’n for the Rosetta job, there were a number of significant differences in the work involved in the Rosetta well and the Blaze Well.
Ward’s opined at point 9 of his expert report:
Reference was made to a previous job; namely Rosetta 10-11-87-8WS, where Roll’n stated that the same Rig 4 and crew had completed a job similar to the proposed 11-19 job. However, the Rosetta well was an entirely different type of job. Critical differences are the following:
Underbalanced equipment was employed using Nitrogen as the main drilling fluid
A 5000 psi BOP system was employed
There was no H2S involved
The mud pump was an OPI 650
Ward gave the following expert evidence on the significance of the above factors.
First, he said that the Rosetta well was drilled “underbalanced” while the Blaze Well was drilled “balanced”. Balanced drilling uses hydrostatic pressure, which involves the process of using mud pumps to force mud-based drilling fluid down the well bore to balance the pressure being exerted back up the well bore by the formation fluid. Because the downward force of the pressure from the drilling fluid balances the upward force of the pressure being exerted by the formation gas, the drilling fluid acts as a safety valve preventing the uncontrolled flow of formation fluids from the well bore to the surface. In balanced drilling, the drilling fluid is circulated from the top to the bottom of the well capturing the drill cuttings and forcing them up the well bore, through a shaker box where the cuttings are separated out of the mixture, into an open mud tank, and then back down the well bore.
Underbalanced drilling involves the use of nitrogen as the drilling medium. The nitrogen does not prevent the formation fluid from flowing to the surface but rather allows it to flow to the surface in a controlled manner. In underbalanced drilling, the drill cuttings are directed away from the well bore into a pressure tank where the force of gravity pulls the cuttings to the bottom of the tank and the nitrogen and any gas in the mixture are either flared off or pushed back down the well bore. The drilling itself is performed by a company specializing in underbalanced drilling. In
the case of the Rosetta well, the drilling was conducted by Weatherford, a company specializing in underbalanced drilling.
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Second, Ward said that a 5,000 psi BOP was used on the Rosetta well while a 10,000 psi BOP was used on the Blaze Well. Ward testified that the 10,000 psi BOP components used on the Blaze Well were more extensive and complicated than those used on the Rosetta well.
Third, he said the Blaze well was a critical sour gas well while the Rosetta well was a sweet gas well.
Fourth, he said that the Blaze well used a Super 48 pump and a OPI 700 pump. The Rosetta well used a OPI 650 pump.
Blaze also argues that the Rosetta Daily Tower Reports show that Roll’n encountered difficulties during the operations as a result of the inexperience of its crew and the condition of the Rig and equipment.
Anderson was referred to the Roll’n Tower Reports for Rosetta. He agreed that there were problems with the Super 48 pump on the Raven, Rosetta and Blaze projects but said that in his opinion, the reason was because the pump was being worked to its maximum and as a result, parts break and have to be repaired. Anderson disagreed that part of the problem was due to the fact that the Super 48 pump was a service rig pump being used on drilling operations.
Jacobsen opined that Rig 4 successfully completed the Rosetta well which involved drilling out the casing at 1,476 metres and directionally drilling a 156 mm hole to 1,622 metres, and using underbalanced drilling. He opined that the risk of getting the drill string stuck drilling underbalanced with compressed gas drilling fluid is much greater than in overbalanced drilling using drilling fluid. He opined that the fact that Roll’n completed the Rosetta well successfully “speaks volumes for the competence of the Roll’n Rig 4 crew and the condition of the equipment”.
A comparison of Roll’n’s October 6, 2005 Tower Report for the Rosetta project to its October 29, 2005 Tower Report for the Blaze Project reveals that the rig managers and rig drillers were the same. The remainder of the crew was also the same except for three individuals.
Anderson was the rig manager on both projects. He testified that three of the five crew members from one of the Rosetta crews came with Rig 4 to work on the Blaze Well: Domeij who was the driller, Chartrand who was the mud man, and Eric Taylor who was the floorhand. Anderson testified that four of the five crew members from the second Rosetta crew came with Rig 4 to work on the Blaze Well, namely, Hogg, Lamb, Hayduk, and Cherowka.
The Roll’n driller, Travis Hogg, testified in his May 23, 2007 examination for discovery, read in at trial, that most of the Roll’n night crew that worked at the Rosetta project also worked the Blaze project.
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I conclude that the evidence supports the finding that Buan and Mills spoke about the fact that Roll’n had previously worked on a job for Rosetta that involved a 160 metre kickoff. I prefer Mills’ evidence to that of Buan. While I do not find that Buan’s evidence was untruthful, he did not have a clear recollection at trial. His discovery evidence, being closer in time to the event, is more reliable. Moreover, Mills’ testimony is consistent with the entry in his diary of October 25, 2005, in which the words “Rosetta” and “Rig 4" are recorded. It can be inferred from this that Buan told Mills about the Rosetta job. There is no evidence that Mills obtained this information from any other source.
However, I find that there is insufficient evidence to conclude that Buan warranted that Rig 4 was capable of performing the Blaze operations, but only that Mills and Buan considered this. There is expert evidence that service rigs, including Rig 4, were capable of performing the Blaze operations. There were also many similarities between the operations conducted on the Rosetta well and the operations conducted on the Blaze Well. I prefer the opinion of Jacobsen to that of Ward. While clearly there were some dissimilarities between the Blaze and Rosetta jobs, they were sufficiently similar for me to conclude that no misrepresentation was made.
I also conclude that while Buan represented that the same crew that had worked on the Rosetta well was available to work on the Blaze Well, he did not warrant that the exact same crews would be sent to work on the Blaze Well. The discussions between Buan and Mills as to the experience of the crews did not deal with that level of detail. I also find, that in fact, the Roll’n crew that was retained to work on the Blaze operations was substantially the same crew that worked on the Rosetta operations.
As a result, I find that Buan’s representations were neither untrue, inaccurate or misleading.
Blaze argues that Roll’n negligently represented that it would provide a crew experienced in conducting reentries on sour gas wells and that the evidence establishes that Roll’n clearly misrepresented its crews’ abilities.
Roll’n takes the position that there was no evidence in Mills’ examination in chief that he told Buan that he had certain expectations as to the Rig 4 crew experience or qualifications. It argues that “what went through Mr. Mill’s mind...stayed in Mr. Mill’s mind. It did not come through his words through to Mr. Buan”.
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Buan’s evidence was once again contradictory on this issue.
In Buan’s cross-examination at trial, Buan said he and Mills did not discuss whether Mills wanted an experienced crew.
However, as previously noted, Buan admitted that he had given the foregoing testimony at his February 1, 2007 examinations for discovery as to his conversation with Mills regarding the experience of the crew which Mills required.
The evidence was that a service rig has a five-person crew. The positions, in order of seniority, are one rig manager, one driller, one derrick hand and two floor hands or roughnecks.
Anderson explained the responsibilities of each of the crew members. The rig manager is in charge and ultimately responsible for the overall rig operations. The driller is in charge of the drilling and the crew and undertakes the daily operations. The derrick hand is in charge of the pump and the fluids and works on the derrick above the rig floor feeding pipe and tools up and down from the rig floor. The floor hand or roughneck is an entry level position and there are two on each crew. The floorhand works on the rig floor connecting and disconnecting pipe and guiding tools, equipment and pipe up and down the well bore. The floor hands also assist the other crew members with whatever is required.
Anderson testified that he had substantial experience conducting reentries on drilling rigs and that they all involved similar types of work such as picking up rotating equipment and cutting a window. He said the ability to conduct such work is not affected by whether the well is sour or sweet or by the depth of the well being drilled.
The Roll’n Tower Reports created for the previous re-entry Roll’n had conducted for Raven Energy contains some comments by the wellsite supervisors that the Roll’n crew lacked experience in conducting re-entry drilling. Anderson who was also a rig manager on that operation did not accept these comments. He commented as well that it is always more difficult for a service rig crew to conduct such operations as in each case the crew works with rented equipment with which they must become familiar.
The experience of each of the crew members that worked on Rig 4 is set out in Ex. 005-75-110. A document entitled Summary of Employee Experience for Rig 4 Crew - October 26, 2005 - Dec. 2006 (Ex. 005-076) was prepared by Brad Rowbotham for the purposes of this litigation. Rowbotham testified that the Summary was prepared based on a review of the Roll’n personnel files which included the crew resumes and applications in Ex. 005-75-110.
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The Summary indicates that the three Roll’n rig managers who worked on the Blaze operations all had previous experience as rig managers: Anderson had four years, Yearwood had six months, and Terry David had one year. All but one had experience on drilling rigs and all had experience conducting reentries. The four Roll’n drillers that worked on the Blaze operations all had at least two years’ previous experience as drillers, but only two of the four had two or more years’ experience on drilling rigs and only one of the four had any real experience conducting reentries. All but one of the six derrick men had substantial experience in that position, three of the six had experience on drilling rigs and three of the six had substantial experience conducting reentries. All of the floor hands had some experience in that position varying from 8 years to a few months, but none had any substantial experience on drilling rigs or reentries. However, the floor hand was an entry level position.
The Summary of Employee Experience also shows that all of the Roll’n rig managers, three of the five drillers, three of the six derrick men, and eight of the twenty-one floor hands had either drilling or re-entry experience.
Ward, opined at item 17 of his expert report.
17. The 11-19 well was identified as a Level 4 Critical Sour well and as such required a certain standard of equipment and personnel. To meet industry regulations and good oilfield practices personnel experienced in Critical Sour well drilling operations are absolutely essential because of the inherent dangers involved with high levels of H2S. Roll’n...failed to properly advise Blaze with respect to the capabilities of Roll’n’s men and equipment with respect to the ll-19 job. Roll’n also failed to provide personnel that were competent or certified to drill a critical sour gas well and the equipment was in poor repair and incapable of ... delivering usable well. Both men and equipment provided by Roll’n for the 11-19 job were below a standard acceptable in the Alberta oil industry for drilling a critical sour well like the 11-19 job....
Jacobsen, concluded that the crews provided were competent and the equipment provided was capable of successfully completing the contract. It was his opinion that the downhole conditions and problems encountered during drilling and in fishing stuck tools was not caused by Roll’n’s Rig 4, its crews or the manner in which it performed its services: see p. 21.
(Ex. 006-155).
Jacobsen stated in his expert report at p. 16 that all of the rig managers and drillers provided by Roll’n had experience in completions and workovers on sour gas wells and some experience on drilling rigs. He also stated that the rig managers, drillers and crew were not required to meet the minimum experience standards for Critical Sour Drilling IRP Volume 1 as the scope of work requiring the Critical Sour Level 4 Classification would not start until after Roll’n’s work was completed. Jacobsen testified that the Roll’n crews were quite experienced and
that there were only one or two that had little to no experience, which was quite common in the industry as the majority of the training is done on the job. Jacobsen’s opinion was that they were at least of average experience and in some cases, better than average.
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I am not satisfied that Buan represented to Mills that he had a crew experienced with drilling re-entry operations on sour gas wells. It is clear that he understood that Mills wanted a crew experienced with drilling or re-entry operations and that he represented to Mills that he could provide such a crew. The answer from his examinations for discovery referred to earlier is unclear. The “yes” at the end seems to me to refer to the first part of his answer that “They wanted a crew that was qualified to handle a service rig.”
I further conclude that Buan did not misrepresent the Roll’n crews’ experience. The fact is that Roll’n had just previously conducted two reentries with Rig 4. Most of the Rig 4 crew members that worked on the Rosetta re-entry came over and worked on the Blaze operations. The rig managers and drillers, the crew members with the experience and qualifications vital to the Blaze project, were experienced in their positions and also had either drilling or re-entry operations. Most of the derrick men and floor hands were also experienced in oil and gas field operations and some had experience in drilling and re-entry operations. I prefer Jacobsen’s evidence on this point over Ward’s.
Nature and accuracy of representations re capacity of Rig 4 to conduct the Blaze operations
Blaze argues that Mills made it known to Roll’n that it required a Rig that was capable of conducting the Blaze re-entry and that Buan made negligent pre-contractual representations that Rig 4 was capable of conducting the operations required for the Blaze Well.
There is evidence that Mills and Buan discussed some specifics as to the capacity of Rig 4. For example, there is evidence Mills asked Buan if Rig 4 could handle 3 ½" pipe, despite Buan’s contrary testimony at trial. His evidence at his examinations for discovery, put to him during
cross-examination at trial, supports Mills evidence in this regard.
Baun testified that he understood Mills needed a rig for re-entry work at a depth of 3,400 metres up to 3,820 metres. Buan said Rig 4 was capable of drilling to that depth.
There is evidence that Rig 4 had conducted similar reentries to the Blaze re-entry. As previously discussed, I find that the Rosetta re-entry was similar to the Blaze re-entry.
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In June 2005, Roll’n also completed a re-entry on a well for Raven Energy. Evidence was entered as to the similarities and dissimilarities between that Raven re-entry and the Blaze reentry and the capability of Roll’n Rig 4 to complete both reentries.
Anderson was also the rig manager on the Raven job and was referred, to the Well Completion Reports (Ex. 003-024) on that job to determine the similarities and differences between it and the Blaze job.
Anderson testified to the following similarities between the Raven re-entry and the Blaze re-entry. The depths of the wells were similar. The Rig 4 substructure was not used on either reentry. The v-door on the Rig had to be extended in both operations due to the height of the BOP stack. In both cases a third party was hired to lift the BOP stack. The same Super 48 pump was used on both jobs and it broke down and there were problems with it on both jobs.
Jacobsen opined that the Raven well operations had many similarities to the Blaze operations. He opined that although the well was drilled inside the well casing, the depth of the well was 3,900 metres, which is considered deep, and the operations involved picking up drill pipe, drilling out cement obstructions in the casing, and handling bottom hole assemblies (BHA), drill strings and power swivels.
Further, on the Raven job, a Class 3, 10,000 psi BOP was used, while on the Blaze job, a Class 5, 10,000 psi BOP was used. A Class 3, 10,000 psi BOP has a shorter BOP stack than a Class 5, 10,000 psi BOP.
Ward, Blaze’s expert, opined at point 9 of his expert report that the Rig 4 equipment and crew did not appear to have been capable of re-entering the Blaze Well or drilling to the Nisku formation.
Jacobsen, came to the contrary opinion. He opined at p. 2 of his expert report that Rig 4 was capable of conducting the Blaze operations:
A service rig such as Roll’n Rig 4 is well suited for the abandonment operation. It is less suited and less efficient than a drilling rig for the re-entry and kick off drilling program, but is still capable of successfully completing the drilling program. It is not uncommon for the Oil and Gas Industry to use service rigs for reentry drilling programs due to a number of factors including, lower day rates (costs per day of a service rig in comparison to a drilling rig), lower mobilization costs, and lack of availability of suitable drilling rigs.
Jacobsen concluded at p. 18 of his expert report:
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The use of a service rig for re-entries in existing well bores, that requires handling drill string and drilling open hole sections, is not the best option, however that is the choice Blaze chose when it contracted Roll’n Rig 4 for its re-entry project. The use of a drilling rig on completion and workover projects is also not the best option... I believe that Roll’n Rig 4 was capable of completing the Blaze Directional Drilling Program to the planned depth of +/- 3,673 m in the Winterburn formation above the Nisku and cementing the 114.3 mm intermediate casing liner as outlined in the Operational Summary of the program, if the limitations of using a service rig for open hole drilling operations had been recognized and dealt with.
I conclude that Buan told Mills that Roll’n Rig 4 had just completed a similar re-entry to the one proposed by Blaze and was available to conduct the Blaze operations. I also find that Buan told Mills that Rig 4 was capable of drilling the depth of the Blaze Well. However, I am not satisfied that Buan represented to Mills that Rig 4 was capable of conducting the Blaze operations.
However, even if I had found that such representations were made, I conclude that such representations were not untruthful, inaccurate, or misleading. I prefer Jacbosen’s expert opinion to that of Ward. It was Jacobsen’s expert opinion that Rig 4 was capable of performing the operations set out in the Drilling Program if the limitations of using a service rig for open hole drilling operations had been recognized and dealt with. The foregoing facts also support this conclusion. Rig 4 had recently successfully completed reentries similar to the Blaze re-entry for Rosetta and Raven.
Blaze alleges that Mills notified Roll’n or that Roll’n was otherwise aware that Guide 36 applied to the Blaze operations and that Roll’n assured Blaze that the Blaze operations could be conducted with well service BOP tickets.
Roll’n alleges that the evidence establishes that Buan discussed with Mills the fact that Roll’n’s employees did not possess the first or second-line BOP tickets required when the operations reached the re-entry stage, but that they only had well service BOP tickets.
Roll’n alleges that Blaze represented to Roll’n that Blaze possessed all of the required AEUB approvals and consents to perform the re-entry program with a service rig and therefore, that Roll’n could conduct the Blaze operations with well service BOP tickets. Roll’n’s evidence is
that it knew that second-line BOP tickets were required for the re-entry operations unless Blaze obtained an AEUB exemption.
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Buan testified that at the time he spoke to Mills on October 24, 2005, Rig 4 was on hold for an Encana job involving a deep hole re-entry. Buan said that on October 24, he telephoned his contact at EnCana to determine if Encana intended to take Rig 4 or whether there were any restrictions preventing it. Buan said he advised Encana that none of the Roll’n crew held first or second line BOP tickets but only well service BOP tickets. He said Encana responded that they needed someone on the Roll’n crew with either a first or second line BOP ticket. He said that as a result, Rig 4 was available for another job.
The top handwritten entry in Buan’s Weekly Sales Summary (Ex. 003-033) for October 24 supports his testimony:
Encana -
Phoned him re job for Rig 4 - advised that someone must hold a second-line ticket to handle this re-entry drilling. Unable to produce anyone with tickets - we therefore have to pass on his job.
Buan testified that after being advised by Encana that it could not take Rig 4, he called Mills to inquire about Mills using Rig 4 for the Blaze job.
Buan testified that following his telephone conversation with Mills on October 24, he facsimiled Mills the Roll’n Rig 4 Service Rig Inventory and he had no further discussions with Mills that day.
In cross examination, Buan denied having a conversation with Mills in which Mills asked him if second-line BOP tickets were required. Buan said Mills knew second-line BOP tickets were required because that was the reason Roll’n did not get the Encana job. Buan said he had no knowledge that second-line BOP tickets were required if the Blaze job involved drilling from 3,400 metres to 3,820 metres. He also denied advising Mills that second-line BOP tickets were not required.
Mills’ evidence directly contradicts that of Buan.
Mills testified that he told Buan during their October 24, 2005 conversation that Blaze needed a crew with second-line BOP tickets because of Mills’ understanding of the requirements of Guide 36, IRP Volume 1, and AEUB ID 97-6. Mills said Buan did not respond to this information. Mills testified, as discussed previously in this judgment, that the following notation in his diary (Ex.002-015) for October 24, 2005 supports his testamentary evidence:
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Rolly Buan... 237-8995... [indiscernable] ...Edson Rig 5...GP R 4...Just did Rosetta...160m needs. 2nd line ticket. [Emphasis added]
Roll’n argued that the above notation, “needs...2nd line ticket” could be and should be read as a statement made by Buan to Mills. It argued that this interpretation follows from Buan’s testimony that he had just advised Encana that second-line BOP tickets were required for its reentry and that the entry in Mills’ diary “...needs... 2nd line ticket” is similar to Buan’s notation in his Weekly Sales Summary (Ex. 003-033) stating “...someone must hold a second-line ticket”. The problem with this argument is that it is contrary to Buan’s own evidence that he never had a conversation with Mills in which Mills asked him if second-line BOP tickets were required.
Buan testified that on October 25, 2005, he called Mills and told him the Encana job was on hold and that Rig 4 was available.
Mills, Buan and Mele all testified that Buan met Mills and Mele in Blaze’s offices on October 25, 2005 and that Buan gave Mills a completed copy of the MWS Contract.
Mele testified that although they discussed the Rosetta job at that time and the parametres of the Blaze Drilling Program, they did not review the Program. Mele said that Mills planned to follow up with those details later.
Buan’s evidence is that he and Mills signed the MWS Contract at their meeting on October 25, 2005. He denies receiving or reviewing a copy of the Blaze Drilling Program prior to signing the Contract.
Mills’ evidence is that Buan gave him a signed copy of the Contract on October 25, but that Mills did not sign it until October 26, 20005, after Buan and Rowbotham had reviewed the Blaze Drilling Program and that Roll’n therefore knew from reviewing the Program that Guide 36 applied and as a result, that Roll’n Rig 4 needed crew members with first and second line BOP tickets. However, I conclude elsewhere, under Issue 3, that Buan and Rowbotham did not see the Blaze Drilling Program until after the MWS Contract was executed by both parties.
Rowbotham testified and the evidence supports the conclusion that Rowbotham did receive and review a copy of the Drilling Program on the morning of October 26, 2005, after it was sent to Rowbotham by Mills via email: see Ex. 002-017.
Rowbotham testified that he looked through the Program and discussed with Baun that invert mud was to be used and that this required an extra charge. He said he also talked to Baun
on October 25 and 26, 2005 about the fact that the Roll’n crew had only well service BOP tickets. Rowbotham testified that Baun responded that he thought it was all under control.
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Both Mills and Buan testified that they had a telephone conversation on October 26, 2005 during which the BOP ticket requirements for the Roll’n crew were discussed, but their evidence once again conflicts as what was said during that conversation.
Mills testified that, on October 26, 2005, he received a telephone call from Buan in which Buan told him that he had been talking to Brad Rowbotham, who had directed Buan to tell Mills that Roll’n did not need second-line BOP tickets and that Roll’n would operate under well service BOP tickets. The following notation in Mills’ diary for that date states.
Roll’n...Rolly...[indiscernible phone number]...BOP tickets...do not need 2nd line...service rig - WSBOP tickets [which Mills said meant “well service BOP tickets]
Mills testified that during this conversation with Buan “[h]e had all the right questions. I..believed that he had read the program.”: T p. 339, l. 22-41 to p. 340, l. 1-26; Cross-exam T. 712-713.
Contrary to Mills’ evidence, Buan testified that he in fact advised Mills during that October 26, 2005 conversation that the Roll’n crew did not hold first or second-line BOP tickets and that Mills had assured Buan that they could nevertheless proceed. Buan’s handwritten notes in his Weekly Sales Summary from October 26, 2005 (Ex. 003-033) refer to Blaze Energy and state:
Phoned him to inform problem with invert mud & the crew. He understands the footware and rubber product - $20.00/day/man plus is fine.
Buan testified that after his conversation with Mills, Buan sent a facsimile to Brad Rowbotham to inform him about Buan’s conversation with Mills. A facsimile dated October 26, 2005, from Buan to Rowbotham, sent at 11:40 (Ex. 002-018), was entered into evidence. The subject heading is “Blaze Well” and it states:
Brad:
Discussed invert mud status with Ed Mills. He is fine with the extra cost incurred. His first experience with invert.
He is also OK with the BOP status & was aware of the change from drilling to service rigs.
He will be present when the critical sour portion begins. [Emphasis added]
The parties disagree on the interpretation of the above facsimile.
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Buan testified that this summarized his earlier conversation with Mills. He said the above sentence “he was aware of the change from drilling to service rigs” referred to Mills’ response when Buan told him that the Roll’n crew had only well service BOP tickets. Buan said he understood Mills to say that well service BOP tickets were sufficient and that he would be there with the required BOP ticket during the re-entry operations. Mills had a second-line BOP ticket.
Buan gave the following testimony during his examination in chief at trial: see ECT p. 103, l. 3-28:
Q All right. And so would you walk us through this facsimile to Mr. Rowbotham? A I -- I just wanted to confirm with him that he had -- he had agreed on the -- he was fine with the extra cost incurred for the invert mud situation and I also discussed with him the -- the BOP status with our fellows not having a -- down --or the 1 or 2 BOP tickets. And his comment was not to worry about it, he will be present when it comes to that time of the -- the program and -- and everything seemed to be fine.
Q All right. So, the "he" that you’re referring to in this note, is that Mr. Mills or is it Mr. Rowbotham?
A No, this is Mr. Mills’ comments here.
Q All right. So you had a discussion with Mr. Mills and you’re reporting the contents of the discussion to Mr. Rowbotham?
A Yes (INDISCERNIBLE).
Q What do you recall discussing with Mr. Mills on the -- kind of like the change from drilling to service rigs?
A Well, my comment was -- with him, that our boys did not have first or second-line BOP tickets, which are required when we get into the re-entry portion of the well and that they only have BOP tickets referring to the service rig work.
Q All right.
A And his -- his response was not to worry about that part of it, he’ll be there with the BOP ticket to look after the -- that portion of it.
There is no evidence that Mills received a copy of this facsimile or that Buan had any further discussions with Mills about the BOP tickets that were required by the Roll’n crew.
Mills testified that the reference in the facsimile that said “He will be present when the critical sour portion beings” did not support Buan’s claim. He said planned to stay overnight at
the Wellsite once the operations reached the critical sour stage. He also said that the reference to the BOP status did not support Buan’s claim.
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Blaze refers to the following evidence from Buan which they argue supports their claim that Roll’n planned to get an exemption from the AEUB to allow Roll’n to conduct the re-entry with well service BOP tickets and that they formed this intention prior or at the time Roll’n signed the MWS Contract.
Buan is obviously confused at times and perhaps even mislead (unintentionally) by the questions during cross-examination. In the final analysis, I am not satisfied that Buan ever discussed the topic of the AEUB exemption with Rowbotham until after the shut-down on December 9, 2005.
Blaze alleges that Buan’s evidence proves that he and Rowbotham discussed the need for an exemption from Guide 36 and that Roll’n intended, prior to or at the time that it entered into the MWS Contract with Blaze, to obtain an exemption from the AEUB to allow it to conduct the Blaze operations with well service BOP tickets. Although Buan’s evidence is confused on the issue, I am not convinced that it leads to that conclusion.
In cross-examination, Buan’s evidence was that he had no discussions with Rowbotham about Roll’n’s crew requiring second-line tickets or about Roll’n obtaining an exemption from Guide 36 until after the AEUB shut-down the operations in December 9.
During cross-examination at trial, his testimony at his examinations for discovery was put to him and Buan acknowledged he had given the following testimony: ECT p. 124-126:
Q Do you, in the period October 24th through 26th, have any recollection of discussing second line BOP tickets with Mr. Rowbotham?
A No, I don’t.
Q In October 2005, did you have any understanding as to what was needed for second line BOP tickets by the AEUB?
A I did not get involved in that conversation.
Q What I’m wanting to know though, did you have any personal information, or what was your understanding of the requirements for second line BOP tickets when doing a re-entry?
A The only information I was privy to was that the board was looking into the possibility of being exempted on this particular job, and that’s the only information I was privy to.
...
Q From whom did you receive that information? A I think it was from Brad.
...
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Q Okay. So, you certainly have an understanding that you believe was -- you received from Brad Rowbotham, that Roll’n was looking into the possibility on the 11 of 19 job of being exempted from the second line BOP requirements, right?
A That’s -- that’s what I was privy to, yes.
...
Q In that one conversation you had with Brad relating to the exemption, was that the first time you ever heard of an exemption?
A That’s the first time I ever got involved in exemptions.
...
Q Your recollection is that the exemption was something that Mr. Rowbotham was dealing with?
A Brad was looking into the possibility, yes.
However, on redirect, Buan clarified that he first spoke to Brad Rowbotham about an exemption from Guide 36 when the AEUB shut-down the Blaze operations in December 2005. He said he did not have an understanding or recollection that Rowbotham would be obtaining the exemption.
Rowbotham testified that he knew the Guide 36 requirements before Roll’n entered into the MWS Contract with Blaze. He also said he knew from the first time he saw Blaze’s Drilling Program on October 26, 2005 that Directive 36 applied unless an exemption from the Directive was obtained, since the Program showed the drilling would proceed more than 50 metres outside the well casing.
Rowbotham’s evidence was that he was involved in the discussions with Encana about retaining Rig 4 for their operations. He said that Rig 4 had been committed to Encana but that it had been determined that since the job involved drilling 160 metres outside the well casing, Rig 4 could not be retained since Guide 36 applied and the Roll’n crew had only well service BOP tickets. Rowbotham testified that he spoke to Encana about obtaining an exemption from Guide 36 but Encana said it would not apply as it would take at least one to two weeks to obtain: Rowbotham produced his handwritten notes (Ex. 006-160), which state, among other things, “Drill 160m” and “G36 - will not ask for exemption”. Rowbotham did not keep a detailed diary of business matters but said he found these notes in his office: see Ex. 006-160.
Rowbotham’s evidence was the same as Buan’s regarding the basis and meaning of Buan’s October 26, 2005 facsimile to Rowbotham.
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Rowbotham testified that when he received the facsimile from Buan on October 26, 2005 confirming that Mills had agreed to the extra charge resulting from the use of invert mud and that Mills was “OK with the BOP status & was aware of the change from drilling to service rigs”, he interpreted this as confirmation that Mills was aware that the Roll’n crew had only well service BOP tickets and that Blaze would have to obtain an exemption. He agreed that there was no mention of an exemption in the facsimile.
Rowbotham testified that he spoke to Mills about the Blaze Well in late October or early November 2005. He said he told Mills during this initial discussion that Mills would have to apply to the AEUB for an exemption to allow the Rig 4 crew to conduct the re-entry with well service BOP tickets.
Rowbotham said the first time he talked to Mills, Roll’n was already onsite. He said he was not concerned about whether Blaze had the exemption at that time because Blaze was conducting the abandonment operations at that point which was a typical well service operation which could be completed with well service BOP tickets. He said he did not tell Mills at what point Roll’n would require the exemption. He said he did not know how long the abandonment operations would take.
Rowbotham testified that he told Mills during their initial discussions that none of Roll’n’s employees had second-line BOP tickets. He later said he did not recall telling Mills that no one at Roll’n had a second-line BOP ticket. He then said he may not have used those exact words but that he did tell Mills that an exemption was needed for both the first and second-line BOP tickets. He said the that is how the conversation with regard to the exemption started.
Rowbotham said that he told Mills that Blaze would have to apply for the exemption since the well licence was granted to Blaze as operator. He testified that he was under the impression that Mills was quite familiar with the process and would take responsibility for obtaining the exemption.
Rowbotham also testified that he discussed the exemption with Anderson, and told Anderson that Blaze was taking care of it.
When asked about his understanding of the basis for the exemption, Rowbothan said the exemption is granted based on the fact that the drilling goes through a well casing and therefore that the well can be shut-down in the well casing rather than using the drilling rig shut-down procedures. Rowbotham asserted that the reason he believed the exemption was possible was because Roll’n had well service BOP tickets which would have qualified them to shut-down a blowout in the existing well casing at the Blaze well.
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Rowbotham confirmed that at no point did he follow up with anyone to determine whether Blaze had applied for or received the exemption. He also agreed that he did not reply to Mills’ October 26, 2005 email with the attached Drilling Program and request that Mills confirm that he would obtain an exemption.
Rowbotham maintained that it was not necessary for Blaze to send Roll’n a copy of the exemption or verbal confirmation that it had been obtained. He said likewise, it was not necessary for Roll’n to see Blaze’s well licence or a certified copy of its Drilling Program.
Rowbotham testified that he knew the Roll’n employees had to have experience with sour wells but not in drilling sour wells. He agreed that his understanding of the exemption did not exempt Roll’n from having experience with sour gas wells.
Rowbotham said the next conversation he had with Mills was on November 15, 2005, based on his handwritten notes. He said that they did not speak about the exemption. Rowbotham said he did not ask Mills whether he had obtained the exemption, despite the fact that he knew the abandonment operations were concluded at that time. Rowbotham also agreed that there was no written documentation, other than the October 26, 2005 facsimile from Baun to Rowbotham, documenting that Blaze was responsible for obtaining an exemption to allow Roll’n to conduct the operations with well service BOP tickets.
Rowbotham also agreed that there was no written documentation, other than the October 26, 2005 facsimile from Baun to Rowbotham, documenting that Blaze was responsible for obtaining an exemption to allow Roll’n to conduct the operations with well service BOP tickets.
Anderson testified that he first heard about the Blaze operation in late October 2005 when speaking with Roll’n’s general manager, Brad Rowbotham. At the time, he and Rowbotham were reviewing the Blaze Drilling Program. He said he told Rowbotham that he did not have the certification necessary to perform the operations. He said he and Rowbotham discussed the fact that for the drilling operations, the rig manager and wellsite supervisor needed a second-line BOP ticket and that the driller needed a first-line BOP ticket. He said they agreed that Blaze had to be made aware that Roll’n was going to require an exemption from the AEUB in order for Roll’n to perform the operations. He said he did not know if Rowbotham had contacted Blaze about obtaining an exemption.
Anderson testified that he did not receive the Drilling Program before he met Rowbothom but rather reviewed it with Rowbotham in Roll’n’s office in Red Deer. Anderson said they discussed that no one on the Roll’n crew had a second-line BOP ticket.
Anderson said he did not know if Rowbotham had committed Rig 4 to Blaze at that time. He said he recalled that another company had booked Rig 4 but then dropped it about the same
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time because the Roll’n crew did not have a second-line BOP ticket and the other company therefore required the same exemption for the second-line ticket. Anderson said that there is an exemption required for drilling with a service rig with well service BOP tickets. He agreed that he and Rowbotham both thought it was Blaze’s responsibility to obtain the exemption and he left the meeting believing that Blaze was going to get the exemption. Anderson said that neither he nor Rowbotham communicated with Blaze to tell it that an exemption was required during his meeting with Rowbotham. He said Rowbotham knew how the exemption could be obtained and the timing for it to be done. Anderson said he understood that the exemption was obtained by the oil company going to the Board and explaining the situation. He said the wellsite supervisors on the Raven job had obtained an exemption to allow them to put the BOP together piece by piece although he was only given verbal, but not written, confirmation from the wellsite supervisors that an exemption had been granted.
Anderson testified, that the exemption that Blaze required was to allow Blaze to drill a sour gas well with a service rig, as opposed to a drilling rig, where the drilling was a certain number of metres outside the casing. Anderson said he understood the exemption would allow Roll’n to secure the well, with a hard shut-in rather than a soft shut-in.
Anderson testified that a service rig normally contains a blowout with a hard shut-in which is a shut-in inside the casing or tubing, what he referred to as a cased hole. He said it was his understanding the exemption Blaze would need to obtain was to allow Roll’n to conduct a hard shut-in instead of a soft shut-in. When asked how Blaze could obtain this exemption since Roll’n was drilling outside the well casing and could not therefore, contain a blowout in the well casing, Anderson explained that what he understood was that the exemption would be to obtain permission “to have a service rig on that location with their second-line tickets”. Anderson said he knew Mills had a second-line BOP ticket. Thus, if a blowout happened outside the casing, Blaze would have someone onsite with a second-line BOP ticket to control the well using a soft shut-in outside the casing.
Anderson testified, that his understanding was that Roll’n was to perform the abandonment operations, cut the window and “build a curve”. When asked what he meant by build a curve, he said it was to “get out of the casing”. When asked how far out of the casing Roll’n was going, Anderson said he was not sure what the requirement was. When asked if it was 300 metres, he said “I don’t think the intention was for us to drill that far”.
Yearwood said that he did not recall having any conversations with Anderson about the requirement that rig managers have second-line BOP tickets. He also said that Anderson never mentioned the requirement for an exemption. Yearwood said he was also not aware that the driller needed a first-line BOP ticket. He said Roll’n was a well service operation. He said he had no understanding the Blaze Drilling Program required this.
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Mills testified that on October 27, 2005, he received a telephone call from Anderson, in which Anderson told Mills that “he has a program, he has done this type of operation before, and a service rig, well service BOP is okay.” Mills testified that he told Anderson he would be out to the Wellsite the next day and would see Anderson then. The notation in Mills’ diary of that date states:
Roll’n...Rob Anderson...(403) 396-0746...has program...[indiscernible]...service rig WSBOP OK.
Mills went to the Wellsite on October 28, 2005. Allen of Horizon, Chad Barker, Roll’n’s field superintendent, and Anderson, Roll’n’s rig manager, were all there.
Mills testified that he, Allen, Anderson and Barker had a meeting around 9:00 a.m. that morning. Mills said that Anderson had the Program, he said he’d read it, and that he had done many like it before. Mills said he and Anderson went over the Program. Mills said that the four of them discussed what would happen that day and in the next few days and there were no questions. There are no notations in Mills’ diary about Anderson and Mills going over the Drilling Program together.
Mills said that Anderson told him that Roll’n did not operate under the second-line BOP ticket requirements. Mills’ diary of that date states.
Rob has read program. Done many SSCV [which Mills said meant subsurface casing valves]. Closed. As service rig only WSBOP [which Mills said meant
“well service BOP]. No second-line.
At trial, Anderson said when he met with Mills for the first time onsite, he and Mills had a full day of meetings in which they reviewed the Drilling Program and discussed what Blaze wanted to do. He said he did not recall talking about the exemption to allow Roll’n to drill with well service BOP tickets. Anderson said he was not concerned about this. He said he had the impression that Mills was eager to move ahead and would therefore be anxious to get the exemption and that he had in fact done so.
On cross-examination, Anderson absolutely denied telling Mills during their first day-long meeting onsite that the Roll’n crew did not require second-line BOP tickets. He said he would not have done this since he believed Blaze had received an exemption. Anderson said he believed he talked to Mills, Allen and Cripps about whether they had second-line BOP tickets.
In Anderson’s December 4, 2006 examination for discovery, page 52, line 14 through line 21, put to Anderson at trial, he testified to the contrary: see ECT p. 301, l. 16-: (as read)
He said:
Q Sure. In that first full day meeting with Ed Mills, do you recall telling Mr. Mills that there was no second-line BOP ticket required?
A I believe so.
Q You did that based upon your earlier conversation with Brad.
A That the tickets were going to be taken care of because of our exemption.
After have the foregoing examination for discovery read to him, Anderson said that it was not his understanding that this meant he had told Mills that second-line tickets were not required. He said he would not have said that and did not say that.
On cross, Anderson said he did not tell Mills that he had done lots of these types of reentries before but he in fact had. He said service rigs frequently do reentries and they involve similar types of work such as picking up rotating equipment and cutting a window. He said the ability to do the work is not affected by whether the well is sweet or sour or by the depth of the hole.
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On December 9, 2005, the AEUB shut-down the Blaze operations for contravention of AEUB Guide 36 (Ex. 002-011).
Mills testified that when the operations were shut-down by the AEUB on December 9, 2005, he telephoned Barker, Roll’n’s field superintendent, and Brad Rowbotham. He told them all that the AEUB had shut-down the operations. He said his notes indicate that Rowbotham told him that he had been through this before and that they did not need a second-line BOP ticket as they fell under Well Service Manual Guide 37, 10.7. Mills said Rowbotham told Mills to call the AEUB. Mills said he called the AEUB and was told by Paul Sanya of the AEUB that “we’re allowed to pull to the casing” and that this was a significant non-compliance.
Rowbotham testified that he did not recall telling Mills that “he had been through this before”.
Rowbotham testified that he was surprised and upset when the operations were shut-down because the Roll’n driller and rig manager did not have first and second-line BOP tickets. He said he thought Mills had obtained an exemption, and that when he tried to discuss the exemption with Mills, he avoided the topic.
Rowbotham agreed that he did not document his surprise and reliance on an exemption by writing to Blaze or the AEUB. He said he spoke to Mills about it and there was no need to send a letter to Blaze or the AEUB explaining that Roll’n was not responsible. He agreed that he did not explain the circumstances to the employees at the wellsite either.
Rowbotham said that the December 9 AEUB shut-down was the only other time he spoke
to Mills about the exemption. He also agreed that in subsequent conversations with Blaze after Roll’n was released from the wellsite, that he never told Blaze that Roll’n could only go back if Blaze obtained an exemption.
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On December 10, 2005, the AEUB wrote a letter (Ex.003-031) to Blaze in which it issued a Major Level 2 Enforcement Action against Blaze for six infractions of Guide 36. The letter stated that failure to comply by January 9, 2006 would result in the enforcement action being elevated to a Major Level 3 of the Ladder and full or partial suspension of operations at the Wellsite. The AEUB cited Blaze’s unsatisfactory drilling operations at the Well and asked Blaze to provide explanations as to why AEUB directives were not addressed in Blaze’s go forward plan. Infractions 5 and 6 were as follows:
The driller does not possess a valid First-Line Supervisor’s Blowout Prevention Certificate (Directive 36, Section 10.2.1.1)
The rig manager does not possess a valid Second-Line Supervisor’s Well Control Certificate (Directive 36, Section 10.2.2.1)
On December 16, 2005, Mills wrote a letter to Richard Sommers at the AEUB (Ex. 003-032) in response to the AEUB letter of December 10, 2005. Mills stated that he understood and had been advised by Roll’n that Guide 37, s. 1070 applied, which applied to drilling with service rigs, and that he had confirmed this himself. Mills gave the following explanation in his December 16, 2005 letter to the AEUB:
Blaze Energy Ltd. facsimile the Drilling program Oct 25, 2005 to Roll’n Brad Rowbotham, who in turn passed it on to the Rig Manager Rob Anderson. The program was discussed between them. Roll’n Calgary salesman Rolly Buan called me Oct 26, 2005 and assured me the well operations fell under EUB Guide IG-11[Guide 37] Drilling with a Service Rig. This means Well Service BOP tickets are all that is required. I confirmed this by looking in the Guide myself.
[Mills then quoted AEUB Guide 37]
I sat down with Rob Anderson Oct 27 2005 on site to go over the program. Rob Anderson assured me all the tickets were in place to do this operation and added he even had one driller Travis Hogg who had his First-Line BOP ticket. Rob Anderson was to get copies of the tickets and have them on site. We went over the guide IG11 drilling with a service rig.
Emphasis added
Later in Mills’ December 16 letter he addresses each of the six infractions cited by the AEUB. He states in response to both infractions 5 and 6, that the driller and rig manager lacked the BOP tickets required under Guide 36, that “[i]t is our interpretation the well was being drilled
with a service rig and the service rig regulations applied. Since the audit we have brought in the required qualified personal(sic)”.
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Mills’ December 16, 2005 letter goes on to explain:
The well was to be drilled in two parts. The first part was to drill the liner section and set the liner. The formations to be encountered were...None of those formations are permeable and do not contain any commercial hydrocarbons. The drilling was to stop 10 metres above the Nisku target. Once target depth was reached, the liner was to be run and cemented. It was at this point the well was to go critical.
At this point we were going to enact ERP [Emergency Response Protocol]. The
service rig was not going to drill into the Nisku. The Nisku was to be drilled overbalanced with a coil rig. Once the coil rig drilled into the Nisku and TD in the Nisku porosity, we would then release the coil rig.
Despite the above explanation in his letter to the AEUB, Mills testified that he was not of the view that the regulations applying to critical sour drilling applied only when they cemented in the liner. Mills said the well was critical the moment they drilled out of the window but did not enter the critical zone until the drilling was just above the Nisku. Mills said that Blaze then had the option of drilling into the Nisku with Rig 4 or a coil rig. He said this had been explained to Roll’n from the start. He testified that on December 16, 2005, which is also ironically the day Mills had to respond to the AEUB as why Blaze had not complied Guide 36, he decided to drill into the Nisku with the coil rig. It was also the day that Blaze decided to shut down the operations and release Rig 4.
On December 20, 2005, Mills wrote a second letter to the AUEB (Ex. 003-035). Mills said he wrote it because Sommers was not satisfied with the explanations in Blaze’s December 16, 2005 letter and requested that further specific information be included in a second letter. The letter appears to attempt to absolve Blaze of any responsibility for failing to comply with AEUB sour well regulations and put the entire responsibility on Roll’n and Horizon. In the letter, Mills’
states:
Blaze Energy had an AEUB pre-approved drilling program specifying that we would follow Guide 36. In preparing for the operation with the contractor Roll’n Well Service and the resource professionals Horizon Resources, we believed that they would follow the drilling program and with it AEUB regulations. We talked about the fact that we would be AEUB audited, it was just a matter of timing, when. Until the December 9, 2005 audit, we did not realize that we were not following the approved drilling program. Blaze relied on the expertise of these professionals with regard to their interpretation of the Guides. Blaze was wrong in doing so.
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...Additionally Blaze sent this same drilling program to Ken Kindjerski at Horizon Resources who was to supply the wellsite consultant. Ken went over the program then we sat down and talked about drilling this well with a service rig. Ken backed up what Roll’n had said. Guide IG11 was what we need to follow because we are using a service rig....
Mills’ December 20, 2005 also deletes the section of his December 16, 2005 letter that stated that he had looked in Guide 37 himself and believed it applied. Mills’ December 20, 2005 letter also changes what he said in reply to the AEUB’s finding of non-compliance based on the lack of the required BOP tickets by the driller and rig manager. Mills states instead in both cases:
It was our mis interpretation the well was being drilled with a service rig and the service rig regulations applied. Since the audit we have brought in the required qualified personal (sic) December 10, 2005.
Mills could not explain the discrepancies between the two letters, other than to say that the AEUB has requested a more detailed explanation.
The foregoing explanations have the convenient effect of laying all of the responsibility for failing to comply with Guide 36 on Roll’n and Horizon and none on Blaze. I do not accept Blaze’s explanations.
The evidence falls short of satisfying me that Roll’n represented to Blaze that it only needed well service BOP tickets to do the re-entry program.
Buan’s evidence that he spoke to Mills about the fact that Roll’n had only well service BOP tickets would appear to be corroborated by the information in his October 26, 2005 facsimile to Rowbotham that states “he is also OK with the BOP status & was aware of the change from drilling to service rigs.” However this was not sent to Mills.
There is no documentation anywhere dealing with an exemption, let alone that one was to be obtained by Blaze.
There is no evidence that anyone from Roll’n attempted to confirm whether Blaze had applied for or had obtained an exemption from Guide 36.
It is troubling that Mills was not cross-examined on the issue of his getting an exemption.
Rowbotham’s evidence is difficult to accept. He says he knew Guide 36 applied and that he did not have a crew member with a second-line BOP ticket. That makes sense having regard to the fact that Roll’n had just lost the Encana job because Roll’n could not provide a crew for Rig 4 with second-line BOP tickets. Despite this, he sent Rig 4 and its crew to the Well. He states that
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Mills agreed to get an exemption and he relied on that in order to send Rig 4 and its crew out to the Well. Its conceivable that he thought Roll’n could start the abandonment operations, for which it did have the required well service BOP tickets, and that Mills would obtain the exemption before the drilling started 50 metres outside of the casing. However, it is difficult to understand that, knowing this, Rowbotham did not obtain documentation or verification or confirmation from Blaze that it was obtaining an exemption, that Rowbotham did not thereafter ask Mills for confirmation that it had obtained the exemption, and that when the AEUB shut-down the operation, Roll’n did not write to Blaze or the AEUB and explain that it thought an exemption had been obtained.
Anderson’s testimony is also difficult to accept. Why would Anderson not ask Mills if he had obtained the exemption if Anderson knew one was needed? How could he believe Mills had obtained an exemption by the time Anderson got to the wellsite on October 28 when only one or two days had passed since he spoke to Rowbotham about it? Presumably the reason Anderson testified that he asked Allen, Cripps and Mills whether they had second-line tickets was because he understood Blaze could provide someone with a second-line BOP ticket and that would satisfy Guide 36. There is no corroborating evidence from Mills, Allen or Cripps that Anderson asked them whether they had second-line BOP tickets. In addition, one wonders why, when he is relieved by Yearwood, knowing that Yearwood would be there when the drilling starts, Anderson did not warn Yearwood, that rig managers needed second-line BOP tickets unless Blaze obtained an exemption. Nothing was said.
It is plausible that Roll’n thought they could conduct the abandonment operations and drill 50 metres out of the casing with their well service BOP tickets. They knew they needed first and second-line BOP tickets to drill beyond that. However, in order to continue past that point, they had to believe that Mills had obtained or was going to obtain an exemption. However, no one from Roll’n asked anyone else if an exemption had been obtained.
Mills’ evidence on this issue is also difficult to accept. On the one hand, he testified that he knew from his understanding of Guide 36 that he needed a crew with a second-line BOP ticket. He says he specifically told Baun that the Roll’n’s crew needed second-line BOP tickets for the reentry. Yet, by Mills own admission in his letter to the AEUB of December 16, 2005, Mills thought that the Blaze re-entry could be conducted using well service BOP tickets and he had confirmed this himself by reviewing Guide 37 and determining that it applied.
Further, Mills’ evidence that Anderson told Mills on October 27, 2005 that “he even had one driller Travis Hogg who had a First-Line BOP ticket”, supports Roll’n’s contention that Mills was aware that Roll’n had only well service BOP tickets at the time the operations commenced. The parties clearly discussed the issue. Not only did they discuss the issue, if, as Mills says, Anderson told him on October 27, 2005 that “he even had one driller Travis Hogg who had a First-Line BOP ticket”, it clearly leads to the inference that no one on the Roll’n crew had a
second-line BOP ticket and only one crew member had a first-line BOP ticket. Although Anderson may not have expressly told Mills that no one on the Roll’n crew had a second-line BOP ticket, this had to have been clear to Mills at the time.
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I am also troubled by Mills’ evidence that Kindjerski confirmed to him in October that it was well service BOP tickets that applied to the Blaze project. Kindjerski denied ever having said that and I believe him.
In the face of this contradictory evidence, the comments of the British Columbia Court of Appeal in Faryna v. Chorny (1951), 4 W.W.R. (N.S.) 171 at 174 is instructive:
The credibility of interested witnesses, particularly in cases of conflict of evidence, cannot be gauged solely by the test of whether the personal demeanor of the particular witness carried conviction of the truth. The test must reasonably subject his story to an examination of its consistency with the probabilities that surround the currently existing conditions. In short, the real test of the truth of the story of a witness in such a case must be its harmony with the preponderance of the probabilities which a practical and informed person would readily recognize as reasonable in that place and in those conditions....
Applying that test or consideration to these various versions, I conclude Rowbothan and Anderson’s evidence is more likely closer to the truth than is Mills. Rowbotham knew that Guide 36 applied to this project. He knew that an operator could apply for an exemption. He had just that day or the day before, had to turn down the Encana job because Roll’n did not have 2nd line BOP tickets and Encana was not prepared to apply for the exemption. Roll’n was a respected player in the oil field industry. There was plenty of work at the time. It seems, on balance, that it is unlikely that Rowbotham would make the false representation alleged by Mills.
On the other hand, it is clear from Mills’ evidence on cross examination that he had made many inquiries the summer and fall of 2005 to obtain a rig to do this project and had been unsuccessful. While he says there was no rush, I find that hard to accept as time was running out. Blaze had to commence drilling by mid December in order to earn its interest. Given Mills’ unsuccessful efforts over the summer and early fall as well as Kindjerski’s evidence to the effect that Mills, when they met on the street, seemed stressed about finding a rig , it is more likely that Mills would do what was necessary to get Roll’n’s rig.
Based on the foregoing, I find that no untrue, inaccurate or misleading representations were made.
Based on my conclusion that Roll’n did not make any inaccurate, untruthful or misleading representations to Blaze, it is unnecessary to determine this issue. If I am wrong in this conclusion, then clearly I would find that the representations were negligent.
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If I am wrong and the foregoing representations were negligent, I must consider whether there was reliance under the test in Cognos.
Roll’n argues that if any pre-contractual misrepresentations were made as to the previous work completed by Blaze, the capability of its equipment, or the qualifications or experience of its crew, Blaze did not rely on them.
First, Roll’n argues that Blaze did not rely on any pre-contractual representations made regarding its equipment or any previous work it had done.
I agree with Roll’n’s argument in this regard. I conclude under Issue 3 that Blaze chose Rig 4 and did not enter into the MWS Contract based upon its reliance that Roll’n had reviewed and accepted the Drilling Program. I find that Roll’n advised Blaze that Rig 4 was available and provided Blaze with the MWS Contract, the Rig 4 Rig Inventory, and the Services Work Order for its consideration and determination as to whether Rig 4 and the Contract terms were acceptable to Blaze. Blaze reviewed the documentation and accepted the equipment and terms offered by Roll’n.
Second, Roll’n argues that Blaze did not rely on any pre-contractual representations made regarding the experience or qualifications of its crew. I also agree with Roll’n’s argument in this regard, as my foregoing conclusions indicate. The letters that Mills wrote to the AEUB on Blaze’s behalf explaining why Blaze was not in compliance with Guide 36 show that Blaze was not relying on any representation by Roll’n either that Blaze had a crew with first and second line tickets or that the Blaze operations could be conducted with well service BOP tickets.
If Mills knew, as he states in his December 16, 2005 letter, that Roll’n was operating under well service BOP tickets, he must have realized that Blaze was not following the Drilling Program. Thus he could not have believed that what was being done at the Wellsite complied with the AEUB regulations. Further, Mills’ statement to the AEUB that he believed the operations were governed by Guide 37 is inconsistent with his statement that Anderson told him that Hogg had a first-line BOP ticket. If the operations fell under Guide 37, there was no need for anyone on the Rig 4 to have a first-line BOP ticket.
Further, Mills’ further explanation in his December 16, 2005 letter indicates that he was not relying on any representations by Roll’n that its crew had experience with critical sour gas wells. He states that it was his view that the Well was not a critical sour well until the second part of the drilling operations commenced just before the drilling entered the Nisku formation. His later explanation in his December 20, 2005 letter that the Well was a critical sour gas well from the time the drilling began but was not in the critical zone until the drilling reached a point just above the Nisku is again inconsistent with the statements in his December 16 letter.
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I conclude that the letters which Mills wrote to the AEUB after the Well operations were shut-down in December 2005, are persuasive evidence that Blaze did not rely on any representations by Roll’n or Horizon that the Blaze operations could be conducted with well service BOP tickets, that Roll’n possessed the first and second line BOP tickets required or that the Roll’n crew had the required experience with critical sour gas wells.
Based on my conclusion that Roll’n did not make any pre-contractual misrepresentations to Blaze and if any were made that Blaze did not rely on them, it is unnecessary to determine this issue. However, if I am wrong, the evidence is sufficient to find that Blaze’s reliance thereon was detrimental to it, for example, the December 9 shut down.
Roll’n argues that under Article XVII of the MWS Contract, Blaze and Roll’n agreed that the written terms of the Agreement superseded all prior negotiations, representations or understandings of the parties. In particular, Roll’n argues, that if this Court finds that any pre-contractual misrepresentations were made, they did not form part of the MWS Contract and are excluded under s. 17.1 of the MWS Contract which states:
17.1 Each Service Agreement shall constitute the entire agreement between Operator and Contractor in connection with the subject matter thereof and shall supercede all prior agreements, arrangements, negotiations, representations or understandings by or between them, whether written or otherwise.
Blaze argues that other provisions of the MWS Contract, including s. 17, do not exclude Roll’n’s liability for pre-contractual negligent representations that clearly induced Blaze to enter into the MWS Contract in the first place.
As discussed elsewhere in these reasons, an appropriately-drafted “entire agreement” clause can effectively limit the scope of the contact to those terms contained within the written embodiment of the contract. However, it is a slightly different question whether an entire agreement clause can exclude liability for the tort of negligent misrepresentation. In this context the question does not relate to what was agreed so much as what was said to induce the agreement.
Blaze cites the case of 1052276 Alberta Ltd. v. Consultant Feeds Ltd., 2007 ABPC 269, 430 A.R. 91. In that case, Haymour PCJ cites the decision of this Court in TWT Enterprises apparently for the proposition that in order for an entire agreement clause to successfully preclude or defeat a claim for negligent misrepresentation, the clause would have to expressly disclaim tort liability for any misrepresentations that may have been made outside the agreement.
In TWT Enterprises this Court held that a clause that provided that a tenant relied “entirely on its own inspection and knowledge of the Premises, and acknowledges that there are no
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representation[s], conditions, warranties or collateral agreements ... other than as expressed herein” did not exclude tort liability for misrepresentation. In that case the Court construed the clause narrowly as pertaining only to representations with respect to the condition of the premises in question, since that was the only subject matter mentioned in the clause. Since the misrepresentation alleged in that case did not related to the condition of the premises, the clause failed to protect the landlord. The Court specifically noted that it was applying the principle of contra proferentem to construe the clause against its drafter. As discussed elsewhere in these reasons it is less clear that the contra proferentem principle has application here. Even if one of the parties here can be said to be the drafter, it is necessary to find ambiguity in the written words before applying the rule: Fridman, Contract at 458. Furthermore, the entire agreement clause in Article XVII of the MWS Contract in this case is not limited in its subject matter scope as was the clause in TWT Enterprises.
The more generally-accepted principle appears to be that where there is a clause that provides that there are no other representations other than those in the written contract, a claim for negligent misrepresentation will fail, especially when the contract is between two sophisticated commercial parties: Carman Construction Ltd. v. Canadian Pacific Railway, [1982] 1 S.C.R. 958, 136 D.L.R. (3d) 193 at paras. 40-2; Intrawest Corp. v. No. 2002 Taurus Ventures Ltd., 2007 BCCA 228, 281 D.L.R. (4th) 420; McNeely v. Herbal Magic Inc., 2011 ONSC 4237; Turner v. Visscher Holdings Inc. (1996), 23 B.C.L.R. (3d) 303, 126 W.A.C. 48 (C.A.) at para. 35; Fridman, Torts at 619. In particular, entire agreement clauses need not expressly exclude liability in tort in order to exclude an action in negligence: Intrawest at paras. 54-59; Hayward v. Mellick (1984), 45 O.R. (2d) 110, 5 D.L.R. (4th) 740 (Ont. C.A.).
Finally, Roll’n cites the case of Gainers Inc. v. Pocklington Holdings Inc., 2000 ABCA 151, 255 A.R. 373. In Gainers, the Alberta Court of Appeal considered an entire agreement clause similar to the one in the MWS Contract. While Gainers is perhaps more directly relevant to the issue of whether pre-contractual representations became terms of the contract (and I refer to it elsewhere in that context), the Court noted generally (at para. 16) that “[e]ven earlier promises or representations, otherwise having legal effects, may be wiped out by suitable contractual clauses”, and held that the clause being considered was such a clause. I am in agreement with G.A. Hainey J., who noted - in the context of barring claims of negligent misrepresentation - that such clauses are particularly effectual where the contract has been negotiated by sophisticated commercial parties, as in the case before me: McNeely v. Herbal Magic.
Clause 17.1 of the MWS Contract is clear, unambiguous, and broad in scope. It effectively forecloses reliance upon any representation Roll’n may have made prior to the execution of the written contract. In the result, even if Roll’n made any pre-contractual misrepresentations, the entire agreement clause rules out liability for such statements.
Applying the five-part test for negligent misrepresentation in Cognos, I conclude that Roll’n made no pre-contractual negligent misrepresentations to Blaze on which it relied in entering into the MWS Contract.
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Blaze argues that since the MWS Contract is a multiple site services contract, which does not refer to any particular rig, site or work to be done on specific wells, it was necessary for additional instructions to be provided and those instructions were provided through the pre-contractual discussions between the parties and the provisions of the Drilling Program, both of which formed part of the Contract.
Blaze argues that s. 3.3 of the MWS Contract, which states that Roll’n is to provide well services under Blaze’s supervision and direction, is consistent with its argument that Roll’n was to provide well services in accordance with Blaze’s Drilling Program, since Blaze’s directions were contained in the Drilling Program. It further argues that s. 17.1 of the MWS Contract, the entire agreement clause, does not apply to multiple site services contracts.
Roll’n argues that the MWS Contract does not refer to the Blaze Drilling Program and it was not necessary for it to do so. This is because s. 3.3 of the Contract requires Roll’n to perform the Contract under Blaze’s direction and supervision. However, to make the drilling program part of the contract, it must be specifically referred to.
The contract entered into by Roll’n and Blaze included the following four documents:
Canadian Association of Oil Well Drilling Contractors (CAODC) and Canadian Association of Petroleum Producers (CAPP) Master Well Service Contract (MWS Contract) (Ex. 001-004); [Agreed Facts, Ex. 001-002]
Service Rig Division - Services Work Order (Services Work Order) attached as Exhibit “A” and forming part of the MWS Contract, pursuant to s. 3.1(1)(a) (Ex. 001-005); [Agreed Facts, Ex. 001-002]
Rate and Cost Summary attached to and forming part of the Services Work Order, pursuant to s. 3 a) of the Services Work Order (Ex. 001-006) [Agreed Facts, Ex. 001-002]
Roll’n Rig 4 Service Rig Inventory (with Working Floor) (Ex. 001-003)
Blaze and Roll’n entered into the MWS Contract on October 25, 2005, as found later in these reasons. It was a standard form contract, which included the attached Services Work Order
and the Rate and Cost Summary. It was developed for the oil and gas industry by Canadian Association of Petroleum Producers (CAPP) and CAODC in 2003.
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Rowbotham testified that the MWS Contract was the form of contract that Roll’n used for most of it work.
The MWS Contract, s. 3.1(1)(a), states that the Contractor agrees, “...subject to the terms and conditions of the Contract, to provide the Well Services described in and in accordance with the terms and specifications of the each applicable Services Work Order.”
Section 3. a) of the Services Work Order states that the Operator is to compensate the Contractor for “...Well Services provided hereunder in accordance with the rates and terms set out in the attached Rate and Costs Schedule...”
The Rate and Cost Summary attached to the Services Work Order (Ex. 001-006) specifies the Rig rate, which was $540 per hour for Rig 4. It specifies what equipment comes with the Rig and is included in the rig rate. It specifies that one rig manager and one four-man crew is provided with the Rig and included in the rig rate. It specifies the costs and rates for additional crew and equipment that does not come with the Rig and is not included in the rig rate.
The respective obligations of Roll’n and Blaze are set out in Article III of the MWS Contract.
Under Article III s. 3.1 of the MWS Contract, Roll’n, as Contractor, agreed to perform the well services and to provide the equipment, materials, supplies, services and labour necessary to provide the well services, both as stipulated in the Services Work Order:
Contractor agrees, subject to the other terms and conditions of this Master Well Service Contract:
to perform the Well Services described in and in accordance with the terms and specifications of each applicable Services Work Order; and,
in order to perform such Well Services, to provide the equipment, materials, supplies, services and labour required to be provided by as set out in and in accordance with the terms and specifications of each applicable Services Work Order.
[Emphasis added]
The Services Work Order (Ex.001-005) is attached to the MWS Contract as Exhibit “A” and forms part of that MWS Contract. Section 2 B. 1of the Services Work Order states:
2 B.1 Services to be provided by contractor: Service rigs to perform various tasks on a variety of wells located in Alberta.
Under Article III, s. 3.2 of the MWS Contract Blaze, as Operator, agreed to provide the equipment, materials, supplies, services and labour stipulated in the Services Work Order:
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Operator agrees, subject to the other terms and conditions of this Master Well Service Contract:
to identify the location of each Well-Site at which Contractor is undertaking Well Services; and,
to provide for each such location, the equipment, materials, supplies, services and labour required to be provided by Operator, as set out in and in accordance with the terms and specifications of each applicable Services Work Order.
Article III, s. 3.3 states that Roll’n is an independent contractor working under the direction and supervision of Blaze:
Contractor shall be an independent contractor with respect to all matters hereunder and neither Contractor nor anyone in Contractor’s Group shall be deemed for any purpose to be the employee, agent or representative of Operator in the performance of Well Services undertaken pursuant to this Master MWS Contract. Contractor shall perform its obligations pursuant to a Services Agreement under the direction and supervision of Operator. [Emphasis added]
Article IV of the MWS Contract sets out the parties’ duties and obligations with regard to well servicing methods and practices:
4.1 Contractor agrees to perform each Services Agreement with due care and diligence, in a good and workmanlike manner, in accordance with good industry practices and in accordance with any additional written policies or guidelines that are agreed to by Contractor and Operator and attached to an applicable Services Work Order
[Emphasis added]
The written terms of the MWS Contract that Roll’n and Blaze entered into do not specifically incorporate the Blaze Drilling Program or state that Roll’n will perform the Program in accordance with its terms.
Section 4.1 does state that Roll’n will perform the MWS Contract, among other things, in accordance with any additional written policies or guidelines attached to the Services Work Order. Neither the Blaze Drilling Program nor any other additional written policies or guidelines were attached to the Services Work Order.
Before considering more comprehensively the effect on the terms of a contract of statements and documents extrinsic to the contract, I will comment on Blaze’s characterization of this issue.
Specifically, Blaze states in its Brief that the standard well servicing contract entered into by the parties provided that:
Roll’n agreed to perform the well services described in accordance with the terms and specifications of the Program...
Roll’n agreed to provide the equipment, materials, supplies, services and labour required to be provided by as set out in and in accordance with the terms and specifications of the Program (Paragraph 3.1(b));
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Roll’n agreed to perform the Program with due care and diligence, in a good and workmanlike manner, in accordance with good industry practices (Paragraph 4.1).
Despite the foregoing allegations, neither paragraph 3.1(b) nor paragraph 4.1 refer to the Blaze Drilling Program, either by itself or when read together with the Services Work Order. The Program is simply not invoked there or elsewhere in the MWS Contract. This means that Blaze cannot, as it appears to do, point to the written contract itself to incorporate the terms of the Program into the contract.
If the terms of the Program are to be incorporated into the contract, it must be by some other mechanism.
This once again requires a consideration of the application of the parole evidence rule.
In addition to the exceptions to the parole evidence rule noted under Issue 2 with respect to misrepresentation, there are other exceptions or circumstances in which it simply does not apply. Of potential relevance in these circumstances are the following two classes of exceptions:
The rule does not apply unless the parties intended the document to constitute the entire agreement. For example, the rule will not apply if a party can show that there is, in addition to the written contract, a wholly independent, collateral contract, or if the intention was that the contract be partly oral: H.G. Beale, ed., Chitty on Contracts, 29th ed. (London, UK: Sweet & Maxwell, 2004) § 12-097-12-098, 12-103.
Parol evidence can be used to dispel ambiguities in the written contract, to show what the parties truly intended, or as a basis for implying terms (such as those based on custom), and generally as an aid to interpretation of the contract. In such
circumstances a court is not adding, subtracting, or altering terms, merely interpreting them: Chitty §12-113, 12-117.
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With respect to the second set of exceptions noted above, even where the parties intend the written document to constitute the entire contract, it may nevertheless be necessary sometimes to imply terms. Terms may be implied into a contract to give business efficacy to the contract, where the implied term is the obvious intention of the parties, where the contract is incomplete (in the sense that the obligations of one of the parties are not specified), on the basis of previous dealings between the parties, on the basis of industry usage and custom, or as required by statute: Fridman, Contract at 467-497, Chitty §13-003 – 13-018.
The first of the above two categories of exceptions is easier to deal with because of the “entire agreement” clause contained in Article XVII of the MWS Contract. As noted above in connection with Issue 2, the parol evidence rule operates to exclude statements and documents extrinsic to a written contract. Specifically, where such a contract was intended to be the final embodiment of the parties’ agreement, such extrinsic statements and documents cannot generally operate to add to, vary, or contradict the written contract: Black’s Law Dictionary, 9th ed., sub verbo “parole-evidence rule”; see also Gainers at para. 15.
As noted, the entire agreement clause of the MWS Contract, s. 17.1, is similar to that considered by the Alberta Court of Appeal in Gainers. In that case, the Court held that such a clause is sufficient to exclude from consideration any promises or representations that are external to the written contract. Such a clause is proof that the parties intended the written document to constitute their entire agreement, and so the parole evidence rule applies: Gainers at paras. 15-16.
The McNeely court cited the decision of Power Consolidated (China) Pulp Inc. v. British Columbia Resources Investment Corp., [1989] B.C.J. No. 114 (S.C.) (QL). In that case, McLachlin C.J.S.C. (as she then was) noted that an entire agreement clause elevates to the status of contractual term what is otherwise only a rebuttable presumption - that the written contract is the entire contract and that there can be no collateral contracts:
[T]he question is whether the intention of the parties in the case at bar was that the written contract together with the specified appendices would constitute the whole of the contract. That intention, as in all matters relating to contractual construction, must be determined objectively. Here the parties expressly agreed that the contract documents constituted the whole of their agreement. While in most cases such an agreement is only a presumption based on the parol evidence rule, in this case it has been made an express term of the contract. A presumption can be rebutted; an express term of the contract, barring mistake or fraud, cannot. I have no alternative but to conclude that the parties intended the contract documents to be the whole of their agreement and the plaintiffs cannot rely on collateral contract ...
Likewise, in the case before me, clause 17.1 operates to confirm that the MWS Contract, together with the incorporated documents noted above, form the entire agreement between the parties, and that there can be no other agreement touching on the same subject matter.
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Furthermore, even it were possible to find a wholly separate and independent collateral contract between Blaze and Roll’n having as one of its terms that Roll’n would follow the Program, the Alberta Court of Appeal cautioned in Gainers at para. 19 that a court cannot find a collateral parol contract inconsistent with the express written contract, and that “[c]ollateral contracts are viewed suspiciously and must be proved strictly, along with clear intent to contract: Hawrish v. Bank of Montreal, [1969] S.C.R. 515, 66 W.W.R. 673”.
In this case, any agreement that Blaze might allege to exist outside the MWS Contract would touch on the same subject matter and therefore not be truly separate from the MWS Contract. Further, certain of the provisions of the MWS Contract may conflict with the Drilling Program (which is not allowed).
In the present case, s. 3.3 of the MWS Contract, states that Roll’n “shall perform its obligations pursuant to a Services Agreement under the direction and supervision of Operator”. Roll’n’s express agreement to follow Blaze’s direction and an implied agreement to follow the Program are inconsistent to the extent that Blaze alters the Program or does not follow it, which is what happened in this case (for example, use of 10,000 psi BOP and use of water-based mud instead of invert mud).
Sometimes it is necessary to imply a term into a contract to give effect to a transaction that would otherwise suffer a failure of consideration: The Moorcock (1889), 14 P.D. 64 at 68 (C.A.). “In this situation, although there is an apparently complete bargain, the courts are willing to add a term on the ground that without it the contract will not work.”: Chitty §13-005. Professor Fridman notes (Contract at 468) that when doing so, a court must pay careful attention to the express words of the contract and to whether the proposed term to be implied is necessary and whether it fits with what has been expressly agreed. If the term to be implied is inconsistent with the expressed intentions of the parties, the term cannot be implied.
The express terms of the MWS Contract state that Roll’n agrees to provide services and supplies under the direction of Blaze. Blaze, in turn, could decide how and whether to follow the Program and direct Roll’n accordingly. As this is a perfectly functional arrangement, the implication is unnecessary. As noted above, the implication of a term that Roll’n perform the MWS Contract in conformance with the Drilling Program may indeed conflict with the express terms of the MWS Contract, as Blaze could (and did) provide direction contrary to the terms of the Program.
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The ability to imply terms for completeness or because that was the obvious intention of the parties is related to the efficacy doctrine. As I have said above, the MWS Contract is commercially effective in its expressed form. In my view, it follows that the MWS Contact is complete without incorporating the terms that Roll’n would perform the Contract in accordance with the Blaze Drilling Program.
Similarly, to make an argument that a proposed implied term was the obvious, though unexpressed, intention of the parties, there must be evidence of that obvious intention in the express language of the agreement itself, along with the circumstances under which it is entered into: Chitty §13-004. In this case, there is nothing in the written words of the MWS Contract to suggest that it was the obvious intention of the parties that Roll’n follow the terms of the Program.
Blaze argues that despite the fact that the MWS Contract does not expressly state that Roll’n would perform the Contract in accordance with the Drilling Program, the circumstances in which the Contract was formed are evidence that this was the intention of the parties. There are a number of circumstances that bear on this issue.
Roll’n argues that Blaze had decided to use a service rig prior to the initial conversations between Buan and Mills on October 24, 2005 and that the parties’ intentions were the same as the expressed terms of the contract - that Roll’n would provide a service rig to provide the services specified in the Services Work Order and not that it would perform the Contract in accordance with the Drilling Program.
Blaze argues that it relied on Roll’n’s representations that Rig 4 had just conducted a reentry similar to the one planned by Blaze and that it could perform the re-entry on the Blaze Well.
Mills testified that prior to discussing the Blaze operations with Roll’n or Horizon, he and Mele, had discussed the type of rig Blaze would use to perform the re-entry work. Mills testified that he tried to obtain a drilling rig but could not find one. He agreed that the industry was busy at the time. Between May and October 2005, Mills contacted at least ten drilling and service rig companies but was unable to obtain a rig. All their rigs were committed to other projects. He testified that he then recommended, and he and Mele agreed, that a service rig be used as they were specifically designed to perform the type of deep re-entry operations that were required on
the Blaze Well. Mills qualified this, stating that not all service rigs were capable of performing this type of work.
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There is also evidence that there were few if any drilling or service rigs available in October 2005. Jacobsen, opined that “[i]n all likelihood there was no suitable drilling rig available in the time frame required by Blaze to perform their re-entry operation.”: p. 3 expert opinion. He based his opinion on the Weekly Drilling Rig Count statistics. (Ex. 006-156) collected from the CAODC website. He stated that it is compiled based on the CAODC members’ reports of the utilization rates of their equipment. His report states at p. 3 that based on these statistics in October 2005, all service and drilling rigs, and crews “were in very high demand. Utilization rates for the service rigs in 2005 for October, November and December were 79.2%, 80.1% and 77.5% respectively.” He stated that the statistics show that virtually all the drilling rigs were spoken for or booked. Utilization rate measures only the time that a rig is on a wellsite. However, he said that rigs that are not being utilized were either being maintained or mobilized. He opined that the statistics indicated that it would be a very active winter season in 2005. He said that Precision Drilling, a drilling rig contractor were he was employed at the time, was receiving standby fees for rigs and crews that were not yet needed by their customers to ensure they would be available when they were needed.
The evidence indicates and I find that Mills had decided, prior to being contacted by Roll’n, that the Blaze operations could be completed with a service rig. They in fact suggest that Mills may have in fact preferred to use a service rig.
Blaze argues that Roll’n had to review and accept the Program before it could determine whether it had a rig and crew that could perform the operations specified in the Program.
Roll’n argues that Blaze was involved in the preparation of the Program, reviewed the Program and made the decision that the operations could be performed according to the Program before Buan ever contacted Blaze about using Roll’n’s rigs.
Prior to commencing operations, Blaze had to obtain a well licence from the AEUB. The well licence application required the inclusion of Blaze’s proposed Drilling Program for the Well. Mills testified at trial that he had little input or involvement in preparing the Drilling Program.
However, in his examination for discovery by Roll’n in October 16, 2006, starting at p. 25, lines 14-2, put to him in at trial, Mills stated that he was involved in preparing the whole Program. He said the N. L. Fisher would prepare parts, give them to Mills for editing, and then give them back.
Mills acknowledged at trial that he had assisted N. L. Fisher in preparing the Program in a number of respects. Mills assisted N. L. Fisher in obtaining information on the well. He
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introduced N. L. Fisher to Geoservices who prepared the geoservices report contained in the Blaze Drilling Program. Mills said the Blaze geologist gave N. L Fisher the planner view in the Blaze Program. He said he introduced N. L. Fisher to The Directional Company and helped that company plan who provided the information for the Blaze Drilling Program. He said he gave N. L. Fisher the survey drawing appearing by the Blaze Program. Mills also said he gave N. L. Fisher the well file that it had obtained from Anderson and Devon.
The facts indicate that Mills was intimately involved in the preparation of the Drilling Program and had determined, prior to being contacted by Roll’n, that the Blaze operations could be performed in accordance with the Program by a service rig.
Blaze argues that Roll’n reviewed the Program before agreeing to supply Blaze with Rig 4 and that it thereby accepted the Program and agreed to perform the Program according to its terms.
Roll’n argues that the circumstances surrounding the execution of the MWS Contract do not support Blaze’s allegations.
On October 24, 2005, Buan telephoned Mills to discuss the possibility of Blaze obtaining a rig from Roll’n.
Buan said he found out that Blaze needed a service rig from a friend, Guy Dorval, who worked at Circle T Rentals, but knew nothing else about the job.
Mills said that prior to Buan contacted him on October 24, 2005, he knew nothing about Roll’n’s equipment or the qualifications or experience of its crews.
On October 24, 2005, Buan facsimile Mills the Service Rig Inventory Sheet for Rig 4 with the attached working floor layout.
The evidence of Buan and Mills conflicts as to when and the circumstances under which the parties executed the MWS Contract, whether Buan reviewed the Drilling Program, and when Rowbotham received and reviewed the Blaze Drilling Program.
On October 25, 2005, Buan met Mills at Blaze’s offices and provided Mills with a completed CAODC Master Well Service Contract (Ex. 001-004), Exhibit “A” to that Contract being the Services Work Order (Ex. 001-005), and the Roll’n Rate and Cost Summary (Ex. 001-006), all of which were dated October 25, 2005 .
Buan signed each of the foregoing documents on Roll’n’s behalf on October 25, 2005.
The parties’ evidence conflicts as to the circumstances under which and the date on which Mills executed the foregoing documents.
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Buan’s evidence is that Mills executed the Contract on behalf of Blaze in Buan’s presence and without question or hesitation on October 25, 2005.
Mills testified that Buan brought the MWS Contract to Mills’ office on October 25, 2005 and left it for Mills to read, but that he did not sign and send the Contract and related documents to Roll’n until October 26, 2005. Mills’ evidence is therefore that he did not execute or agree to be bound by the Contract until October 26, 2005, after Roll’n had reviewed and agreed that it could and would provide its services in accordance with the terms of the Blaze Drilling Program.
Mills acknowledged that he had seen and signed contracts similar to the MWS Contract before, including with service rig companies, and that he understood the Contract. However, he said that he had questions about the Contract and as a result, did not initial page 4 of 8, because he wanted to discuss it with Buan. Mills said he questioned clause 9.4 of the Contract.
Mills acknowledged that he had given contrary evidence in his October 16, 2006 examination for discovery, put to him in cross-examination at trial. His discovery evidence was that he had no discussions or questions and did not negotiate any terms of the MWS Contract or Services Work Order at the time he signed them. However, at trial, Mills maintained that despite his answers at the examinations for discovery, he did have questions and did negotiate the terms of the Contract. There is no other evidence of this including changes to the written Contract.
The parties’ evidence also conflicts as to whether Buan or Rowbotham reviewed the Program, prior to entering into the Contract.
Buan denies reviewing the Blaze Drilling Program or any other documents describing the work to be done at the Blaze Well, prior to executing the MWS Contract.
Mele testified that when he, Buan, and Mills met at Blaze’s office in late October 2005, they did not review a copy of the Program.
Mills said that when Buan delivered the Contract to Mills on October 25, 2005, Buan picked up the Program which Mills had left for him in a sealed envelope at the front desk. However, he did not witness Buan reviewing the Program at that time.
Buan agreed that he picked up documents in a sealed envelope, which he assumed included the Program, from Mills’ office on October 25, 2005. He said he did not open the envelope but rather immediately sent it, by Purolator, to Brad Rowbotham in Roll’n’s Red Deer office. He said that it was his understanding that Rowbotham would be reviewing the Program with Anderson.
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Buan said that he sent the MWS Contract and related documents to Roll’n’s Red Deer office right after they were signed on the morning of October 25, 2005 and that he then went back to Mills’ office in the afternoon and picked up the sealed envelope and sent it to Roll’n’s Red Deer office on the afternoon of October 25, 2005.
Buan gave inconsistent evidence as to how he sent the Drilling Program to Roll’n’s offices in Red Deer. At examinations for discovery on February 1, 2007, Buan stated that he facsimile the Program to Red Deer. At trial, he testified that he sent the Program to Roll’n’s Red Deer office by courier.
Rowbotham testified at trial that he did not recall receiving the Drilling Program by courier or facsimile.
The parties agree that Mills in fact sent Rowbotham an email at 10:41a.m. on October 26, 2005, with the attached Drilling Program. The email in fact contained two attachments titled “Pressure Testing.pdf” and “Critical Sour Well Program 6-1”: T. P. 338, l. 1-16: see Ex 002-017. Rowbotham testified that this was the first time he saw the Blaze Drilling Program and that he reviewed it at that time.
I have considered the discrepancies in the evidence. I find that Mills executed the MWS Contract on October 25, 2005. Despite Buan’s inconsistent evidence on ancillary matters set out above, I accept Buan’s evidence as to the date and circumstances of its signing and reject Mills’ evidence on this point for two reasons. First, the document itself says it was signed by Mills on October 25, 2005 and that date has been inserted in Mills’ own handwriting. Second, Mills’ evidence in chief on the point is not credible in the face of his discovery evidence put to him on cross. Third, no changes were made to the document despite the alleged “negotiations”.
Roll’n argues that the Drilling Program was deficient in a number of respects and that the Drilling Program it received was different from the Program that Blaze entered into evidence.
On cross-examination, Mills could not explain why the Blaze Drilling Program was different from the Drilling Program sent to Roll’n and Horizon (Ex. 001-008). Specifically the pages in the Blaze Program showing the stick diagram (Ex. 001-007 p. RBEL000487), the BOP stack drawing, the accumulator system, the BOP manifold, the manifold layout, and the mud-gas separators are all missing from the Drilling Program sent to Roll’n and Horizon (Ex. 001-008).
Although this is a puzzling factor, it is not helpful in determining whether the Drilling Program formed part of the MWS Contract.
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As noted earlier in this judgment, that fact that Mills decided not to follow the Program on at least two occasions, indicates that Blaze had this option as Operator and it was Roll’n’s role to perform the contract under Blaze’s direction and supervision rather than in accordance with the Program.
Both Roll’n and Blaze agree that there were no previous dealings between the parties.
In certain limited circumstances a commercial custom may by incorporated into a contract by implication. As Professor Fridman notes in Contract at 477:
This will occur, according to the Supreme Court of Canada in Georgia Construction Co. v. Pacific Great Eastern Railway, [1929] S.C.R. 630 at 633 per Duff J., when the usage, or custom, was reasonably certain, notorious, and so generally acquiesced in by those in the particular trade, business or profession that was involved in the contract that it may be presumed to form an ingredient of the contract.
See also Chitty §12-121, 12-127 et seq.
Blaze has not argued that there is a customary denotation within the oil and gas industry for the words “perform various tasks on a variety of wells”. It does not seem reasonable that these words customarily mean “in accordance with the drilling program”, and no evidence has been adduced in support of such a customary meaning. Consequently, I see no reason to consider custom.
The parties did not offer any evidence that any statute requires that the contract between Roll’n and Blaze be performed in accordance with the terms of Blaze’s Program.
I conclude that neither the Blaze Drilling Program nor other pre-contractual representations or communications were incorporated into the MWS Contract. The conditions for implying such terms into the Contract are not present in this case.
In particular, I find it significant that the circumstances surrounding the execution of the MWS Contract do not indicate that the parties intended that the contents of the Program or other pre-contractual communications would be incorporated into the Contract. Rather, they indicate
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that prior to being contacted by Roll’n, Mills had decided that a service rig was capable of performing the re-entry operations specified in the Program. Mills was very familiar with the Program and the evidence indicates that he decided that it could be performed with a service rig. Mills was also ultimately responsible for directing the operations and whether the operations would be conducted in accordance with the Drilling Program. This is evident from the fact that, contrary to the provisions of the Program, Blaze chose not to use a 5,000 psi BOP or invert mud for the re-entry operations.
Blaze alleges that if Roll’n had available the proper equipment and experienced personnel for the re-entry, Roll’n willfully and intentionally assigned improper or inadequate equipment and unqualified or inexperienced personnel, when Roll’n knew or ought to have known that such equipment and personnel were incapable of conducting the re-entry.
In particular, Blaze alleges that Roll’n made little or no effort to comply with AEUB or OH&S requirements.
It argues that as a result the work done by Roll’n without the necessary licensing results in the MWS Contract being unenforceable due to illegality. In the alternative, Blaze submits that the only claim that may be asserted by Roll’n is for quantum meruit, for consideration for work of actual value performed.
Roll’n also submits that the issue of illegality was not pleaded by Blaze. I find that this argument has no merit. The MWS Contract, Article XII states that the “[c]ontractor and Operator each agree to comply with all laws, rules and regulations...which are or may be applicable during the performance of a Service Agreement.” Blaze plead breach of contract and negligent performance of the contract, among other causes of action.
Blaze alleges that Roll’n clearly knew that the Blaze Well was a critical sour gas well, knew the attendant dangers of such a well, knew that first and second-line BOP tickets were required, yet made no effort to comply with these requirements.
The evidence under Issue 2 details the pre-contractual discussions between Buan, Rowbotham, Anderson and Mills regarding the BOP tickets that Roll’n would require to conduct the Blaze operations. I concluded that both Roll’n and Blaze knew that second-line BOP tickets would be required for the Blaze re-entry operations, at least when the drilling reached 50 metres
outside the well casing. However, I found that Roll’n made no pre-contractual negligent misrepresentations in that regard and that even it if had, Blaze did not rely them. The evidence in fact indicates that each party relied on the other to ensure compliance.
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Blaze also alleges that Roll’n made little or no effort to comply with AEUB requirements.
The evidence of Vickers, Anderson and Rowbotham does indicate that Roll’n’s manner of checking the qualifications of its employees was somewhat haphazard.
Vickers testified that the responsibility for obtaining the certifications held by employees was on the person who hired them. He, the rig managers, and the field supervisors all hired employees. If an employee was hired in the field, the rig manager would obtain the employee’s certifications. Employees were required to include photocopies of their certifications in the hire package application that they submitted upon being hired. The hire package went to the payroll department. Although Vickers said he had access to those records, he said he had no initial role in monitoring the certifications possessed by employees.
Vickers said that if the employee was hired in the field, the rig manager or field superintendent would obtain the employee’s certifications.
Vickers’ evidence was that he, the rig managers, and the field superintendents were responsible for determining the crew members who would work on Rig 4. He said any of the crew members who had previously worked on Rig 4 or similar rigs would have been candidates. He also said that Anderson would have picked some of the crew members for the Blaze operations. He said he did not recall any of the field superintendents calling him to determine what certifications the Rig 4 members possessed.
Vickers said that while he did not know that the Blaze well was a critical sour gas well, he knew the difference between a critical sour and other sour gas wells. He said there was no difference between them in terms of safety.
Vickers said he also knew that if drilling was to continue more than 50 metres outside the well casing, this did not fall within well servicing requirements. He said that generally, Roll’n rigs did not drill more than 50 metres outside the casing. Although he said he knew that the rig manager needed a second-line BOP ticket to drill more that 50 metres outside the well casing, he did not know that the driller needed a first-line BOP ticket. He said he was not aware that the Blaze operations involved drilling more than 50 metres outside the well casing, although he knew some drilling would be outside the casing. Vickers said he did not check the certifications of the crew working on the Blaze Well and he did not know if anyone else had.
Vickers testified that the Summary of Employee Experience (Ex. 005-076) prepared after the Blaze job had been completed, was compiled based on information in the Roll’n personnel files, safety information and from information he had obtained after contacting crew members who had worked or were working for Roll’n. Vickers said he had access to this information in the
course of his employment and that it was also prepared from information he had acquired from the crew members he knew.
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Anderson testified that he knew he would require a second-line BOP ticket in order to drill more than 50 metres outside the casing, he had reviewed the Blaze Drilling Program with Rowbotham and knew that this was involved in the Blaze operations. He said he spoke to Rowbotham about the fact that he did not possess the required second-line BOP ticket. His evidence, as earlier discussed was that he was told by Rowbotham that Blaze was obtaining an exemption.
As I found earlier, under Issue 2, it is difficult to accept or reconcile the evidence of any one of Buan, Rowbotham or Mills with regard to the representations made by any of them as to what was said regarding the BOP tickets that were required or whether an exemption was discussed.
Anderson said he knew it was his responsibility to ensure that the crew had the required tickets but did not recall how he determined this. He said he knew the drillers were to have first-line tickets and believed they did but did not recall how he knew this. He said he would normally have checked the photocopies of their tickets.
Rowbotham testified that he knew that IRP, Vol. 1 applied to the Blaze operations and that this required that when drilling sour gas wells, rig managers were required to have five years’ experience as a rig manager or driller and must have been involved as a rig manager or driller in five drilling operations in which the wells were in the sour zone. He said it was his understanding that the Roll’n rig managers had the experience required based on the fact that the five years’ experience could be acquired as a driller or rig manager.
Rowbotham acknowledged that the Summary of Employee Experience (Ex. 005-076) did not identify how much experience the Roll’n rig managers had as drillers on sour gas wells or whether they had drilled on five operations in the critical sour zone. Rowbotham also agreed that there was no documentation in evidence showing that the rig managers met the requirements of IRP Vol. 1 and that he had no other knowledge regarding this issue.
Rowbotham maintained that he and Vickers had inquired and informed themselves that the rig managers had the required experience as drillers. Rowbotham testified that the rig managers could have had the experience required if they were involved on wells on which there were exemptions. He said that the experience also could have been obtained by drilling on sour wells where the drilling was within 50 metres of the casing.
Yearwood testified that approximately 70 percent of his experience was with sour gas wells. He said he did not recall having a conversation with Anderson or Cripps about the requirement for first and second-line BOP tickets and was not aware that they were required. He said he did not check the tickets possessed by the Roll’n crew when he arrived but rather relied upon Roll’n’s office to ensure the rig crew had the required certifications. Yearwood said the
industry was extremely busy at the time and that as a result, every rig that was available was working and every hand that wanted work had a job.
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Ward’s opinion, based on a review of the resumes and qualifications of the Blaze crews and a review of the DORs, Tower Reports and Pason Reports was that none of the Roll’n rig managers had the experience for a critical sour drilling operation and did not have the required training certifications. He also found that only one of the crew had a valid first-line BOP certificate and none had the required experience for a critical sour drilling operation. His opinion was that this was in direct contravention of Guide 36 and was one of the causes of a shut-down of operations December 9, 2005.
Jacobsen opined in his expert report that all of the rig managers and drillers provided by Roll’n had experience in completions and workovers on sour gas wells and some experience on drilling rigs. It was his opinion that the rig managers, drillers and crew were not required to meet the minimum experience standards for Critical Sour Drilling under IRP Vol. 1 as the scope of work requiring the Critical Sour Level 4 Classification would not start until after Roll’n’s work was completed.
Blaze further alleges that even after the AEUB issued a major noncompliance stop work order and shut down the Well operations until the rig manager and driller possessed first and second-line BOP tickets, respectively, Roll’n assigned Terry David and Darcy Bustin as rig manager and driller, knowing that neither had the required tickets.
Roll’n counters that David and Bustin were assigned as drillers and that both of these crew members had first-line BOP tickets. It is difficult to read the certificates attached to their resumes. It appears that Darcy Bustin had a valid first-line BOP ticket however, I cannot determine whether Terry David’s had a first-line BOP ticket.
Rowbotham said that Mills had agreed to find someone with a second-line BOP ticket to be the “acting rig manager” and that on he did so on December 9, 2005, when he sent Gord Lehman to the site.
Blaze contends that this was not the case; that Mills did not agree to provide a rig manager with a second-line BOP ticket and that Blaze never knew that Roll’n had no one with a second-line ticket.
Mills testified that when the AEUB shut-down the operations on December 9, he and Rowbotham agreed that they would do whatever needed to be done to become compliant. He said he did not recall any further communication with Roll’n on this issue.
Rowbotham testified that when he heard about the AEUB shut-down he was upset and asked Mills why he had not taken care of the exemption and Mills avoided the issue. Rowbotham then said he telephoned Paul Sanya at the AEUB for help as he knew Sanya from CAODC meetings. Sanya said he could not help Roll’n. He said he also gave Sanya’s telephone number to
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Mills, as this is typically who the oil and gas company would be dealing with. Rowbotham said he called Vickers, and told him to call Darcy Bustin and other drillers with first-line BOP tickets. He said Travis Hogg was due to return to the Rig that evening and he knew Hogg had a first-line BOP ticket.
Rowbotham testified that he then told Mills that they would still require a rig manager with a second-line ticket and that Mills said he would provide someone. Rowbotham said Mills contacted Gordon Lehman and Gerald Laronde who went to the Wellsite and acted as the other persons with second-line BOP tickets on location. Rowbotham testified that it was his understanding, that at this point all Roll’n had to do to comply with the AEUB requirements was to ensure its accumulator had the required pressure and that it changed the valve on the BOP. He said Roll’n accomplished this by connecting the accumulator to two booster kits to supply the required accumulator pressure and that it also changed the valve. Rowbotham said that the Rig was ready to return to work on December 10, 2005. He said he did not recall having any further discussions with Mills prior to the Rig being released.
Vickers testified that he was aware of the December 9 AEUB shut-down but he did not speak to Brad Rowbotham about an exemption at that time. He said Rowbotham instructed him to obtain drillers with first-line BOP tickets and as a result, Roll’n supplied Hogg and Bustin.
The Blaze DORs for December 10, 2005 also indicate that a number of things were done to bring the Rig into compliance. The Blaze DOR states:
Bring rig up to AEUB guide line standards of directive ID 97-4 to comply drilling w/a service rig on critical sour wells. Installed 3" kill line to both kill line bop inlets, install accumulator 3 bottle booster 45 gallons, install Swaco remote choke to the drillers console....
Blaze further alleges that Roll’n failed to provide men and equipment that were capable of meeting the statutory requirements of the Occupational Health and Safety Act, R.S.A. 2000, C. O-
2. It points to Roll’n’s obligations under s. 12 of the Occupational Health and Safety Regulation,
A.R. 62/2003, which states:
12(1) An employer must ensure that all equipment used at a work site
is maintained in a condition that will not compromise the health or safety of workers using or transporting it,
will safely perform the function for which it is intended or was designed,
(c ) is of adequate strength for its purpose, and
(d) is free from obvious defects.
13(1) If work is to be done that may endanger a worker, the employer must ensure that the work is done
by a worker who is competent to do the work, or
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by a worker who is working under the direct supervision of a worker who is competent to do the work.
An employer who develops or implements a procedure or other measure respecting the work at a work site must ensure that al workers who are affected by the procedure or measure are familiar with it before the work is begun.
14(2) A worker must immediately report to the employer equipment that
is in a condition that will compromise the health or safety of workers using or transporting it,
will not perform the function for which it is intended or was designed.
Blaze further argues that Roll’n made little or not effort to comply with OH&S legislation and regulations. It argues that this is evident from the manner in which it dealt with one of its crews’ refusals to work in unsafe working conditions and in the manner in which it dealt with the subsequent OH&S inspection. It alleges that on November 9, 2005, when Domeij, the driller on one of its crews, refused to work due to safety conditions, he was assaulted and then fired by the rig manager. Blaze further alleges that even after Roll’n was issued eight citations as a result of the subsequent OH&S inspection, it continued to operate in an unsafe manner and reported that it had rectified the safety issues when the evidence reveals that it failed to do so.
November 9, 2005 four crew members left the Wellsite and did not return. The cause for this was disputed by the parties. Roll’n alleges that it was because the driller was violating Roll’n safety standards. Blaze alleges it was because Roll’n continued to operate although it knew that the hydromatic brake on the Rig was not working and, that this resulted in unsafe working conditions. It argues that the four crew members left because they refused to work in unsafe conditions.
The four members of the five man crew that left the site on November 9, 2005 were Domeij, the driller, Chartrand, the derrickman, and Jamie and Eric Taylor, the floorhands. One member of the crew stayed. They had been there since the start of operations on October 27, 2005. All testified that the manner in which the operations were being conducted raised a number of safety concerns.
They said the main issue which led them to leave on November 9 was the faulty hydromatic brake, a secondary brake system on the Rig. Domeij said the brake drum was skipping and the hydromatic was making grinding noises which told him that something was broken or
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seized. He said if the hydromatic failed, he could not have manually controlled the weight on the drill string with the brake handle controlling the main braking system. He said he expressed his concerns to Anderson who told him to deal with the situation by engaging and disengaging the clutch, but this did not stop the pipe from free falling six or eight feet before he could get control. He said he then expressed his concern to Yearwood, the rig manager who relieved Anderson. He said Yearwood responded aggressively. Domeij said he continued to work but the next day called what he referred to as a “safety standdown”. He said that Yearwood insisted he work and when he refused, Yearwood assaulted him on the drilling pad. He and the other three members of the crew left and went to the doghouse. All of the crew members who left agreed that after they left the site they made complaints about the safety of the Rig to OH&S and the AEUB.;
Chartrand, Jamie Taylor and Eric Taylor all agreed that Domeij was having problems with the hydromatic and that the hydromatic brakes had failed that day causing the pipe to free fall toward the rig floor.
Yearwood testified that it was Domeij who was aggressive and that the altercation and Domeij’s subsequent dismissal resulted from Yearwood reprimanding Domeij for violating safety protocol. Yearwood said that on three successive days, Domeij disengaged the crown saver, a safety device that automatically prevents the rig equipment from hitting the crown of the rig to prevent the drill string from breaking and dropping equipment and tools down onto the rig floor and well bore.
Yearwood said Domeij told him the reason he had disengaged the crown saver was because the drill line was not wrapping around evenly and this engaged the crown saver which halted drilling. Yearwood said that this was because Domeij was not operating the equipment in a smooth fashion which would allow the drill line to spool properly. Yearwood said he showed Domeij how to operate more smoothly but Domeij continued to operate in the same fashion. Yearwood testified that Domeij was abusive and argumentative with Yearwood and Cripps. He said that when Domeij and the other crew members left the site, he took over as driller and he had no problems with the hydromatic.
Yearwood later testified that he did not recall if Domeij had admitted he had disengaged the crown saver, but Yearwood said that when he accused Domeij of it, he did not deny it and took Yearwood’s reprimand which indicated to Yearwood that Domeij admitted he had done it:
The Tower and Pason Reports from November 7, 8 and 9 state that the crown saver was working. Yearwood explained that the crown saver can be replaced, tested, and actuated in a matter of minutes so it is possible it could have been functioning when the driller who filled out these reports tested it. He also explained that Domeij and the other driller filled out these reports so they could be inaccurate. However, Yearwood was also responsible for approving these reports and he did not note that the crown saver was not working.
Yearwood said that after reprimanding Domeij for the third time he went to the driller’s pad and told him to follow procedures. He said Domeij started to leave and then came back and
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attacked Yearwood and Yearwood defended himself. He said he then fired Domeij. He said that after he had secured the Well he went back to the shack where Domeij and three other members of the crew had gone. He said at this point Domeij tried to fight with him again and then ran and locked himself in the crew change shack.
Yearwood later testified that Domeij would have had access to the Pason while he was in the shack. He also said that after Domeij, Chartrand and the two Taylor brothers left the site, documents were gone from the change shack where they went prior to leaving the Wellsite. He said he was unsure what the documents were but believed they included Tour reports, safety meeting reports, a motor book.
Yearwood said before the men left, he talked to the other crew members (Chartrand, Eric Taylor, Lechelt, and Jamie Taylor) about the issue and they said they were concerned for their safety because the hydromatic was not working. Yearwood said he told them there was no issue with hydromatic. They disagreed and Yearwood told them that was fine. He said he then went back to camp and got Hayduk and Lamb to replace two of the three that had left. He got Hogg to replace Domeij.
Cripps said he was not present during the altercation between Yearwood and Domeij. He testified that after the altercation, he drove the crew to camp and Domeij said he was going to call the AEUB and OH&S and that he wanted to cause Roll’n some problems. Cripps also testified that there was a problem with the hydromatic, but he couldn’t remember whether this was an issue on November 9, 2005. He said that he understood that the hydromatic was not working properly and as a result the driller had removed the bolt from the crown saver to speed up the operations.
Cripps’ November 9, 2005 notes (Ex. 005-070) state that there were problems with the brake linkage on the main brakes and the hydromatic. His notes state “safety stand down by day light crew. Rig manager set up brake linkage. Drum needs new brakes and linkage.” Cripps said there were concerns with the brake linkage, which controls the speed at which the winch lowers the drill string into the well bore. Cripps said that the brake linkage was worn out.
Cripps later testified that he prepared a separate one page report on the evening of November 9, 2005 regarding the events of that day which he emailed to Mills and Kindjerski and which was filed as Ex. 005-072. He said he couldn’t remember if he discussed the matter with Mills or Kindjerski at the time. The notes state at:
removed the bolt in the crown saver not allowing it to kick out of the drum clutch. The driller continued to trip drill pipe in the hole. The driller was not operating the draw works in a smooth manner causing the line to not spool properly.
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The final paragraph of his notes for that day state:
During the course of the afternoon I received phone calls from Cheryl Francis with the EUB and Gene Ung with OH&S. I informed Cheryl an experienced crew would be here Nov-10 to replace the crew that quit. She said she did not want the rig operating without a competent crew.
Gene Ung with OH&S and I discussed the hydromatic and the check valve in the boiler return line; Fall arrest from the monkey board; Bent floor railing; load line extension. I replied by saying I would check this out and get it fixed. I also told him that Roll’n was sending there safety man out on the 10th Nov. I was told to phone him when these complaints have been addressed... I gave Gene Ung Roll’ns phone number as he wanted to talk to their safety department.
The evidence concerning the altercation is contradictory and confusing, especially as to the reason therefore. I suspect there is some truth in both versions. However, on the whole of the evidence, I am satisfied that the safety stand down and subsequent decision by all the crew but one to leave the job with Domeij was motivated by concerns about safety, specifically, a problem with the hydromatic. Whether those concerns were justified is another issue.
On November 10, 2005, an inspector from OH&S, Ung, attended at the Wellsite and inspected the Rig. He issued eight citations, one requiring the repair of the hydromatic brake, but did not shut-down the operations.
Blaze argues that although Roll’n reported that all matters for which it had received citations had been rectified by mid November, 2005, it had not done so. The OH&S inspector directed Roll’n to repair the hydromatic. Vickers later advised Ung that it had been repaired and that a different type of brake had been ordered to replace it. Blaze alleges that the evidence shows that it was never ordered. Further, it argues that the repair that was done to the hydromatic by
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Roll’n was inadequate and that it continued to break down. Blaze further alleges that although the OH&S inspector ordered that a fall arrest system be put in place to protect the derrickman, and although Roll’n advised OH&S that this would be done, it never was. It points to Nadam’s evidence that he left Roll’n’s employment as a derrickman on December 4, 2005 because a proper fall arrest system was not in place.
The evidence suggests that some of the issues cited in the OH&S reports were not rectified as or when Roll’n advised. However, OH&S never shut-down the operations and in fact issued a report stating that all matters for which Roll’n had received citations had been rectified.
Roll’n’s evidence is that it never obtained a copy of any report issued by Ung at the time and all those who testified stated that they had never before seen the Alberta HR&E “Client Contact Report” (Ex. 006-126) obtained by Blaze’s counsel and presented at trial. This Report is issued to Roll’n and contains eight citations. It also states that Roll’n had complied with all matters for which it had been cited by November 14, 2005.
Vickers testified that when he met with Ung on November 10, 2005, he noted the deficiencies found by Ung and noted those as well as other matters that needed to be rectified in Roll’n’s standard form Inspection Action List (Ex. 003-026). His List contains 17 items to be rectified, some of which include the eight matters cited by Ung.
Vickers testified that he then wrote a letter to Ung dated November 15, 2005 (Ex. 003-028) in which he notified Ung that all matters had been recitified. The letter states that: 1) the chain securing the guy lines was secured with the correct grade of chain; 2) the pressures on the accumulator were checked by the rig manager on November 13 and each bottle was above the required level; 3) the driller’s platform was raised on November 12, 2005; 3) the required stairs and brake linkage were installed to the driller’s platform and a second set of stairs was installed off the work floor; 4) worn drill line was replaced on November 13, 5) the fall arrest for the derrickman that is used on other rigs will be incorporated on Rig 4 and a field superintendent will transport the required slings and equipment on November 15, 2005; 6) oil was added to the hydromatic on November 9, it was tested, and operations proceeded as it was operational; Dave Rowbotham welded the brake which engaged the brakes at all times; the rig manager indicated on November 14 that the hydromatic was working properly under load; and that this style of brake would be removed completely in the near future and replaced with an auxiliary disc brake, which had been ordered.
Vickers testified that although he did not receive the foregoing OH&S Client Contact Report, he did receive a facsimile from Ung on March 27, 2006, with a “Client Contact Report -Re-inspection Report” (Ex. 006-128) attached. It contained the same eight citations and noted that they had all been rectified.
On cross, Vickers acknowledged that the fall arrest system was not mentioned in his November 15, 2005 Rig Inspection Action List. He said that he had verbally informed the field superintendent, Dave Rowbotham, that this was required and he believed Rowbotham had
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rectified this by November 15, 2005. Vickers said he did not know that Nadam had left Roll’n’s employment because there was no fall arrest in place. He had no evidence to support his conclusion in his November 15 letter that this issue had been rectified. Vickers said Dave Rowbotham had advised him that the hydromatic would be replaced. He acknowledged that there was no mention of the hydromatic brake in his November 10, 2005 Rig Inspection Action List.
Barker testified that the hydromatic was never replaced but did become operational after David Rowbotham welded it.
Barker also testified that he could not recall transporting any slings but said that Dave Rowbotham may have done so. Barker said Roll’n had replaced certain safety cables with the fall arrest system.
Yearwood was the rig manager on November 10. He said he recalled Ung inspecting the rig and site but he does not recall the specifics of their conversation. He said he did remember talking to Ung about the hydromatic and that the Roll’n field superintendents were aware the hydromatic was being discussed and they had plans to deal with it. He said he does not recall telling Ung that the hydromatic would be replaced.
Yearwood said when Ung was onsite he spoke to everyone on the crew.
Cripps testified that although he requested a copy of Ung’s OH&S Report from both Roll’n rig managers, Yearwood and Anderson, and from Dave Rowbotham, he never received one.
Blaze argues that Roll’n must have known that a report existed and concealed it because they knew Cripps was asking for it.
Jacobsen also based his opinion on the fact that Rig 4 had no recordable injuries to it’s crews during 2005 and that Roll’n won the Well Service Class Safety Award for having the lowest TRIF in it group of CAODC well service companies.
A contract, the making of which is prohibited by statute, or which is for an illegal purpose, is void ab initio and unenforceable. It does not matter if the other requirements for the formation of a valid contract are satisfied. Furthermore, if it can be truly said that one of the two conditions above is present - the formation of the contract is prohibited or the contract is for an illegal purpose - then it equally does not matter whether or not the parties know of the illegality: Fridman, Contract at 339-341, 352.
This might seem on its face to be a simple rule. In application it is not. One the one hand a statute may render a contract void without rendering the conduct illegal (in the sense of sanctions
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attaching to the conduct), and on the other hand a statute may prohibit certain conduct and prescribe penalties for it, without the effect of rendering void a contract entered into in breach of the statute. However this is not always the case; on a proper construction of the statute, a statute that prescribes penalties for certain conduct may still be seen as having as its purpose the voiding of certain contracts.
Blaze relies in part on the decision of the Nova Scotia Supreme Court, Trial Division in Sprague’s Well Drilling Ltd. v. Mills (1990), 95 N.S.R. (2d) 53, 251 A.P.R. 53. In that case, the defendant customer contracted with the plaintiff company for the plaintiff to drill a water well. The relevant statute was the Well Drilling Act, R.S.N.S. 1967, c. 337, which provided that:
No person, who is not the holder of a license [sic], shall
for gain or reward contract to drill a well for another person;
carry on the business of well drilling; or
hold himself out as a well driller.
In that case the plaintiff was found not to be the holder of a licence, and therefore the statute expressly prohibited the formation of the contract.
Sprague cites the Supreme Court’s decision in Commercial Life Assurance Co. v. Drever, [1948] S.C.R. 306, [1948] 2 D.L.R. 241. In that case an unlicenced real estate agent was not entitled to enforce a claim for the payment of a commission even though he had validly completed the sale. The Real Estate Agents’ Licensing Act in force at the time provided that no person who was not the holder of a subsisting licence could either act or hold himself out as a real estate agent. Having found that the agent was not properly licenced at the time he entered into a contract to market a piece of real estate, even though he was licenced by the time the property was sold, the Court ruled that the contract was void and that he could not collect the commission on the basis of contract nor on the basis of quantum meruit.
In the unreported decision of Little Britain Well Drilling Ltd. v. Spindler, [2000] O.J. No. 311 (QL), 2000 CarswellOnt 271 (WL) (Ont. S.C.J), another case involving contracting for the drilling of a water well, the applicable legislation provided that “[n]o person shall engage in the business of constructing wells except under and in accordance with a well contractor licence”. While this provision was not quite as clear as that in the Sprague’s case, Stach J. ruled that “engage in the business of constructing wells” included “the making of or entering into contracts to construct wells for gain or profit”. Thus, the very making of the contract was contrary to statute, and again the claim of the unlicenced service provider for payment was denied.
In each of the three cases cited above it was the very making of the contract that was prohibited by statute. While the contracts may also have been performed in an unlawful way, the focus in each case was on the prohibition against entering into the contract in the first place.
It is possible for a statute to prohibit a certain kind of contract even in the absence of express language. In Meyers v. Freeholders Oil Ltd., [1960] S.C.R. 761, 25 D.L.R. (2d) 81, the Supreme Court quoted Lord Esher in Melliss v. Shirley Local Board, as follows:
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Although a statute contains no express words making void a contract which it prohibits, yet, when it inflicts a penalty for the breach of the prohibition, you must consider the whole Act as well as the particular enactment in question, and come to a decision, either from the context or the subject-matter, whether the penalty is imposed with intent merely to deter persons from entering into the contract, or for the purposes of revenue, or whether it is intended that the contract shall not be entered into so as to be valid at law.
Where a statute has its own enforcement provisions, a contract entered into in breach of the statute may not be void. The more it can be said that the purpose of the statute is to protect the public against improper conduct, by requiring licences or approvals for certain behaviour, the more it can be inferred that the intent of the statute is to render void contracts for such unlicenced conduct: Fridman, Contract at 341, 345.
The approach that focusses strictly on whether the statute prohibits the making of the contract has been called a “constructionist” approach to the problem: Fridman, Contract at 346. Professor Fridman notes that there is a more flexible, “modern” view, expressed in the American Restatement of the Law of Contracts, §601, which was adopted by the Ontario Court of Appeal in Sidmay Ltd. v. Wehttam Investments Ltd., [1967] 1 O.R. 508, 61 D.L.R. (2d) 358 (Ont. C.A.), aff’d [1968] S.C.R. 828, 69 D.L.R. (2d) 336. The principle from the Restatement is this: “If refusal to enforce or to rescind an illegal bargain would produce a harmful effect on the parties for whose protection the law making the bargain illegal exists, enforcement or rescission, whichever is appropriate, is allowed.”: Sidmay at para. 74.
In Sidmay a corporation had been transacting the business of a loan corporation without being registered as required by statute. A borrower granted several mortgages to the corporation and then sought to have them declared illegal and therefore void. Instead of considering the strict construction of the statute in the manner of the cases discussed above, the Sidmay court took a purposive approach to the legislation, considering its overall policy, which was to provide greater security to the depositors, creditors, and security holders of the corporation. Kelly, J.A. held that to defeat the mortgages granted by the borrowers would not advance the purpose of the legislation, and that it “would produce exactly the opposite of the result sought to be obtained by the Act”: Sidmay at para. 44.
In considering the purpose of the legislation, courts will take into account the party whom the legislation was intended to protect, and often provide a remedy to those parties in accordance with the public policy aims of the legislation. Under the public policy approach then, courts must “determine the policy behind the statute in question, to discover whether it is in accordance with
that policy to hold the allegedly offending contract to be illegal and invalid.”: Fridman, Contract at 349.
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This modern, policy-centric approach was considered and approved by the Federal Court of Appeal. In a case involving a claim for unemployment benefits by a worker who had been working illegally in Canada (though paying the unemployment insurance premiums), the Court held that it was not consistent with the scheme of the relevant legislation to deny her benefits despite her employment being technically illegal and hence void as “insurable employment”. It was relevant to the Court that the worker was in the country legally, that she had acted in good faith, and that the penalty she would suffer was disproportionate to the statutory breach: Still v. Minister of National Revenue, [1998] 1 F.C. 549, 154 D.L.R. (4th) 229.
A contract which it is argued is prohibited either impliedly or expressly, that is to say, illegal in its formation, is often more appropriately characterized as illegal as performed: Still at para. 21. In Still, the Federal Court of Appeal said the following about the distinction, at paras. 22-3:
A contract is illegal as to formation when it is prohibited by statute. It is illegal as performed if, though lawful in its formation, it is performed by one of the parties in a manner prohibited by statute. The distinction was of critical significance in [St. John Shipping Corp. v. Joseph Rank Ltd., [1956] 3 All E.R. 683 (Eng. Q.B.)] because it permitted the plaintiff carrier to recover the full contract price when the defendant resisted payment on the ground that the carrier had overloaded its ship in contravention of the Merchant Shipping (Safety and Load Line Conventions) Act, even though the goods were delivered safely. The loading restrictions were held to go to the performance of the contract and not its formation. As Professor Waddams [in S.M. Waddams, The Law of Contracts, 3d ed. (Toronto: Canada Law Book, 1993)] has so adroitly remarked (at 381): “If every statutory illegality, however trivial, in the course of performance of a contract, invalidated the agreement, the result would be an unjust haphazard allocation of loss without regard to any rational principles.”
Despite this welcome development in the law, Lord Devlin reiterates the basic tenets of the illegality doctrine. It is said that if the contract is expressly or impliedly prohibited by statute, the court will not enforce it regardless of whether the parties intended to break the law. That is to say it is immaterial whether the illegal actions were accidental, deliberate, serious or trivial. Above all the argument is that ignorance of the law is not an acceptable reply to a defence of illegality. However, where the statutory prohibition goes to the performance of a contact and not its formation, a party acting in good faith is entitled to relief notwithstanding the statutory breach. In such circumstances a defendant cannot successfully plead
his or her own illegality: see Archbold (Freightage) Ltd. v. Spanglett, [1961] Q.B. 374 (Eng. C.A.).
To determine whether the effect of a statutory violation is to render the entire contact void or to simply penalize infringements, Professor Fridman suggests that a court must consider the relative importance of the infringement, the nature of the infringement in the particular case, and the hardship that would result if the contract were rendered illegal and void on the basis that this infringement occurred during the performance of the contract: Fridman, Contract at 352.
If a party knowingly performs the contract illegally, that party will be unable to enforce the contract, at least to the extent of the illegal performance, though the innocent party may be able to do so: Fridman, Contract at 351-2; CED (West 4th), vol. 14, title 34 at §398.
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When determining whether performance of an otherwise legal contract in an illegal manner renders the contract void, there is a presumption of legality. This was discussed in by the Ontario Court of Appeal in Maschinenfabrik Seydelmann K-G v. Presswood Brothers Ltd., [1966] 1 O.R. 316, 53 D.L.R. (2d) 224 at para. 21:
There is at present a tendency to regulate many activities in modern life by statutes or by regulations authorized by statutory enactments, and the distinction between a contract inherently illegal because it cannot be performed without violating the law and one which can be legally performed but is void on the ground that there was an intention to perform it in an illegal manner cannot be disregarded. Since there is a presumption against illegality in the latter case, it is necessary for the defendant alleging illegality in the contract to show that there was an intention to break the law.
The result of this presumption is that the illegality of a contract must be strictly proved, and the burden of proof lies on the party alleging illegality: CED (West 4th), vol. 14, title 34 at §516.
Finally, I note that Blaze cites Chung v. Idan, 49 C.L.R. (3d) 216 (Ont. S.C.J.), aff’d 62 C.L.R. (3d) 168 (Ont. C.A.), as authority for the proposition that a plaintiff is not entitled to
recover for unpaid invoices relating to items tainted with illegality. In my view, Chung, a home renovation case, turned as much or more on the entirely deficient goods and services provided than on the lack of compliance with certain permit requirements. I prefer to deal separately with the allegations of breach related to inadequacy of Roll’n’s services.
Synthesizing the forgoing cases and doctrines into a coherent and useable set of rules is difficult, but I take from the authorities the following approach:
If the very formation of the contract is obviously and expressly prohibited by statute, or the contract is for an unlawful purpose, then it is void ab initio, and only in exceptional circumstances will a party be entitled to relief.
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If it seems that the formation of the contract may be impliedly prohibited by a statutory scheme (for example certain conduct is prohibited), then the court should engage in a policy-oriented analysis, considering the “effect on the parties for whose protection the law making the bargain illegal exists”. If the policy underlying the legislation would not be advanced by treating the contract as void, then the court should hesitate to do so.
Where the purpose of the contract is not impugned, but the method of its performance is, the court should consider the good faith of the parties, the intention to perform the contract in a legal manner, and the relative importance of the infringement compared with the hardship that would be suffered by treating the contract as void. In performing this balancing, the court must remember the presumption of legality.
Using the three stage approach set out above, the following conclusions arise.
First, the contract was not prohibited by statute.
Second, given the wording of the Guide 36, the Oil and Gas Conservation Act, R.S.A. 2000, c. O-6, the Occupational Health and Safety Act, and s. 12 of the Occupational Health and Safety Regulations referred to by Blaze, the MWS Contract was not impliedly prohibited.
The purpose of Guide 36 is to detail the minimum equipment and procedure requirements for a well licensee drilling wells in Alberta. It also describes what are satisfactory and what are minor/major/serious unsatisfactory inspection results and the consequences for non-compliance: p. 1 of Guide 36 (Ex. 002-011). It authorizes the AEUB to issue compliance orders and shut-down non-compliant operations. It does not, either expressly or by implication, render a contract void for illegal due to non-compliance.
A review of the Oil and Gas Conservation Act indicates that anyone who contravenes the Act, regulations, or an order of the AEUB is guilty of an offence and the remedy for contravention is a fine. Again, the Act does not indicate, either expressly or by implication, that services rendered in contravention of the Act render the contract under which they were performed illegal. The statutory prohibitions deal with the performance of the contract not the formation of the contract.
The Occupational Health and Safety Act also indicates that an employer has a duty to take reasonable care to protect the health and safety of its workers, and that OH&S may issue a stop work order or take other measures to ensure a healthy and safe work environment. However, there is no indication that a failure to operate in accordance with the Act is illegal in the sense that it would render a contract performed in contravention of the Act illegal.
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Third, I have considered the various factors under the third stage of the analysis. With respect to the AUEB Guide, I have considered the fact that there were two aspects to these operations - the abandonment and the re-entry, Mill’s expressed intention to be present for the reentry into the critical zone, and the obvious confusion/misinterpretation of which Guide applied and when.
With respect to the failure to comply with the OH&S legislation, I consider that the safety citations issued against Roll’n by Ung were relatively minor, that they did not result in the shutdown of the operations, that Roll’n rectified them in a relatively short period of time, and that Ung’s report shows that he was satisfied that they had been rectified.
Lastly, I have considered the obvious hardship to Roll’n if the MWS Contract were treated as void.
In the result, I find that Roll’n’s failure to provide a crew with the appropriate BOP tickets as required by AEUB Guide 36 and any failure to follow OH&S provisions was not willful or intentional on Roll’n’s part and does not render the MWS Contract void for illegality.
Blaze alleges in its Statement of Defence that contrary to the aforementioned representations of Roll’n, and contrary to the entire purpose of the contract, and in breach of the duty of good faith and fair dealing, and also in fundamental breach of the contract, the available equipment and personnel of Roll’n were incapable of conducting the re-entry, the specifics of which include but are not limited to the following: a) the Rig was incapable of conducting the reentry, was in a dilapidated state, and was not properly equipped; b) the Rig was unsafe and in particular, on November 9, 2005 the entire rig crew ceased work on the re-entry and quit their employment because of the unsafe and dangerous conditions, and c) the Roll’n driller did not possess a valid first-line supervisor’s blowout prevention certificate [first-line BOP ticket] and the rig manager did not possess a valid second-line supervisor’s well control certificate [second-line BOP ticket] and as a result on December 9, 2005 the AUEB shut-down work on the re-entry as a Major Level 2 Enforcement Action: see para. 4 of the Blaze Statement of Defence.
Blaze alleges that Roll’n breached its contractual duties and was grossly negligent in the manner in which it performed its operations, and in particular that it failed to (1) provide the services it contracted to provide under the MWS Contract as required by para. 3.1(1)(a); (2) provide the equipment, materials, supplies, services and labour required to be provided under the Services Work Order as required by para. 3.1(b); (3) perform the MWS Contract with due care and diligence, in a good and workmanlike manner, in accordance with good industry practices and in accordance with any additional written policies or guidelines agreed to and attached to the
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Services Work Order as required by para. 4.1; (4) maintain its equipment, including its well control equipment, in good operating condition at all times, which includes meeting or exceeding prevailing regulatory requirements, and subject to s. 9.3 (c) [Operator’s assumption of risk] to use all reasonable means to prevent fire and blowout, as required by para. 4.2; (5) follow prescribed regulations and procedures to pressure test all Blowout Prevention equipment at Wellsite, required by para. 4.4; (6) provide Blaze with daily activity reports in the form customarily used by Contractor or in the form of an Activity Report Form approved by CAODC as required by and (7) comply with all laws, rules and regulations that were applicable to the Well as required by para.
12.1.
Roll’n argues that the well services provided by Roll’n were those it contracted to provide under the MWS Contract. Roll’n argues that s. 3.3 of the MWS Contract required Roll’n to perform the well services under Blaze’s supervision and direction. It points out that s. 3.3 does not guarantee results, but rather than Roll’n would do the work. Roll’n argues that the reason for this is that on oil and gas well abandonment and re-entry operations, there are many service providers operating at the wellsite. Roll’n was only one of them. The operator, in this case, Blaze, had the role of directing and supervising the operations of each well service provider as well as directing and supervising all the operations as a whole.
Roll’n argues that there was no defect in Roll’n’s performance of the MWS Contract but, in the alternative, if there was, s. 6.1 and 6.2 of the MWS Contract governed this situation. Section
6.1 entitled Blaze, as Operator to stop the well services being undertaken at any time prior to completion. Section 6.2 required Blaze as Operator to pay Roll’n as Contractor, all expenses reasonably and necessarily incurred prior to or by reason of the premature stoppage. Roll’n argues that Blaze was aware of this right. It argues that Mills alleges and testified that he knew there were defects in performance by Roll’n by November 2 or 4, 2005. It argues that despite his alleged evidence and knowledge of Roll’n’s defects in performance, Mills choose to allow Roll’n to continue to conduct operations at the Blaze Well and thereby waived its right to rely on an defects in performance.
This issue requires an examination of the provisions of the MWS Contract and the facts surrounding each of Blaze’s allegations of breach of contract.
Article III of the MWS Contract sets out Roll’n’s and Blaze’s respective obligations to provide equipment, materials, supplies and services.
Roll’n, as Contractor, had the following obligations:
Contractor agrees, subject to the other terms and conditions of this Master Well Service Contract:
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to perform the Well Services described in and in accordance with the terms and specifications of each applicable Services Work Order; and,
in order to perform such Well Services, to provide the equipment, materials, supplies, services and labour required to be provided by as set out in and in accordance with the terms and specifications of each applicable Services Work Order.
[Emphasis added]
The Services Work Order is attached to the MWS Contract as Exhibit “A” and forms part of that Contract: see Ex.001-005. Section 2 B. 1of the Services Work Order states:
2 B.1 Services to be provided by contractor: Service rigs to perform various tasks on a variety of wells located in Alberta.
As stated above, the service rig provided by Roll’n was Rig 4 with the inventory specified on the Service Rig Inventory Sheet (Ex. 001-003).
Article III, s. 3.2 of the MWS Contract states that Blaze, as Operator, has the following obligations:
Operator agrees, subject to the other terms and conditions of this Master Well Service Contract:
to identify the location of each Well-Site at which Contractor is undertaking Well Services; and,
to provide for each such location, the equipment, materials, supplies, services and labour required to be provided by Operator, as set out in and in accordance with the terms and specifications of each applicable Services Work Order.
[Emphasis added]
Article I defines “Operator’s equipment” as follows:
“Operator’s equipment” means, in respect of a Well-Site, all equipment, materials or supplies owned or leased by Operator and furnished by Operator for the Well-Site in accordance with Section 3.2 and the applicable Services Work Order, whether such equipment, materials or supplies are located at, above or below ground level;
[Emphasis added]
Article I, defines “services work order”:
“services work order” means a work order, substantially in the form of Exhibit “A”
to this Master Well Service Contract, agreed to by Contractor and Operator in accordance with the provisions of Section 2.1 and includes such equipment schedules, rate schedules, location and well descriptions or other attachments that Contractor and Operator agree to include as part thereof;
The MWS Contract governs the Services Work Order and taken together, they constitute a single agreement between the parties. Section 2.2 of the MWS Contract states:
Each Services Work Order completed and agreed to in accordance with any of the procedures set out in Section 2.1, including any attachments agreed to by the parties, shall be governed by this Master Well Service Contract, and taken together with the terms of the Master Well Service Contract, shall constitute a single and separate agreement binding the parties.
Article IV of the MWS Contract sets out the parties’ duties and obligations with regard to well servicing methods and practices:
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Contractor agrees to perform each Services Agreement with due care and diligence, in a good and workmanlike manner, in accordance with good industry practices and in accordance with any additional written policies or guidelines that are agreed to by Contractor and Operator and attached to an applicable Services Work Order.
Contractor agrees to maintain the Contractor’s Equipment, including its well control equipment, in good operating condition at all times, which shall include, without limitation, meeting or exceeding prevailing regulatory requirements, and, subject to sub-section 9.3 (c) herein [operator’s assumption of risk], to use all reasonable means to control and prevent fire and blowouts.
Unless otherwise specified in an applicable Services Work Order, during the provision of Well Services at any Well-Site, Operator shall be responsible for the well-bore fluid. The well-bore fluid shall be of a type and have characteristics acceptable to Contractor. No change or modification to such specifications having the effect of materially increasing Contractor’s risks or costs in performing its obligations hereunder shall be made by Operator without the consent of Contractor. Both Contractor and Operator shall have the right to make any test of the well-bore fluid that either considers necessary.
Article V of the MWS Contract requires Roll’n to provide Blaze with reports:
5.1 Contractor shall furnish Operator with a daily activity report. Daily activity reports shall be in the form customarily used by Contractor, provided that if
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such daily report forms are not available, the Activity Report Form approved by the Canadian Association of Oilwell Drilling Contractors shall be used.
Article XII states that the “[c]ontractor and Operator each agree to comply with all laws, rules and regulations...which are or may be applicable during the performance of a Service Agreement.”
Blaze also had certain rights and obligations to control the well services being provided by Roll’n.
First, Blaze was responsible for directing and supervising the well services being provided. Article III, s. 3.3 states that Roll’n is an independent contractor working under the direction and supervision of Blaze:
3.3 Contractor shall be an independent contractor with respect to all matters hereunder and neither Contractor nor anyone in Contractor’s Group shall be deemed for any purpose to be the employee, agent or representative of Operator in the performance of Well Services undertaken pursuant to this Master MWS Contract. Contractor shall perform its obligations pursuant to a Services Agreement under the direction and supervision of Operator. [Emphasis added]
Second, Blaze had the right, at any time prior to completion, to stop Roll’n from providing well services and terminate the well services Roll’n was providing. Clause 6:
6.0 Operator shall be entitled to stop well services being undertaken or to be undertaken at a well site and to terminate the well services at any time prior to completion.
Third, Blaze had the right to inspect and approve Roll’n’s performance. Clause 3.12 states:
3.12 Operator shall be entitled to inspect and approve Contractor’s performance of Well Services in order to ensure the satisfactory completion thereof.
I have concluded under Issue 2, that I am not satisfied based on the evidence that Roll’n made pre-contractual negligent misrepresentations to Blaze that a) Roll’n’s crew members possessed first and second-line BOP tickets or b) that the Blaze operations could be performed with well service BOP tickets.
I have also concluded under Issue 4, that I am not satisfied based on the evidence that Roll’n willfully or intentionally assigned unqualified or inexperienced personnel to the re-entry.
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Therefore, the issue of whether Roll’n breached the MWS Contract by providing drillers without first-line BOP tickets and rig managers without second-line BOP tickets depends upon whether this was a requirement of the MWS Contract.
The MWS Contract does not provide that Roll’n comply with any specific laws or industry recommended practices. It does require that both Roll’n and Blaze comply with all laws, rules and regulations which are or may be applicable during the performance of Contract.
The MWS Contract also requires Roll’n to perform the Contract with due care and diligence, in a good and workmanlike manner, in accordance with good industry practices.
The expert opinions on this issue were not unanimous.
Ward, Roll’n’s expert, opined at item 17 of his expert report, Ex. 006-115:
17. The 11-19 well was identified as a Level 4 Critical Sour well and as such required a certain standard of equipment and personnel. To meet industry regulations and good oilfield practices personnel experienced in Critical Sour well drilling operations are absolutely essential because of the inherent dangers involved with high levels of H2S. Roll’n...failed to properly advise Blaze with respect to the capabilities of Roll’n’s men and equipment with respect to the ll-19 job. Roll’n also failed to provide personnel that were competent or certified to drill a critical sour gas well Both men and equipment provided by Roll’n for the 11-19 job were
below a standard acceptable in the Alberta oil industry for drilling a critical sour well like the 11-19 job....
Jacobsen opined that Blaze was made aware that the Roll’n employees only possessed well service BOP tickets. He opined that Blaze could have and should have applied for approval to allow the use of the BOP well service tickets. If the application had been denied, all would have been aware of the requirement for first and second-line BOP tickets prior to drilling 50 metres of new hole.
Jacobsen opined in his expert report that the scope of work requiring the critical sour Level 4 classification would not start until after Roll’n Rig 4 was released. Therefore the rig managers, drillers and crew were not required to meet the minimum experience standards of IRP Vol. 1. He also opined that the five wellsite supervisors that oversaw the operations on behalf of Blaze, should have had more knowledge about what Guide 36 required than the Roll’n managers and drillers. Jacobsen opined that Blaze knew when it contracted with Roll’n that it was a well service company and as such, Blaze should have taken extra steps to ensure that Guide 36 was followed and that the operations went as planned. He opined that the wellsite supervisors provided by Blaze had ample opportunity to inspect and ensure that Guide 36 was followed.
Jacobsen also opined that while a second-line BOP ticket is required under Guide 36 it is not required under IRP 7 for completion or workover supervisors.
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Sutherland opined in his Expert Opinion under the heading Operator’s Due Diligence, Item 4, that Blaze, as operator, did not, to his knowledge, request the current Enform tickets for all rig and service personnel on the job. He testified that this is typically done on a sour gas well and that Blaze, as operator and project manager, was responsible for doing it before the job started.
I conclude that Roll’n breached the MWS Contract by failing to provide crew members with the required first and second-line BOP tickets for the re-entry. Both Roll’n and Blaze had a duty under Article XII of the Contract to comply with all applicable laws, rules and regulations. Blaze was the project manager and Operator under the Agreement and therefore had an equal if not greater responsibility to ensure compliance with Guide 36. This conclusion also accords with the opinion of Sutherland and Jacobsen, whose opinions I prefer on this matter.
Blaze argued that Roll’n failed to provide the services it contracted to provide under the MWS Contract para. 3.1(1)(a) by requiring that a 10,000 psi BOP be used contrary to the provisions of the Drilling Program, which stipulated that a 5,000 psi BOP be used.
Roll’n argues that it was appropriate and reasonable to recommend the use of a 10,000 psi BOP since the Drilling Program did not cover the abandonment operations and during the abandonment operations, the well bore remained open to the critical sour gas reservoir in the Nisku with a BHP of 37,091 kpa. A 10,000 psi BOP was required for operations exposed to a BHP of 35,000 kpa or greater.
Whether Roll’n breached the MWS Contract by recommending the use of 10,000 psi BOP depends upon whether the decision was correct or reasonable in the circumstances. This depends upon the AEUB directives governing the operations and downhole pressures to which the operations were exposed.
A Class V BOP (5,000 psi BOP) is required to be used on wells with pressures of 5,000 psi or less, which is the equivalent of 35,000 kpa or less, and a Class VI BOP (10,000 psi BOP) is to be used on wells with pressures of 10,000 psi or greater, which is the equivalent of 69,000 kpa or less: Guide 36.
The Well was classified as a critical sour gas well.
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Roll’n and Horizon argue that the Well was a critical sour well at all times, that Blaze, as the applicant licensee of the Well, did not notify the Board that its classification had changed, and that it was therefore required to meet the requirements of s. 1.2.5 of ID 97-6 which states “once the Board or the applicant has determined a well to be critical, the well is subject to all critical well requirements at the drilling, completion, workover, and production phases of the well.
Section 4 of ID 97-6, entitled Drilling Requirements at Critical Sour Wells, states that the AEUB requires “the licensee to meet or exceed the Alberta Recommended Practices (ARPs) when drilling critical sour wells. Volume 1 (Drilling) and Volume 2 (Completing and Servicing) ...”
Alberta Recommended Practice, Volume 2, Completing and Servicing, s. 7.3.5 (3) states “for new critical sour wells, the tubing head spool (above secondary seal) tubing hanger and Christmas tree assembly working pressure ratings as defined by API 6A shall be equal to or greater than the BHP of the producing formation.”
Roll’n argues that ID 90-1 also applied during the abandonment operations. The Introduction section states that the requirements of s. 7 applies to the “completion or servicing of critical sour well where the wellhead has been removed...” Section 7.3.5 states:
For new critical sour wells, the tubing head spool (above secondary seal) tubing hanger and Christmas tree assembly working pressure ratings as defined by API 6A shall be equal to or greater than the BHP of the producing formation.
For new critical sour wells, the wellhead and Christmas tree assembly and other wellhead service equipment should not be exposed to operating pressures greater than their API maximum working pressures rating (MWPR).
Callicott the AEUB inspector who shut-down the Blaze operations on December 9, 2005, testified that ID 90-1 would have governed the Wellsite operations at the time he conducted his inspection and that he would have referred to it when inspecting a workover operation.
The Drilling Program stated that the pressure in the target Nisku formation at the bottom of the proposed Blaze Well, the BHP, was 37,091 kpa. It stated that the shut-in pressure of the Well at the surface was 28,787 kpa: Ex. 001-007.
Cripps acknowledged that the Drilling Program did not describe the wellhead components.
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Ward’s expert opinion was that the Drilling Program governed the size of BOP to be used and that it properly stipulated that a 5,000 psi BOP be used based on the fact that the shut-in pressure of the Well at the surface was 28,787 kpa. As a 5,000 psi BOP is capable of controlling up to 35,000 kpa of pressure, Ward opined that it would have been more than adequate to control the Blaze Well.
Ward testified that a review of the Program shows that it was entirely acceptable to use a 5000 psi BOP and if it had not been, it was Ward’s opinion that Blaze would not have been given a well licence to drill this well.
However, Ward agreed that if ID 90-1 applied, the size of the BOP to be used depended upon the BHP of the well and not the surface pressure.
Ward’s expert report [Ex. 006-115] states at p. 1:
Blaze applied to the ERCB to re-enter the existing well bore to abandon the unproductive lower section, to mill a window in the side of the casing, and to then drill to the new target. The application was approved by the ERCB with a Level Four Critical Sour designation...
Ward acknowledged that this statement was unsubstantiated as he had not seen any application to the ERCB dealing with the abandonment operations nor any evidence that such an application had been approved by the ERCB.
Although Ward testified that the wellhead and well bore parametres are identified in the Blaze Drilling Program, he was unable to point them out. Nor was he able to identify where the production equipment assembly was covered in the Program. He agreed that it was not included.
Ward acknowledged that the stick diagram in the Drilling Program did not describe the contents of the wellhead or the abandonment operation.
Sutherland stated that the Blaze Drilling Program did not cover the abandonment operations.
I prefer Sutherland’s opinion on this point to that of Ward. I find that the Drilling Program provided to Roll’n did not cover the abandonment operations and thus did not identify the conditions in the Well that would/might be experienced during the abandonment operations. Given Callicott’s evidence noted above, which I accept, as well as the provisions of ID-90-1, it was reasonable and not a breach of the Contract to use a 10,000 psi BOP in these circumstances.
Blaze argues that the information in its Abandonment Program should have alerted Roll’n and Horizon to the fact that the wellhead on the Well needed to be examined prior to deciding
whether a 10,000 psi BOP was required and that if it had been, Roll’n would have discovered that a 10,000 psi BOP was not required or warranted.
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Roll’n alleges that Blaze never provided Roll’n with its Abandonment Program.
Blaze produced a document which Mills testified was an Abandonment Program that was prepared by Kim Materi, of Blaze: Ex. 006-140. It describes the wellhead on the Well. It indicates that the wellhead contained a tubing head with a “crossover” on the wellhead that would allow the wellhead to be fitted with a 5,000 psi BOP or crossed over to a 10,000 psi BOP.
Mills testified that the foregoing abandonment program (Ex. 006-140) was given to Allen on October 28, 2005.
Both Anderson and Allen testified that they never received an abandonment program from Mills.
Anderson said that he did not receive an abandonment program from Mills and that he had never seen the Abandonment Program referred to by Mills in his testimony. Anderson said that Mills provided him with a verbal description of the abandonment operations.
Allen testified that he did not recall seeing the abandonment program produced by Mills and that he never received a description or a picture of what was at the existing Wellsite. He said Anderson had a brief description of what was in the Well but it wasn’t the abandonment program referred to by Mills.
Ward said Blaze gave him the abandonment program referred to by Mills as part of a package of documents to be reviewed in preparing his expert report. Ward agreed that he had no knowledge of whether the program was given to the ERCB or to Allen or Anderson.
Sutherland stated the Drilling Program did not cover the abandonment operations and that Blaze should have provided an abandonment program which has been pre-approved by the ERCB.
I accept Anderson’s and Allen’s evidence that Blaze never provided them with the abandonment program Ex. 006-140.
Blaze argues that even if a 10,000 psi BOP was required during the abandonment operations, Roll’n and Horizon should have realized that it offered no greater protection than a 5,000 psi BOP because the pressure rating of the casing bowl on the Well was only rated for 5,000 psi.
Roll’n and Horizon argue that it is not clear from the evidence whether the BOP was attached to the casing bowl or another mechanism, a spool, with a 10,000 psi pressure rating.
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Ward gave the following expert testimony explaining why the manner in which the BOP was attached to the Well determined the amount of protection that the 10,000 psi BOP would have provided. The casing bowl is a platform on the top of a well. The well casing or pipe that comes out of the well bore (the “surface casing”) is welded into the casing bowl. The casing bowl contains a flange that seals off the downhole pressure coming up through the surface casing thereby preventing oil and gas fluids, from coming to the surface. The amount of pressure that the flange can withstand depends upon its rating. According to p. 8 of the Drilling Program, the flange on the casing bowl on the Blaze Well was rated to withstand 5,000 psi. Depending upon the well, the top of the casing bowl may or may not be attached to a spool. The spool also contains a flange that seals off the downhole pressure coming up the surface casing. The casing bowl or the spool, if there is one, is attached to the BOP during drilling operations. Once the drilling is completed, the BOP is removed and replaced with a wellhead.
Ward opined that if the 10,000 psi BOP was attached to the casing bowl, it would not have provided any greater protection than a 5,000 psi BOP, since the flange on the casing bowl was only rated to 5,000 psi.
However, Ward acknowledged that it was not clear from any of the reports with which he had been provided, where the BOP on the Blaze Well was attached.
Ward acknowledged that if the flange on the casing bowl or a spool attached to the casing bowl was rated for a 10,000 psi BOP, it would be good practice to attach a 10,000 psi BOP.
Ward stated at 20 of his expert report, “[i]n addition the casing bowl was identified in the drilling program as having a 5000 psi rating. With a 5000 psi casing bowl, and 5000 psi mud manifold these would be identified as the weakest links in the system making the use of a BOP system of any higher rating irrelevant.”
Jacobsen disagreed with Ward’s and Cripps’ opinion that the casing bowl was the weakest link. He opines at p. 4 of his expert report:
The contention of Mr. Cripps and Mr. Ward that the 34,500 kpa casing bowl is the weak link in the well control system (BOP) is incorrect. The casing bowl is isolated from any well bore pressure by the second string of intermediate casing. The top of the second (177.8 mm) intermediate casing landed in the casing spool with the secondary seal energized isolates the casing bowl from any well bore pressure. The tubing head bolted to the top of the casing spool is rated to 69,000 kpa. After the wellhead was removed the BOPs were bolted to the top of the tubing head.
It was Cripps’ opinion that the BOP was attached to the casing bowl and that the casing bowl was only pressure rated at 5,000 psi. However, he acknowledged that he had no direct knowledge of this and had not actually seen the connections.
Jacobsen opined at pp. 3 - 4 of his report:
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...The wellhead on the Well from the tubing head up was rated to 69,000 kpa. Mr. Rob Anderson of Roll’n was correct in requesting a 69,000 kpa BOP stack for the abandonment procedure to have well control equipment equal to or greater than the BHP...
I cannot determine from the evidence adduced whether the wellhead was attached to the casing bowl or to a spool. Because of that, as well as Jacobsen’s opinion quoted above, which I accept, I am not prepared to find that upon inspection of the wellhead, Roll’n or Horizon should have concluded that a 10,000 psi BOP was not required.
Blaze also argues that if the 10,000 psi BOP was required during the abandonment operations, Roll’n and Horizon should have realized that it offered no greater protection than a 5,000 psi BOP because the pressure rating on the manifold of the Roll’n mud pump was only 5,000 psi.
Ward’s states in his expert report and he testified at trial that the manifold on the mud pump supplied with Rig 4 was also only rated at 5,000 psi. He opined that the 5,000 psi pump manifold was “another weak link in the system and the 10000 psi BOP of no advantage.”. He opined that the 10,000 psi BOP would have provided no protection if a pressure greater than 5000 psi had been placed on the pump.
Jacobsen disagreed with Ward’s opinion that the pump manifold was the weakest link in the system, stating at p. 5 of his expert report:
Drilling rigs and most service rigs are not equipped with 69,000 kpa rated pump manifolds and piping, as the mud pumps are not rated much beyond 34,474 kpa, depending on the pump model and liner size. In the event that higher kill pressures are required for potential well control operations, third party high pressure plunger pumps and lines would be utilized. The pressure rating of the pump manifold and piping is not required to be the same as the pressure rating of the BOPs and is not relevant to BOP pressure ratings.
Jacobsen explained that in the case where well bore pressure comes up the well bore, there is a check valve that prevents the pressure from communicating with the pump manifold. Rather, it goes up and through the BOP manifold. He said in this case the BOP would be used to contain the pressure in the well casing, referred to as a “hard shut in”, and third parties would then be brought onsite to pump and kill the well.
I accept Jacobsen’s opinion in the immediately preceeding paragraph.
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Both parties argue that the BOP that was used by oil and gas operators and service providers during other operations conducted on the Well is also an important factor to consider when determining whether the 10,000 psi BOP was required. This factor is not determinative as both a 5,000 psi BOP and a 10,000 psi BOP were used.
Ward’s expert report, states that a comparison of the operations that were performed at the Blaze Well by Roll’n and Ensign illustrates that it was proper to use a 5000 psi BOP. In April, 2006, four months after Roll’n left the wellsite, Ensign did the same job that Roll’n attempted to do using a 5000 psi BOP. Furthermore, Ward points out that an inspection conducted by the ERCB on April 25, 2006 raised no issues with the 5000 psi BOP system. Ward testified that he came to this conclusion after examining the daily drilling reports provided to Blaze by Ensign: see Ex. 15.
However, when Anderson Exploration drilled and completed the well, it used a 10,000 psi BOP. Later, after Devon worked over the well and shut it in, it placed a 10,000 psi wellhead on the well. This was the wellhead that was in place when Roll’n and Horizon arrived at the Wellsite in late October 2005. Jacobsen opined that this supported Anderson’s opinion that a 10,000 psi BOP was required: Jacobsen expert report p. 4.
Cripps acknowledged that in determining whether a 10,000 psi BOP was required for the Blaze operations, one significant factor to consider would have been that Anderson used a 10,000 psi BOP to complete the Well and Devon placed a 10,000 psi flange wellhead on top of the Well when drilling was completed. He agreed that the decision to use a 10,000 psi BOP would have been based on what these companies considered necessary for safe operations.
Sutherland testified that it was his view that a 10,000 psi BOP was appropriate for the abandonment operation.
I conclude that Roll’n did not breach the MWS Contract by recommending a 10,000 psi BOP for the operations rather than the 5,000 psi BOP stipulated in the Blaze Drilling Program. During the abandonment operations, the well bore was open to the Nisku. The Drilling Program stated that the BHP in the Nisku was 37,091 kpa and the maximum expected H2S was 17.51 percent. This was a critical sour well. AEUB ID 90-1 required that where completion and servicing operations were being conducted on critical sour wells, the tubing head spool, tubing hanger and Christmas tree assembly working pressure ratings be equal to or greater than the BHP of the producing formation. The 10,000 psi BOP was rated for pressures in that range. The 5,000 psi BOP was not. The weight of the evidence indicates that Roll’n and Horizon did not receive a copy of the abandonment program. Even if they had, Ward, an expert in the area, testified that he could not determine from the information with which he had been provided, which included the abandonment program, whether the BOP was attached to the casing bowl or a flanged spool. Both
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Anderson and Devon had performed operations and shut in the Well with a 10,000 psi BOP and wellhead. This was a significant factor in determining whether a 10,000 psi BOP should be used for the Blaze operations and Anderson, an experienced rig manager, testified that this was a significant factor in his determination that a 10,000 psi BOP was required. Finally, Mills was present during the discussions and either acquiesced or agreed to the decision.
Blaze argues that the use of 10,000 psi BOP is not the issue. It argues that it approved or acquiesced in the use of a 10,000 psi BOP based on false representations made by both Horizon and Roll’n. It argues that Roll’n falsely represented that Rig 4 had used a 10,000 psi BOP before and that it would be easily possible to fit Rig 4 with a 10,000 psi BOP with no modifications and therefore, no additional costs or downtime. Blaze alleges that these statements were false and that significant modifications had to be made to Rig 4 to accommodate the larger capacity BOP, which resulted in additional costs in excess of $300,000.
Roll’n argues that Mills fully participated in the decision to use a 10,000 psi BOP, that Roll’n did not falsely represent that it had used a 10,000 psi BOP in the past, that neither Roll’n nor Horizon represented that few modifications would be required to accommodate it, and that the modifications required were not extensive or exceptional and did not result in significant downtime.
Mills arrived at the Wellsite on October 28, 2005. He testified that while he and Allen were discussing the project, Allen told Mills that Anderson thought that a 10,000 psi BOP should be used.
Mills testified that he told Anderson that the BHP would never be seen at the surface of the Well and that the Drilling Program, specifying a 5,000 psi BOP, had been approved by the AEUB and Blaze’s insurance company. Mills said Anderson refused to proceed unless a 10,000 psi BOP was used.
The evidence is contradictory as to what was said between the parties as to the nature and extent of the modifications required to accommodate the BOP.
Mills testified that one of the reasons he followed Anderson’s and Allen’s advice to use a 10,000 psi BOP was because they advised him that there was only a small difference in the rental price of each and that few modifications would be required to accommodate it. He said the rental cost was $1,100 per day for a 10,000 psi BOP and $300 per day for a 5,000 psi BOP, which he did
not consider to be significant. Mills said that Anderson also said that he had just used a 10,000 psi BOP on another operation and that there were no problems or concerns.
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However, Mills’ examination for discovery evidence was that he did not take part in the discussions between Allen and Anderson as to whether a 10,000 psi BOP stack was required and that he did not remember how he responded to Anderson’s insistence that one by ordered.
Mills acknowledged at trial that he knew on October 28, 2005 that Anderson would be ordering a 10,000 psi BOP stack.
Anderson and Allen deny advising Mills that few modifications would be required to the Rig to accommodate the BOP.
Anderson testified that when he told Mills that a 10,000 psi BOP was required, he and Mills “made the adjustment”. He said Mills did not raise any questions or concerns and told Anderson to order it. Anderson said he was the only one with a working cell phone at the location, and as a result the BOP was ordered on his phone by either Allen, Mills or himself and that they were all present when the call was made. He said he believed that Mills had agreed that a 10,000 psi BOP was required.
Allen said that he participated in the decision to order the 10,000 psi BOP and he agreed with Anderson because he knew the BHP was greater than 35,000 kpa. Allen said Mills did not protest.
Allen testified that Dorval, of Circle T Rentals, called Allen onsite and asked if he still required a 10,000 psi BOP and that he told Dorval to ask Mills. He said he understood that Dorval did so, but he had no evidence of this.
The BOP had to be connected to 7" tubing. Dorval testified that Circle T did not have a 7" 10,000 psi BOP available at the time. He said he told Anderson that Roll’n could either accept the 11" 10,000 psi BOP that was available or wait for a 7" 10,000 psi BOP, which could take a number of weeks. Dorval said he was instructed to deliver the 11" 10,000 psi BOP.
Anderson testified that the BOP that Circle T had in stock was the last one available at the time. He said he had extensive experience using BOPs and that the BOP delivered by Circle T was extremely large. He said he had never worked with a BOP with such a large stack.
Yearwood replaced Anderson as rig manager on November 5, 2005 and arrived when the BOP was being assembled. He said he had worked with BOP stacks the size of the one on the Blaze Well many times before.
Cripps testified that when he arrived onsite on November 1, 2005, the 10,000 psi BOP was onsite and being assembled and he asked why it was there. Anderson told him the BHP was greater that 35,000 kpa. Cripps said he told Anderson that they would never see that pressure at
the surface. Anderson disagreed and Cripps said he did not believe he had the authority to order Anderson to do otherwise.
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Cripps testified that on November 2, 2005, prior to the installation of the BOP stack, he took photographs of the BOP and the part of the Well where it would be installed: see Ex. 006-
112. He stated that he sent these photographs to Mills between November 2 and November 5, 2005 but received no comments back from Mills.
In Ward’s expert report he provided a chart showing the dimensions of the various types of BOP configurations that could have been used. The one used on the Blaze Well was the largest BOP configuration. The one specified in the Blaze Drilling program was the smallest BOP configuration. Ward opined that the installation of a 10,000 psi BOP and the alterations made to Rig 4 for this purpose were completely unnecessary and of no benefit. However, he acknowledged that assuming a 10,000 psi BOP was needed, it was reasonable to accept a 11" diameter BOP if a smaller BOP was not available.
As to the alleged false representations by Anderson that he had previously worked with a 10,000 psi BOP and had not encountered any problems, this appears to be accurate.
The Well Completion Reports for the Raven well (Ex. 003-024) on which Roll’n Rig 4 had conducted operations in June 2005, show that an 11" 10,000 psi BOP stack was also used, although it was a Class 3 BOP with a smaller stack. The Reports also indicate that a third party was retained to pick up the BOP stack because it was too heavy for the Rig to pick up, that the Rig floor was raised and that a welder was retained to extend the v-door because of the height of the BOP stack. Anderson confirmed that he was the rig manager throughout the entire Raven operation.
Chartrand, one of the more experienced Roll’n Rig crew members, said that normally the rig picks up the BOP stack and places it on the Well, but in this case the BOP stack was so large that it had to be moved with a crane.
The modifications to the Rig to accommodate the BOP were made by the Roll’n crew and third parties. Cripps supervised the modifications.
The Rig was equipped with an adjustable rig floor that folded up against the derrick. It was raised up the derrick to position it above the BOP stack. Because the stack was so high, the Rig floor was unusually high. Barker, clarified that the Rig floor was raised and clamped in place on the derrick with a u-bolt which was built onsite but that no welding was required to derrick where it was attached.
As a result of the height of the Rig floor, other parts of the Rig had to be modified. The rig floor had to be refabricated. The legs supporting the Rig floor had to be extended. The v-door used
to slide pipe and equipment up to the Rig floor had to be lengthened to reach the raised Rig floor. The refabrication of the rig floor and v-door was done by a third party welder. The welding costs were approximately $25,000.
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Brake, air and hydraulic lines had to be extended.
Cripps said that modifications were also made to the bales (part of the hoisting system on the Rig) and to the static arms on the power swivel (the device used to rotate the pipe in the hole), which was rented from Weatherford, a third party.
Cripps was of the opinion that the modifications were extensive and costly but acknowledged that his experience was mainly with drilling rigs where there were usually few modifications required. He agreed that it is standard practice to modify equipment as necessary to fit around a well configuration. He said that the modifications took approximately two days in total but were completed while other operations were ongoing.
The foregoing evidence, does not satisfy me that Anderson falsely represented to Mills that Roll’n had used 10,000 psi BOPs before and few modifications would be required to accommodate it.
First, the Well Completion Reports from the Raven job confirm that Rig 4 had just recently used a 10,000 psi BOP, that no difficulties had been encountered and that Anderson was the rig manager on that job.
Second, I am not satisfied that the detailed discussion described by Mills took place, particularly having regard to his examination for discovery evidence that he did not remember how he responded to Anderson’s insistence that a 10,000 psi BOP by ordered. I also find it significant that Mills’ diary does not have any notes regarding those discussions.
Also, it appears that no one expected the 10,000 psi BOP to be as large as the one delivered. As Anderson testified, he had worked with plenty of 10,000 psi BOPs and the one delivered was one of the largest he had ever seen. Thus, it is reasonable to assume that before seeing it, no one would have anticipated any major modifications being required to the Rig to accommodate it.
The 10,000 psi BOP provided was, according to the evidence, the last (only) one available. It would be a number of weeks before a smaller one came available. Further, Cripps’ evidence, which I accept, was that he sent Mills photographs of the BOP before it was attached to the Well and Mills did not respond.
The modifications made to the Rig to accommodate it were, I find, reasonable and necessary. While in my opinion Mills should have been kept better advised as to the costs, given
the lack of alternatives and the time constraints, I am satisfied that Blaze would have agreed to them in any event.
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I conclude that Roll’n’s conduct was in accordance with and satisfied its obligations and duties under the MWS Contract.
The abandonment operations took approximately two weeks.
According to Anderson and Allen the wellsite had to be prepared for the operations. [654] Anderson was involved in moving Rig 4 from Grande Prairie to the Blaze Wellsite and
setting up the Rig onsite on October 27 and 28, 2005. He said that when Roll’n arrived with Rig 4 on October 27, 2005, the leasehold was not prepared for a service rig operation. Roll’n removed existing pillars near the wellhead to allow room for the Rig matting to be placed on the ground around the wellhead. It made arrangements with Mills to bring in several loads of gravel from the gravel pit across the road, which was used to fill in and level the ground around the wellhead on which the Rig was placed.
Allen’s testimony corroborates Anderson’s. Allen said that when he arrived at the Wellsite on October 28, 2005, he walked around the site, noticed there was a hole, and arranged with Mills for gravel to be brought in to fill it.
Mills testified that when he visited the site prior to the start of the operations, the gravel on the site was flat and he was not aware that this had changed at the time that Rig 4 was being set up on the site.
I prefer the evidence of Anderson and Allen on this point.
During the abandonment operations, Rig 4 and its crew operated on a 24-hour daily basis assisting numerous other third party services to complete the abandonment work.
The abandonment operations were difficult.
The Rig was used and its crew assisted in putting coiled tubing units, described as a continuous pieces of coiled steel pipe, down the hole to “fish” out tools, production tubing and other things that had been left on the inside of the existing well bore. The Rig experienced severe jarring and shockwaves as a result of the fishing operations.
Barker, Roll’n’s field superintendent, explained that a process of pulling and jarring is used during fishing operations. The rig is used to lower coil tubing into the hole. The coil tubing is
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hooked onto material in the well bore and the rig pulls up on the tubing to create a predetermined degree of tension. When that level is reached, a jarring tool is fired emitting an explosive force in the hole, with the object of freeing the material hooked to the coil tubing and allowing it to be pulled to the surface. This process is repeated on a continuous basis until the material is cleared out of the hole. During the abandonment operations at the Blaze Well, the hook force being put on the Rig’s derrick was almost the maximum it was capable of withstanding. Barker said the pulling and jarring caused the Rig to experience tremendous shockwaves. He said the tension put on the Rig could have caused damage to other parts of the Rig and that pulling and jarring is one of the worst things you can do to a rig. The Tower Reports show that the Rig was used for fishing operations for a number of days during the abandonment operations.
Yearwood was the rig manager during the latter part of the abandonment operations. He also testified that the jarring was hard on the Rig. He said the jarring was causing the whole rig to bounce and jump off the jacks holding it up its underside and as a result, it had to be anchored down.
Rig 4 was used and its crew also assisted other third party well services to set a 10,000 psi plug in the existing well bore.
Cripps testified that the fishing operations and the setting of the cement plug were all part of the abandonment work that needed to be completed before Roll’n could proceed with the reentry operations.
Jacobsen, opined that Roll’n had conducted the abandonment operations in a satisfactory manner. Jacobsen’s opinion was based on the presumption that Roll’n did not have an abandonment program to work from during the abandonment operations, but rather worked under the direction of Blaze’s representatives. He opined however, that even had Roll’n received an abandonment program, the operations would probably not have gone any differently since the condition of the well bore, made the operations more difficult.
Jacobsen described the difficulty of the abandonment operations and the effect that the operations had on the Rig at p. 5 of his expert report:
...The 73 mm tubing was plugged and stuck in the well bore. From November 3, 2005 through November 8, 2005 the 73 mm tubing parted numerous times causing the hoisting line on the draw works drum, the crown sheaves and the blocks to jump. The tubing parting and jarring on the stuck 73 mm tubing created shock loads on the hoisting system. While this did not cause any permanent damage to the hoisting system it required inspection of the crown, blocks and draw works drum after each incident. It also required adjusting the drum brake linkage frequently...Repairing the draw works’ drive chain on November 7, 2005 was mechanical down time, but also considered routine maintenance. The previous shock loading could have contributed to the chain’s failure. Thus, though the
recovery of the 73 mm tubing and the abandonment of the original Nisku formation were difficult, it was completed successfully by Roll’n Rig 4 and its crew.
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Sutherland opined that Blaze as operator was responsible for the operations and that it failed to manage the abandonment operations with due diligence. Sutherland testified that this affected the whole scheme of operations.
I accept Barker’s evidence on this point as well as the opinions of Jacobsen and Sutherland above. The abandonment operations were difficult on this hole. I conclude that Roll’n’s performance of the abandonment operations satisfied its obligations and duties under the MWS Contract.
Blaze alleges that Roll’n did not ensure that the BOP was properly assembled and tested or that its accumulator had the required pressure and thus breached several provisions of the MWS Contract including s. 9.3 (c) which required Roll’n to maintain its equipment, including its well control equipment, in good operating condition at all times including meeting or exceeding prevailing regulatory requirements, s. 4.2 of which required Roll’n, subject to s. 9.3 (c) [Operator’s assumption of risk], to use all reasonable means to prevent fire and blowout; and s. 4.4 which required Roll’n to follow prescribed regulations and procedure to pressure test all blowout prevention equipment at the Wellsite.
The AEUB shut-down the Blaze operations on December 9, 2005, based, in part, on its determination that the BOP had not been properly assembled or tested and that the accumulator did not have the required pressure. The December 10, 2005 Major Level 2 Enforcement Action letter to Blaze (Ex.003-031), cited the following deficiencies:
The choke manifold does not conform to the required configuration for the class of well being drilled. There was no a choke in place (Directive 36, Section 2.2.2.1).
The kill system does not meet the minimum design requirements for the class of well being drilled. There was only one kill line in place and its size was not adequate (Directive 36, Section 3.3.1)
The accumulator system failed. The accumulator pressure dropped below 8400 kpa after the function test of all required BOP components with the recharge pump off. (Directive 36, Section 6.1.1.)
The low and high pressure testing was not conducted on the lower kelly cock and the inside BOP. (Directive 36, Section 7.2.1).
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Callicott, testified that the a hydraulically operated choke is required on the manifold on critical sour wells. He said that the BOP on a critical sour well must have two kill lines both with a diameter of 76.2 mm. The kill lines are a means to pump fluid into the well. He said that the purpose of the accumulator test is to ensure that the accumulator system has enough usable hydraulic fluid under pressure to operate the blow prevention equipment. He testified that the kelly cock and valve inside the BOP are to prevent the flow of gas from coming up the drill string.
The BOP was assembled, function and pressure tested and attached to the Well by third parties. Cripps was present as well supervisor when this was done.
Cripps testified that he had contacted Pason, a third party, to provide and install the choke but when he left on November 21, 2005, they had not yet been to the Wellsite. The choke manifold had been rented from Circle T was not part of the equipment provided by Roll’n.
Cripps testified that Roll’n did not provide the crew that assembled the BOP, but rather, that it was assembled by a third party. He could not recall who that was and said he had not made the arrangements for the assembly.
Cripps testified that neither he nor Roll’n had connected the BOP to the Well. It was connected by a third party, Lockhart Oilfield Services Ltd. Cripps authorized payment to Lockhart.
Cripps testified that neither he nor Roll’n had tested the BOP. Cripps confirmed that he had arranged for Falcon Pressure Testers, a third party in the business of pressure testing BOPs, to come to the Wellsite to test the BOP before operations commenced, as per AEUB requirements. He acknowledged that his signature appeared on Falcon’s delivery ticket authorizing payment for their services, and on their Test Detail Sheet showing the tests that had been conducted: see Ex.
003-027. He also agreed that he accepted, based on Falcon’s testing, that the BOP met AEUB requirements.
Either Yearwood or Anderson were the rig managers when the BOP was assembled, connected and tested.
Yearwood testified that he found it hard to believe that the BOP kill line was not the required 3" diameter. He said he remembered that there was 3" line all the way down the tank and up to the stand pipe. He also said there were also two kill lines in place and that the second kill line was a 2" line.
The Falcon test detail report for the testing of the BOP stack has a line through the section that refers to checks of the upper kelly cock and lower kelly cock, and nothing is entered on those lines.
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Yearwood agreed that the report shows that no test was done on the upper or lower kelly cock. Yearwood said he had a brief discussion with Falcon after the tests were completed and was informed by them that everything had tested and was fine. He also testified that from his experience on other rigs, he knew that the upper kelly cock on the valve inside of the BOP had to be tested in order to prepare for drilling operations. He said he did not check the Falcon report to determine if Falcon had done the testing.
Cripps was not asked to explain why the Falcon test report showed that the kelly cock and value were not tested.
Cripps testified that when he left the Wellsite on November 21, 2005, he left Mills the file containing all the information pertinent to the Well, which would have included the information from the third parties who had assembled, connected and tested the BOP.
Mills said that when he came to the site to relieve Cripps as wellsite supervisor on November 21, 2005, he did not see the BOP because it was covered in a tarp to keep it warm and out of the elements.
In late November 2005, the Rig had to be levelled. This involved taking the Rig down and moving it away from the Wellsite, which required that the BOP to be disconnected. Mills was onsite as the wellsite supervisor at the time and directed the levelling operations. After the Rig had been moved back over the hole and set up and the BOP reconnected, Mills testified that the lines running to the BOP had been incorrectly connected.
Mills wrote two letters to the AEUB in which he gave inconsistent explanations to the following findings in the AEUB’s December 10, 2005 letter to Blaze (Ex: 003-031)
The choke manifold does not conform to the required configuration for the class of well being drilled. There was not a choke in place (Directive 36, Section 2.2.2.1).
In Mills’ December 16, 2005, letter to the AEUB (Ex. 003-032) he provides the following explanation: “The choke manifold was lined up and on standby to be installed after the running and cementing of the liner.” Mills testified that this did not mean that it was his opinion that the choke manifold was to be installed after Roll’n’s work was complete. He said Roll’n and Horizon were responsible for ensuring it was properly installed at the outset.
In Mills’ December 20, 2005 letter the AEUB (Ex. 003-035), he changes his explanation to the following: “The choke manifold was installed December 11, 2005.
Roll’n questioned why Mills did not say this in his December 16, 2005 letter if these things had been rectified on December 11, 2005. Mills acknowledged that Sinclair, the wellsite supervisor at the time of the shut down, told him that the choke manifold had been rectified on
December 11. Mills could not explain why he had not included this in his December 16, 2005 letter.
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The kill system does not meet the minimum design requirements for the class of well being drilled. There was only one kill line in place and its size was not adequate (Directive 36, Section 3.3.1)
In Mills’ December 16, 2005 letter to the AEUB he provides the following explanation:
“ The second kill line was lined up and on standby to be installed after the running and cementing of the liner.”
In Mills’ December 20, 2005 letter to the AEUB he provides the following explanation: “The second kill line was lined installed December 11, 2005.”
Roll’n again questioned Mills as to why he had not advised the AEUB that the kill line was installed in his December 16, 2005 letter. He acknowledged he had received this information from Rowbotham and Sinclair. He said this equipment was supposed to be hooked up at the beginning of November and he only learned that this had not been done on December 10. He agreed that Horizon had not been onsite since Cripps left on November 21 and that after that point he was the wellsite consultant for a number of days, followed by Edel, who was then followed by Sinclair. He admitted that none of them had noticed that the BOP system was not connected in accordance with the AEUB requirements. Mills said that the reason that it had not been noticed was because it was covered with tarps. He agreed that he and the other wellsite supervisors could have lifted the tarps and checked the BOP connections but disagreed that they should have been done so.
The accumulator system failed. The accumulator pressure dropped below 8400 kpa after the function test of all required BOP components with the recharge pump off. (Directive 36, Section 6.1.1.)
In Mills’ December 16, 2005 letter he responds as follows: “The pressure valve in the accumulator system had a faulty valve, when the system was tested, it failed. The last reported function testing of the BOP was 12-07-2005 it was documented by Roll’n that the test was successful. The inner component of the open/close control valve had not bypassed fluid up to this point of functioning this control w/closing time of 6 secs with functioning pressure stable not shown the control being washed.”
In Mills’ December 20, 2005 letter he provides the same response as December 16, except with the following addition: “This was repaired December 11, 2005.
The low and high pressure testing was not conducted on the lower kelly cock and the inside BOP. (Directive 36, Section 7.2.1).
In Mills’ December 16, 2005 letter he responds as follows: “Falcon Pressure Testing from Fort St. John was contracted to pressure test the BOP stack and related equipment. Every BOP
stack component was tested including the stabbing valve and also the Inside BOP to 35,000 kpa which was shown the pressure it was tested to but crossed off on the check list position of the form. The lower Kelly cock was marked with a tag that it was tested. It was assumed it was.”
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In Mills December 20, 2005 letter he provides the same response as in his December 16, 2005 letter.
Mills agreed that in the invoice provided by Falcon when the testing was done, it had put a line through the testing on the upper and lower kelly cock. Mills agreed that this meant that Falcon had not tested it or did not think it was necessary to test it. Mills said that Roll’n should have checked to ensure the testing was done but denied that any of the wellsite supervisors, including himself, should have checked this. He agreed that a person holding a second-line BOP ticket knew that the BOP had to be tested and that all the well supervisors who had been onsite, including himself, had second-line BOP tickets. He acknowledged that he had not checked to see if the testing had been done properly.
Ward opined at item 18 of his expert report (Ex. 006-115):
18. Roll’n had a responsibility to ensure that equipment whether rented or owned was rigged up according to regulations and properly maintained to ensure a safe working environment for their employees. In this case a 10000 psi BOP system was requested and rented to replace the 5000 psi system that was going to be originally supplied by Roll’n. Not only was the 10000 psi BOP stack improper to recommend and use, Roll’n failed to ensure it was properly assembled, as per ERCB guidelines, prior to and after attaching it to the wellhead.
Ward also opined in his report that the assembly of the BOP stack and related equipment was poorly supervised without reference to the Blaze Drilling program or AEUB requirements and that this contributed to the shut-down of operations on December 9, 2005.
On cross-examination, Ward agreed that Mills’ explanation for the accumulator system failure, that a pressure valve was faulty, was not an uncommon occurrence, and he agreed that Roll’n had repaired the valve as soon as this was discovered.
Jacobsen opined in his expert report the BOP stack and choke manifold were rental equipment, ordered and paid for by Blaze, and that it should have assured the proper equipment was ordered and installed. He testified that when the Rig was levelled in November 28 and 29, 2005, the BOP would have been left standing but everything else would have been disconnected and this could also have resulted in the deficiencies cited by the AEUB on December 9.
With respect to item two, Jacobsen opined that it was Roll’n’s responsibility to install the correct size of kill lines under the direction and supervision of Blaze and its well site supervisors.
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With respect to item 3, Jacobsen opined that the when the BOP was initially tested on November 13, 2005, the accumulator pressure was well above the required minimum. Up until December 9, 2005 when the AEUB shut-down the operations, individual BOP components were function tested as required under Guide 36 and there was no indication of low accumulator volume or pressure problems. After the inspection, Roll’n added additional accumulator volume and serviced the accumulator. After that the function testing of the accumulator indicated that the pressure was well above that required.
With respect to item 4, Jacobsen opined that Blaze retained a third party, Falcon, to pressure test the BOP and that this was performed under the direction and supervision of the wellsite supervisors representing Blaze.
Sutherland opined in his Expert Report that Mills was in charge of the operations when it was shut-down by the AEUB and he was therefore responsible for the fact that the BOP did not have the correct manifold, control system implemented on the Rig. He opined that Mills failed to direct his wellsite supervisor, Sinclair, to change the BOP configuration to an acceptable configuration until after he was shut-down by the AEUB. He opined that Mills ignored this until the AEUB shut-down the operations for this, among other, violations.
Sutherland also opined in his Expert Report, item 1, under Operator’s Due Diligence that in his December 16, 2005 letter to the AEUB, Mills admitted the deficiencies but continued to hold Roll’n and Blaze liable. He opines that Blaze was responsible for the well and Mills was its operating officer. He states that Mills was also on location to observe the equipment and either “turned a blind eye” or did not know the regulations. He opines that he was in charge of directing the actions of the wellsite supervisors.
The evidence indicates that third party contractors were retained by or on behalf of Blaze to assemble, connect and test the BOP. Although Falcon’s test report, Ex. 003-027 does not indicate that the lower Kelly cock was tested, it was marked with a tag indicating that it had been tested.
Cripps had ordered the choke manifold. It just had not arrived. The accumulator failure simply was a value which failed on a test which can happen. Furthermore, the rig was laid down in late November after Cripps had left and Mils or his designate was on site as well supervisor. It was their responsibility to check that all AEUB requirements were completed on re-assembly. I refer Sutherland and Jacobsen on this point.
I conclude that Roll’n did not breach the MWS Contract by failing to properly assemble or test the BOP or its accumulator.
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Cripps agreed that if Mills was going to remove the service rig and substitute another type of rig, or change the 10,000 psi BOP stack to a 5,000 psi BOP stack, November 11, 2005 would have been the ideal time to do it.
Mills said that he was considering whether he should switch to a 5,000 psi BOP because the 10,000 BOP stack was causing problems.
Cripps and Mills agreed that Mills asked Cripps to prepare a cost estimate, which he did. The cost of tearing out the 10,000 psi BOP was estimated at $104,500 and the rental savings at
$21,200: see Ex. 005-07. Cripps said that he and Mills discussed the estimate and they decided to go ahead with the 10,000 psi BOP stack as it was already in place.
Ward’s opinion was that Blaze, as the representative of the Well operators, relied upon Horizon to provide wellsite supervisory services and in that capacity, Cripps had advised Blaze to use a 10,000 psi BOP, retrofit the Rig to accommodate it, and that it was too costly and time consuming to change back to a 5000 psi BOP stack: see Ex. 006-115.
However, Ward agreed that Cripps acted as a prudent wellsite supervisor in supplying Mills with the estimate and that upon receiving this information, it was then Mills’ decision as to whether the BOP should be switched back to a 5,000 psi BOP. Ward also acknowledged that assuming Mills agreed to use the 10,000 psi BOP, but later questioned whether it was needed, an appropriate time to switch back to a 5,000 psi BOP would have been at the time when the abandonment operations were completed and prior to commencing the drilling operations.
The evidence is clear that Mills considered changing to a 5,000 psi BOP. He decided to continue with the 10,000 psi BOP. It was not Roll’n’s decision. Roll’n cannot be criticized for this. Incidentally, no evidence was lead as to whether a 5,000 psi BOP was available at the time. I therefore conclude that Roll’n did not breach the contract by continuing to use the BOP. This was not Roll’n’s decision. It was Mills’ decision and he decided to continue to use the BOP despite any problems its size may have been causing.
Blaze alleges Roll’n Rig 4 was not capable of performing the re-entry operations.
Roll’n argues that while the use of a service rig for reentries in existing wellbores, which requires handling drill string and drilling open hole sections, is not the best option, it can be done. Blaze chose Rig 4 knowing that it would be required to perform this type of operation:
Rig 4 was 27 years old at the time it was used in the Blaze operations.
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Anderson described Rig 4 as one of the larger types of service rigs. He said it was capable of pulling a force of 120,000 decanewtons (daN) or 300,000 pounds. It had a 400 barrel rig tank, accumulator, boiler, dog house accumulator, light plant, and rig manager’s shack.
Anderson testified that Rig 4 was originally designed for deeper well servicing which he distinguished from sidetracking operations. He said sidetracking, cutting windows and horizontal reentries were relatively new in the industry. He said Rig 4 had been adapted for the latter type of operations after it was manufactured.
Domeij described Rig 4 as the bigger of the three types of service rigs. He said it a heavy duty rig and was built for drilling and well servicing. He described Rig 4 as run down in spots but said it was as good as the crew that maintained and repaired it.
The directional driller, Cawsey, said that although this type of re-entry is often done with drilling rig, he had previously done re-entry projects with a rig the same size as the Roll’n Rig 4.
Cripps stated that it was always his view that after the Well was abandoned and at the time when the operations in the Drilling Program commenced, Blaze should have used a drilling rig rather than a service rig. However, he said that was not his call and he had not discussed this with Mills.
Cripps’ notes and his testimony indicate that during the time he was onsite, there were a number of deficiencies with Rig 4 that he requested Roll’n to remedy. He acknowledged that Yearwood worked hard and remedies the deficiencies identified by Cripps.
Jacobsen concluded at p. 18 of his expert report:
The use of a service rig for re-entries in existing well bores, that requires handling drill string and drilling open hole sections, is not the best option, however that is the choice Blaze chose when it contracted Roll’n Rig 4 for its re-entry project. The use of a drilling rig on completion and workover projects is also not the best option as demonstrated by Ensign Rig 61 on the Well. On May 1, 2006 the 73 mm production tubing was parted and dropped down the hole resulting in fishing operations until May 9, 2006 and the Ensign Rig 61 being released without the tubing being run in the hole. I believe that Roll’n Rig 4 was capable of completing the Blaze Directional Drilling Program to the planned depth of +/- 3,673 m in the Winterburn formation above the Nisku and cementing the 114.3 mm intermediate casing liner as outlined in the Operational Summary of the program, if the limitations of using a service rig for open hole drilling operations had been recognized and dealt with.
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Jacobsen opined that a service rig is less suitable for re-entry operations because it does not have a rotary table but uses a power swivel instead to trip pipe and tools in and out of the well bore. This makes it more difficult to handle the BHA - the tools used to conduct well operations that are attached to the bottom of the drill pipe, such as the drill collar and bit. On a service rig, there is no tractor to carry the weight of the drill string, so each time pipe is tripped out of the hole, the power swivel has to laid down, which can take from one to two hours. This slows down the operations and makes them more difficult. However, Jacobsen said the drilling itself is the same on a service rig and a drilling rig.
Ward opined in his expert report that the equipment and crew provided by Roll’n were not capable of doing the re-entry. He testified that there were a number of issues including that the Rig and equipment supplied were breaking down. Ward said that it was quite apparent to him that Roll’n had supplied equipment without first determining whether it was capable of performing the work required and he was of the opinion that it was not. Ward noted that Ensign had used a drilling rig to complete the Well after Roll’n was released and had experienced few problems.
Sutherland responded in his expert report to Ward’s opinion by noting that Ward did not comment on the initial fishing job for parted tubing that Roll’n conducted; on the fact that in most cases a drilling rig is preferred to a service rig for re-entry drilling on a deep sour well; on the seven day fishing job that was experienced while using the Ensign drilling rig; on the lost time and accident that Ensign experienced; and on the changes in directional plan and changes in the mud program during the Blaze operations.
Sutherland testified that he had used a service rig to conduct re-entry work drilling horizontally out of a casing for 300 to 400 metres on a sour well. He said it was very difficult, it came in above cost, and many problems were encountered. He said Blaze may have chosen to use a service rig because there was a 100 percent utilization rate for drilling rigs and all oil field services at the time and because it was less costly to use a service rig.
I prefer the evidence of Jacobsen and Sutherland to that of Ward on this issue. Clearly, a drilling rig would have been better to use than a service rig for the re-entry operations. However, Blaze chose to use a service rig - Rig 4. On balance, the evidence persuades me that Rig 4 was capable of performing the re-entry operations, although using a service rig for the re-entry would likely take longer and result in more problems than using a drilling rig. I conclude that Roll’n satisfied its obligations under the MWS Contract through the provision of Rig 4.
Blaze alleges that numerous safety concerns and unsafe conditions arose from the manner in which Roll’n performed the operations, which breached the terms of the MWS Contract.
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The OH&S inspector who visited the site in November 2005 found that there a the lack of heat for the BOP stack. Cripps and Mills both testified that it was an AEUB safety requirement that BOPs be kept warm enough to function. Mills explained that BOP heat is required because the BOP is hydraulically driven. He said that during the Blaze operations, the temperatures were below freezing and hydraulic oil does not flow at that temperature. Without the heat, if there had been a blowout, the BOP may not have functioned. Mills said that Cripps informed Mills that Cripps had asked the Roll’n rig managers, in particular Anderson, to tarp and heat the BOP on a number of occasions. This was rectified by Roll’n.
The Rig floor had a substructure that could be set up around the well bore and around the BOP which was used as a rig floor and provided more stability and room in which to work. It was larger than the adjustable rig floor attached to the derrick. The substructure for the Rig floor could not be utilized during the Blaze operations because the BOP stack was too high.
The evidence of most of the witnesses was that the driller’s pad where the driller stands is normally at the same height as the rig floor. When the Rig 4 floor was raised above the BOP stack, the driller’s pad was substantially below the rig floor. As a result, the driller did not have a clear view of the operations on the rig floor where the floor hands worked guiding the drill pipe, casing and tools in and out of the well hole. This was a safety concern since the driller controls the brakes and pulleys used to raise and lower pipe and equipment over the rig floor and in and out of the hole.
The height of the rig floor added safety concerns related to the height at which pipe and materials had to be lifted to clear the rig floor. Objects were lifted above the rig floor with a pulley system and there was concern that the top of this mechanism (the “blocks’) would hit the crown of the Rig which could have caused the drill string to be cut while it went over the crown near the top of the derrick. If this had happened, any pipe or other equipment would have dropped down to the rig floor where the floor hands were working or into the well bore. As a result, the crew had to watch the crown to make sure the blocks did not hit it.
Domeij was Roll’n’s driller from October 27, 2005 until November 9, 2005. He testified that the rig floor was substantially higher than normal making it difficult for him to see or communicate with the floor hands on the rig floor. Eric Taylor, was a floor hand who worked on Domeij’s crew. He said he and Domeij had to yell over the noise of operations to communicate because the driller’s pad was so far from the rig floor.
Eric Taylor also said that the height of the rig floor affected the escape routes that were required to allow the floor hands to exit the rig floor in case of emergency. He said that because
the rig floor was so high, the usual two escape routes had to be roped off and he could only exit by running down the v-door.
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Cripps’ November 11, 2005 notes state “Driller’s pad finally raised with in 1.75 metres of drill floor. Driller still does not have clear vision to the drill floor.” Barker testified that after the driller’s pad was raised on November 11, 2005, the driller had a much better view of the working rig floor.
Cripps’ November 8 notes state that there was no secondary escape route from the Rig floor and that it was an OH&S requirement that there be a minimum of two. Cripps’ November 12, 2005 notes state that a secondary escape route was installed which met the requirements.
Yearwood confirmed that he brought another set of stairs to the Wellsite to be attached to the Rig floor.
The evidence regarding the November 9, 2005 safety stand down, the resulting OH&S inspection and issuance of eight citations, and the conclusion soon after that Rig 4 was in compliance with OH&S standards is discussed under Issue 4.
Mills acknowledged that Cripps informed him of the events of November 9. He testified that Cripps told him that the driller and his crew quit because they felt the Rig was not safe. He said that the last time he talked to Cripps on November 9, Cripps told him that the operations had started up again. Mills said he was told that the crew that quit had notified the AEUB that there were safety problems on the Rig, that the AEUB had referred the matter to OH&S and that an inspector was coming out to the site. Mills said that he then called Buan to find out what was going on at the Wellsite and Buan gave him the same information Cripps had.
I reiterate my conclusions under Issue 4. The eight citations issued were not serious enough to cause Ung to shut down the Rig and according to Ung’s reports, Roll’n had dealt with the deficiencies to Ung’s satisfaction. Although some deficiencies were found, they were not, on balance, significant enough to conclude that the manner in which Roll’n was operating breached the terms of the MWS Contract.
The safety concerns related to the hydromatic brake were also discussed under Issue 4.
Yearwood testified he continued to operate on November 9 and 10, while he waited for the hydromatic to be repaired. He said the hydromatic would not remain engaged but that there was sufficient braking strength in the main brakes on the Rig to conduct the operations safely. He agreed that the operations moved slower than normal because of this but said they were able to
continue to operate in that manner until November 10, when the hydromatic was serviced. Yearwood said that while the hydromatic continued to have issues after it was serviced, it did not pose a risk.
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On November 11, 2005, Barker repaired the brake by welding it open. Barker testified that after the Hydromatic was welded, it was either engaged or disengaged. As a result, it had to be disengaged when equipment was being lifted and reengaged when equipment was being lowered.
Barker said the shifting mechanism to engage the hydromatic was originally a clutch system and that it was not reliable and it had to repaired several times. As a result, Roll’n switched to a new style of brake which worked until the hub broke which required an additional repair onsite. Barker said he helped Dave Rowbotham make the repair. He said this involved removing the hydromatic and welding it so that it was locked open and was always engaged. Barker said this was an interim repair, to allow them to continue to operate but that it was completed according to the manufacturer’s specifications. Barker said this made the tripping into the hole somewhat slower but did not slow operations when they were tripping out of the hole. He said that while they were repairing the hydromatic, they noticed that the main drum brake pad linings were worn so they replaced those at the same time.
Rowbotham testified that the hydromatic brake was an auxiliary brake, an option on the Rig, but not a requirement. The draw works, the main brakes, were used when materials were being lifted and lowered. As a result, it was his opinion that a faulty hydromatic was not a safety concern. He said the Rig is rated only on the capacity of the main brakes.
Barker gave similar evidence. He said the hydromatic is used when the Rig is drilling at deeper depths when there is more weight pulling on the rig. It is used to control the speed at which the pipe goes down the hole and is engaged to keep the main brake drum cool, which makes it more responsive.
Barker said jarring and pulling operations involved during abandonment operations cause extra wear and tear on the hydromatic because it is used continually and that this could have been the cause for the need for the repair.
Cawsey testified and his Directional Drilling Report confirms that the hydromatic needed repair on at least two other occasions while the re-entry operations were being conducted. He said that when the AEUB gave permission for the operations to recommence after the December 9 shut-down, the drill bit hit an obstruction, probably the whipstock, damaging the bit on the end of the drill string. He said he had never experienced this before but that it could have occurred because the hydromatic was not working properly.
Cawsey said that the hydromatic is important to the directional drilling because it takes pressure off the drill bit which allows a constant gentle weight to be maintained on the drill bit.
Ward stated that in a typical project the hydromatic should not need repair if it is fit for the
purpose and properly maintained.
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Ward examined the drill bit which had been damaged. He said for the steel to get wedged in the drill bit as it was, the drill bit would have had to hit the whipstock or other obstruction very hard. He said this could have been caused by a faulty hydromatic or driller inattention. He said the hydromatic controls the speed at which equipment is run in the hole and if it was not working it could have caused the drill bit to run in the hole too fast and hit the whiptock. Ward gives a number of possibilities for the damaged drill bit but his evidence does not satisfy me that hydromatic failure or driller inattention is the more likely cause for the damaged drill bit.
Anderson testified that daily BOP function tests required completed. He said that scheduled routine maintenance and repairs were conducted on the Rig every 12 hours including maintenance and repairs on the pumps, radiators, drive shafts, drawworks, power swivel, light towers and light plants.
Anderson confirmed that daily safety meetings were held during the period Rig 4 was working at the Blaze Well. He said the normal practice was to have weekly documented safety meetings and daily 12-hour crew change safety meetings. Anderson testified that the Service Rig Inspection Checklists (Ex. 003-026) are a record of the inspections that the Roll’n crew conducted every time the Rig was moved and on a weekly basis during operations thereafter. He said the Service Rig Inspection Checklist was a tool that Roll’n used to check its equipment and make sure that every component met industry specifications and to note any maintenance and repairs that were required. The are signed by the rig manager.
Anderson could not explain why some of the Roll’n safety meeting reports were missing however he said it was not a requirement to have a safety meeting every time the scope of the work changes or every time a crew changes but to have one weekly. He said he conducted more safety meetings than there were reports.
Anderson testified that repairs and maintenance were made on an ongoing basis and that the operations were not shut down during repairs unless it was warranted.
Anderson testified that during crew changes, if the drilling was not in an open hole section, the Rig and equipment would be shut down and the Rig and equipment inspected and maintained which included checking oils, transmissions, greasing anything that required it, conducting a walk-around inspection to make sure guide lines and load lines were sufficiently attached, and conducting the safety meetings which included discussing the operations with each of the crew members.
I accept Anderson’s evidence on this issue. I do not find any merit in Blaze’s complaint.
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Cripps’ November 14, 2005 notes state that Mills had ordered the safety trailer released, which Cripps said was crewed by two safety personnel and contained air supply for air packs for H2S. This was Blaze’s decision.
Cripps’ November 15, 2005 notes indicate that the static arms on the power swivel were long and were hitting the derrick. Cripps explained that they had now raised the rig floor so high that the static arms were too close together. He said the static arms are static lines that hold the power swivel in place at the top of the rig and take the torque from the power swivel. He said a welder was called onsite to cut down the arms and weld them and that the weld was not inspected or x- rayed. Cripps also noted that the bails were too long.
Rowbotham admitted that the arms on the power swivel, supplied by a third party, Weatherford, were shortened. It would appear from his evidence that they were not x-rayed or otherwise inspected. It is not clear from his evidence that they should have been.
I cannot determine from the evidence whether or not the static arms should have been x-rayed after welding. If so, that would have been a breach of safety requirements. However, I note that there was no problem or failure or fault attributed or claimed in relation to the static arms.
Yearwood agreed that on November 7, during the abandonment operations, the Rig was pulling at just below its maximum range. He agreed that this would put significant strain on the Rig, however, he said it is fairly safe to pull up to the maximum a rig can pull.
Vickers testified that the Rig 4 safety record for 2005 was excellent. There were no recordable incidents on Rig 4 where people were injured. Vickers managed Roll’n’s Workers’ Compensation Board account, which involved filing injury reports and determining the costs being paid by Roll’n based on its safety record. Due to Roll’n’s excellent safety record, Vickers said that its workers’ compensation costs were discounted by 35.5 percent. He said the maximum discount a company could received was 40 percent.
Herring, the President of CAODC, testified that Roll’n won the CAODC Service Rig Contractors Class “A” Award for safety (Ex. 006(2)-166). The award is based on statistics computed from data provided by CAODC service rig members to CAODC which is verified through assistance provided by the WCB.
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While the foregoing evidence does show that there were some instances of unsafe practice on the part of Roll’n, these were, for the most part, corrected promptly by Roll’n. One cannot look at these situations in the abstract. A dynamic drilling process was going on under less than ideal circumstances. It is to be expected that there would be some repairs, alterations and accommodations required from time to time. On balance, I do not conclude that, overall, the working conditions were unsafe. In reaching this conclusion, I am particularly impressed by the fact that OH&S inspected the operations in response to a complaint of unsafe working conditions and permitted the operations to continue.
Blaze argues that Roll’n breached the contract by failing to maintain its equipment under s.
4.2 of the MWS Contract and failing to perform the well services in a good and workmanlike manner under s. 4.1.
Rowbotham referred to the equipment and parts book Roll’n obtained with it when it purchased Rig 4 (Ex. 004-055) in October, 1978. He said most operating rigs are from this era and that rigs are repaired and certified every 24,000 hours, which is basically every 10 years. At that time the rig is stripped down to the frame and everything is overhauled. He referred to documents from Cassidy Engineering (Ex. 005-058) showing that Rig 4 had been completely rebuilt and brought back to new condition in 2001. The CAODC requires that members track the hours remaining on a rig until the next overhaul is required. The December 2005 CAODC Service Rig Certification Verification form states that Rig 4 had 19,467 hours remaining on it until it needed its next overhaul. Rowbotham said this meant that it was still basically new.
The “Roll’n Maintenance Program” (Ex. 005-057) states that the rig manager is responsible for ensuring the rig is properly maintained, that a record of specific maintenance is to be recorded and reported, and specifies what and how specific equipment is to be checked and maintained. Barker testified that the Program was strictly enforced and that those who did not follow it were subject to consequences up to and including termination.
Barker said that Rig 4 had undergone a complete overhaul in 2001. He said that this involved disassembling the entire rig, sandblasting it down to the metal, and having an engineer conduct a magnetic particle test on every weld on the structure. Roll’n is then given a list of required repairs, which they have performed. The rig is then re-inspected and if it passes inspection, it is painted and reassembled. The inspections conducted and certifications that the parts of Rig 4 were certified for service are contained in see Ex. 005-058. The repairs to be made are set out in the Cassidy Engineering “Field Inspection and Repair Summary”. Barker testified that Cassidy Engineering Ltd. had inspected the Rig 4 mast and carrier in December 2001and certified that it could be returned to operations. He said the mast is the derrick or vertical portion of the rig. The mast is inspected by performing a magnetic particle test on every support on the mast to pinpoint any faulty welds or cracks. A metal hardness test is performed. All the metal pins
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holding the derrick in place are checked for voids or cracks. The carrier was also inspected and certified for return to operations. Barker said that the carrier includes all the drawworks, brakes and brake bands, linkage pins and the connecting rods up to the driller station. He said that the crown assembly was also dismantled and inspected. Barker referred to a number of certifications showing that the parts of the Rig had been inspected and certified to return to operations.
Barker testified that Ex. 005-060 is a list of invoices for parts and services paid by Roll’n to repair Rig 4 between September 1, 2005 and January 31, 2006 which he was satisfied had been made. The list shows that many routine and other repairs were made to the boiler and other rig parts before it arrived at the Blaze Well, as well as after it arrived. Barker testified that the total cost of the parts supplied and repairs made to Rig 4 from January 12, 2005 to December 20, 2005 was $181,381.18.
Barker testified that Roll’n’s daily maintenance sheet report (Ex. 005-062) is completed by the crew and records the hours on each piece of equipment and explains any repairs or fluid additives used, and what and how pieces of equipment have been maintained or repaired. He said he would examine these whenever he was onsite and that they were also sent on a weekly basis to the Roll’n office where they were examined more closely.
Rowbotham testified that he was in charge of maintenance on the Roll’n rigs and that maintenance issues were reviewed once per week. He said Dave Rowbotham, the operations superintendent and Chad Barker and Terry Thomas, the Roll’n field superintendents, all reported to him on maintenance issues.
The was evidence from Barker and Anderson was that the Rig experienced severe jarring and shockwaves when it was used to assist with the fishing operations during the abandonment operations. Barker and Anderson both testified that the old pipe in the hole parted when they were attempting to pull it out of the hole, which caused the Rig to whiplash. Yearwood said the Rig was jumping off the jacks used to support and anchor it as a result of having to absorb the force of the explosive shocks being shot off in the hole to loosen pipe. Anderson said that in his 20 years’ of experience, he had only seen pipe part like this on three or four other occasions.
Jamey Taylor, a floorman and then a derrick man on Rig 4, said that the Rig was rundown, in poor condition.
Jamey Taylor’s description of the Rig being run-down and in poor condition is difficult to reconcile with Barker’s evidence - and especially the CAODC Service Rig Certification (Ex. 005-059) showing that as of December 1, 2005, the Rig had over 19,000 hours on it until the next overhaul which, together with the other evidence of Barker, indicates that Rig 4 was being well maintained. However, the most telling evidence, in my view, is Ung’s inspection report. Ung, an independent inspector, inspected the Rig and issued eight minor citations relating to the Rig. He did not view them as serious because he did not shut-down the operations. Therefore, I do not
accept Jamey Taylor’s evidence that the Rig was run down and in poor condition. I conclude that Roll’n did not breach the MWS Contract by failing to properly maintain and repair the Rig and its equipment.
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Blaze argues that the pumps supplied by Roll’n did not have the capacity required for the operations being conducted either because they did not have the functional capacity or were in such a state of disrepair that they lacked the actual capacity required. Blaze alleges that this was one of the reasons the re-entry operations were unsuccessful and was one of the contributing factors causing the slow pace and shut-down of operations on a number of occasions including the shut-down on November 24, 2005 when the drill string became stuck in the hole.
Horizon argues that both pumps supplied by Roll’n were not only capable but in fact functioned at the required capacity. Horizon argues that the reason for the difficulties encountered during the operations was the manner in which Blaze conducted the operations, including the decision by Mills to use water-based drilling fluid rather than the invert mud specified in the Drilling Program.
Roll’n supplied two pumps to Blaze over the course of the operations.
The pump supplied with Rig 4 was the “Super 48". It was included in the Roll’n Inventory Sheet and in the rig rate specified in the Inventory Sheet. According to the evidence, the Super 48 was frequently used in the servicing of wells and was a service rig pump, as opposed to a drilling rig pump. The Super 48 specifications are in Ex. 005-064.
Jacobsen opined that the Super 48 had sufficient horse-power (HP) to pump the volume of drilling fluid required at the pressure required. He based his opinion on the specifications for the Super 48, which stated that it was a 700 horse-power (HP) pump powered by a 540 HP engine and was capable of providing the volume and pressure required to operate the mud motor near it’s upper limit, as demonstrated in the manufacturer’s specification sheet.
Pumping capacity is measured in cubes per minute (m3/m) and measures the litres pumped per minute. For example, at a capacity of .69 m3/m, a pump is pumping 690 litres per minute.
Cripps agreed that the Super 48 had the theoretical capacity to pump anywhere between .9 m3/m and .38 m3/m.
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The second pump, the OPI 700, was delivered to the Wellsite on November 18, 2005 after the Super 48 pump broke down and in response to Cripps’ request that Roll’n send a pump with the capacity required for the drilling operations. The OPI 700 was a drilling rig pump but was intended to be interchangeable with the Super 48 pump.
The difference between the OPI 700 and the Super 48 pump was that the pistons and piston liners (the casing housing the piston) could be changed on the OPI 700. The larger the piston, the greater the volume that could be pumped.
The specifications of the OPI 700 (Ex. 006-150) state that the motor is capable of providing a volume of between .95 m3/m and .38 m3/m. Jacobsen opined in his expert report that this was sufficient capacity for the Blaze operations.
Ward opined that the OPI 700 pump could only provide the capacity required for smaller drilling operations.
Barker said the OPI 700 pump is often used in drilling operations where a mud-based drilling fluid is used. It has different internal parts and different systems to clean it out which makes it less susceptible to the grit in mud-based drilling fluid and it can therefore be expected to have twice the life of a Super 48 pump.
Rowbotham said the OPI 700 pump was 25 years old in October 2005.
The Super 48 pump was used during the abandonment operations.
Ward testified that the Super 48 was a smaller pump used in typical service rig operations. He stated that excessive amounts of pressure are not normally encountered during such operations. Rather, the main function of the rig pump is to deliver enough pressure to circulate fluids through the well. As such, although the pump must have the capacity to handle a significant amount of volume, it is not required to handle significant pressure.
The re-entry operations involved directional drilling. This required the mud pump to deliver sufficient pressure to both circulate fluids through the well to clean the well of drill cuttings and to drive the mud motor used to turn the drill bit at the bottom of the well bore.
Cawsey was in charge of directing the directional drilling required to mill the window in the existing well casing and to drill out from the well casing and down to the Nisku. Directional Plus also supplied the tools needed for the directional drilling. He had worked in the oil and gas industry for almost 40 years at the date of trial. He was a directional driller from 1981 to 2009. He arrived at the Wellsite on November 13, 2005.
Cawsey and Cripps described the directional drilling operations and the function of the
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mud pump in those operations. The tools required for the directional drilling operations are connected to the end of the drill string. The main tools required are a fluid powered drill (a mud motor), measurement while drilling (MWD) tools and gravitational tools used to guide the direction and angle of drilling. The drill string with the tools connected to the end is lowered into the well bore. The mud pump is used to pump pressurized drilling fluid (or mud) through a sealed system from the mud tank down the drill pipe until it hits the mud motor which powers the drill bit, turning it forward. After going through the mud motor, the mud is pushed back up the well bore and well casing catching the drill cuttings on its way and cleaning the well.
The fluid pressure required is affected by the pressure encountered in the formation in which the drilling is taking place. The more weight on the bit at the bottom of the hole, the more fluid pressure required to turn the bit. If the mud pump is producing less pressure, the drill will turn more slowly and the distance covered will be less.
The fluid pressure required is also affected by the depth of the well. The Blaze Well was to be approximately 3,800 metres deep. Ward, Blaze’ expert, stated that this was considered a deep well. The deeper the well, the more volume of fluid required. The more volume of fluid required, the lower the pressure that can be delivered.
Ward said that during deeper drilling operations, the pump must be capable of dealing both with greater pressure and greater volume to clean the well bore of drilling cuttings.
Cripps testified that the directional driller told Cripps that .83 m3/m was a bare minimum for drilling with directional tools and a mud motor. Cripps agreed that the amount of pressure to be delivered was the amount required by the directional driller.
Mills testified that a minimum volume of .8 m3/m was required in order to turn the mud motor turning the drill bit at the bottom of the hole on the drill string.
Brad Rowbotham testified that Mills telephoned him in the latter part of November 2005 and told him that he needed .8 m3/m in pump output. Rowbotham said he told Mills that the pumps could pump at more than .8 m3/m. Rowbotham said he also asked Mills about the mud motor being used and Mills did not know the specifications on the mud motor. The mud motor was provided by the directional company. Rowbotham said he asked Mills if there was a different mud motor he could use since they have a wide range of volume needed to operate. Rowbotham said they talked about the possibility of Blaze obtaining another pump. Rowbotham said that Mills said that if the Roll’n pumps could not give Blaze the volume it needed, Blaze would shut down the operations until it could find a pump it needed. Rowbotham said he told Mills that Roll’n was not going to go on downtime until Mills obtained a different pump. He said he told Mills that these were the pumps that were supplied with the Rig and what Blaze had accepted. He said he told Mills he could release the Rig and Mills said he would look into obtaining other pumps.
Rowbotham said he was also involved when the OPI 700 pump was sent out to the Blaze
Wellsite. He said most drilling contractors have two pumps available in case of breakdowns. He said it would have taken six weeks to rebuild the Super 48 pump so Roll’n decided to send on the OPI 700 pump. He said the pump is large and was sent to the site in an enclosed building.
2011 ABQB 658 (*)
Anderson testified that Mills was concerned about the volume output of the OPI 700 pump. Anderson said Mills wanted the pump to run 1.0 m3/m which was over the drilling motor’s capacity.
Ward’s expert opinion, item 10. e. Ex. 006-115 states:
Neither of the two mud pumps which Roll’n provided to the site was capable of pumping the required volume for drilling operations of 1.0 m3/min. Despite assurances to Blaze that the mud pumps could deliver the necessary volumes, the mud pumps provided by Roll’n would have never been able to do the 11-19 job. The maximum output of the OPI 700 was approximately 0.76 m3/min.
Jacobsen opined in his expert report that the Roll’n pumps were of a sufficient size and capable of producing an output sufficient to drive the mud motor and clean the well bore for the Blaze operations, if the pump was used in conjunction with a well maintained drilling fluid.
Jacobsen based his opinion on the fact that the Roll’n pump was capable of pumping a volume of between .76 m3/m and .90 m3/m and that Precision had drilled the original well, Ensign had subsequently drilled the well, and Roll’n had drilled to similar depths in the Well, pumping in that range.
Jacobson opined that the Roll’n pumps had sufficient horse-power (HP) to pump the volumes required. Both pumps were 700 HP pumps, one with a 540 HP engine and the other with a 550 HP engine. They were capable of providing the volume and pressure required to operate the mud motor near its upper limit. According to Drilling Hydraulic Calculations used by Jacobsen to calculate the output necessary to clean the well bore, in order to pump a .93m3/m and 18,000 kpa, a 350 HP engine was sufficient.
It was Mills’ and Cripps’ opinion that the Super 48 was not capable of producing the pressure or volume needed for the re-entry drilling operations. When it broke down on November 18, 2005, a replacement pump was ordered from Roll’n’s Red Deer office.
Adam Nadem worked on a Roll’n crew during the abandonment. He had been working for Roll’n since 2003, first as a floor hand and then as a derrick man. While he was at the Blaze Well he was the derrick man. He was also in charge of the mud pumps, which he said involved starting and stopping the pump, maintaining the pump and checking the mud to determine its viscosity.
Nadem said that the mud pump they were using for the open hole section of the Well was not big enough to do the deep re-entry work that was being conducted. He said it was under a lot of strain and was not working well and broke down and needed to be repaired two or three times. He said
that although it could do the job it was under a great deal of stress compared to a normal drilling rig pump and that a second pump had to be brought in.
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When the OPI 700 pump was delivered to the Wellsite on November 18, 2005, the directional drilling operations had commenced. Cripps said the OPI 700 pump that Roll’n sent was old and in need of maintenance and he said he told the crew not to bother unloading it. He testified that the OPI 700 pump had a transmission on it that would not change gears and produced no more than 0.83 m3/m output.
The OPI 700 was tested on the surface, prior to hooking it up for the drilling operations. The testing was done by pumping mud from one tank to another and observing how long it took to fill the second tank. Anderson said the pump passed the surface volume tests. Cripps agreed that it pumped at 100 percent efficiency during the surface testing, however he stated that this was not indicative of its capacity. There is no pressure at the surface. Pump efficiency decreases under pressure.
On November 18, 2005, Cripps called Rowbotham and told him the OPI 700 did not have sufficient pumping capacity and that they needed another pump with a capacity to pump at a minimum of 1.0 m3/m output. Cripps said Rowbotham did not believe him.
In Cripps’ March 13 email to George Samaha at Horizon, in response to a request from Mills for more information regarding Cripps’ concerns while he was at the Wellsite, Cripps summarized his concerns regarding the capacity of the OPI 700 pump:
George. We tested the pump by starting the pump and pumping into the trip tank. The pump was putting out 100% with 1,000 kpa. When on bottom drilling ...we could only stroke at 72 strokes per min giving us .84m3 per min. The minium (sic) for the motor is .83 m3/min. The transmission on the pump needed to be changed out. With this small amount of fluid the hole would not clean properly. Also under load we would not get 100% out put.
Anderson testified that the Roll’n Tower Reports for November 20, 2005, which state that Roll’n had to pump fluid down the hole in order to pull out of the open hole, indicates that the hole was tight, which meant that drill cuttings were not being cleaned out of the hole.
Cripps’ opinion was that the hole was tight because the Roll’n’s pump did not have the capacity to produce the volume and pressure required to circulate the drill cuttings out of the hole. He said if the drill cuttings are not pushed up the well bore with enough speed, some will settle back down to the bottom of the well bore, which will eventually result in the drill string getting stuck in the hole. His November 20, 2005 notes state “Directional company said they needed .83 m3/min to run there motor. That is all we could get from the pump”... “.83m3/min is not enough volume for proper hole cleaning.”. Cripps said he called Mills and told him they needed a bigger pump and Mills said to find another one and suggested getting one from BJ Services.
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On November 21, 2005, Mills relieved Cripps as wellsite supervisor. Mills’ notes from that date state “still problems with pump”. He testified and his notes indicate he voiced his concerns to Anderson and than called Roll’n’s office to tell them he needed a pump capable of between pumping between .8 m3/m and .85 m3/m. Mills said that Rowbotham and Anderson told him that the pump was theoretically capable of at least 1.0 m3/m and that he had been telling them for a number of days that it was not.
Mills continued to conduct the well operations in his role as well supervisor on November 22 and 23, 2005.
Anderson testified that the Tower reports and well supervisor DORs for November 22 and 23, 2005 indicate that they ran in the hole with a new bit and hit drill cuttings, which once again prevented them from getting to the bottom of the hole to continue drilling.
On November 24, 2005, the pump failed again and the drill string got stuck in the open hole and could not be pulled back. The directional drillers tools and some of the drill pipe were left in the hole and the re-entry had to be started from the beginning. Blaze and Roll’n each blame the other for causing this to happen. The events of that day will be more fully discussed below.
Mills was not onsite on December 5, 2005 but said he talked to Sinclair, the CODECO well supervisor onsite, who told Mills that at the point where they had drilled to a depth of 3,534 metres the mud pumps went down again. Mills’ diary notes for December 7, 2005 indicates that one pump needed repair and that the other pump was only working at .55 m3/m.Mills diary notes from December 8, 2005 diary note indicate that he talked to Barker about the output of the pumps. The Roll’n pump was also being repaired on December 9, 2005.
Jacobsen noted in his expert report at p. 10 that Roll’n’s drilling rate of penetration was faster than that of Precision, the company that had originally drilled the well, and Ensign, the company that later finished the re-entry program in April 2006. Jacobsen’s opinion was that this indicates that the pumps had sufficient volume to drill the well-bore and that the “drilling fluid properties were conducive to increased penetration rates, but perhaps not to acceptable hole cleaning capabilities”.
The directional drillers’ reports from Directional Plus state that from November 17 to November 28, 2005, Roll’n pumped at a rate of approximately .80 m3/m and that during December 2005 it pumped at a rate of .76 cubic metres per minute. The electronic Pason Reports shows that the pump rate on November 24, 2005 was close to 1 cubic metre per minute: Ex.
Binder 6.
Jacobsen states in his expert report that the Super 48 experienced a washout on a fluid end. He characterized this a mechanical breakdown which caused the temporary shut-down of the
operations. However, he opined that the shut-down would not have occurred if Blaze had opted to rent a second pump to have on standby.
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Jacobsen states in his expert report that although the Super 48 was repaired over the period of a few days after it broke down on November 18, the drilling continued with the OPI 700 pump. In other words, the operations were not impeded by the mechanical failure of the Super 48 pump.
Barker said the Super 48 required more repairs than the OPI 700. He said the pump packing had to be replaced more often due to the high viscosity drilling fluid which Blaze was using. Barker said a Super 48 pump can be used for drilling operations and can pump any kind of fluid but if a mud-based fluid is used, there is more wear and tear on the pump because the mud is gritty. Barker and this type of repair was fairly routine. He said oil and water drilling fluid is most often used on a service rig that is involved in drilling and that when this is used the life of the packing is fairly long. He said that when a Super 48 is used in drilling operations, you have to repack the pump glands more often. He said that if there are lots of solids in the drilling fluid, the packing may have to be replaced daily or at least twice a week.
Barker said the OPI-700 pump is often used in drilling operations where a mud based drilling fluid is used. It has different internal parts and different systems to clean it out which makes it less susceptible to the grit in mud-based drilling fluid and it can therefore be expected to have twice the life of a Super 48 pump. However, he said the OPI-700 still requires substantial maintenance.
Barker said that whatever type of pump is used, it is good practice to tear down the pump every time you are tripping. When you are coming out of the hole, you are not using the pump to pump mud down the hole. As a result, while coming out of the hole, the pump can be examined to identify problems and repair them before drilling resumes. This prevents problems occurring when drilling reaches the bottom of the hole, when continuous drilling is required. He said that when the pump is torn down it is standard practice to check and rotate liners and re-pack the plunger packing. Barker said it is common for pumps to require repairs and maintenance at least two or three times per week, and sometimes daily, when operations are being conducted on a 24-hour basis.
Jacobsen said the heads and liners were changed on the OPI 700 from 127 mm to 140 mm to allow the pump to provide the volume required for drilling and cleaning the well bore and that this was not a repair but an operational requirement.
Jacobsen opined that the OPI 700 was down on November 24 due to a washed head and liner. He states this occurred after 46 hours of pumping time and that the drilling fluid would have been quite abrasive to cause the head and liners to wear in such a short time frame. He states that the heads and liners, and plunger packings (used by the Super 48) are consumables and expendable pump parts.
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Jacobsen opined that between December 4 and 8, 2005, both the pumps experienced down time, mechanical down time and required changing pf leaking consumable parts. He opined that “this added additional tripping and rig time, but otherwise did not negatively impact well operations, nor the ability to complete the project.” He states that rig downtime, including pump down time, is covered in the MWS Contract and is was the responsibility of Blaze.
Ward opined in his expert report that Roll’n’s equipment was in poor repair and incapable of delivering the capacity required. He opined that the equipment provided by Roll’n was below a standard acceptable in the Alberta oil industry for drilling a critical sour well. He referred to the problems with the hydromatic, crown saver, mud pumps, boiler, and brakes. He stated that “the inadequate mud pumps were a major contributing factor in the drill pipe becoming stuck on November 24, 2005 and it should have been obvious to Roll’n that these mud pumps would have never been able to complete the 11-19 job.”
Rig 4 was equipped with two mud motor pumps. However, under the contract between Blaze and Roll’n, Roll’n supplied only one.
Anderson testified that Mills attempted to find another pump but due to the activity in the industry there were none to be had.
The evidence establishes that Cripps was concerned that the Rig 4 mud pump was not adequate and that Mills knew this. Cripps testified that he told Mills on November 17 and again on November 21, 2005 that he was concerned that the Rig 4 mud pump was inadequate. He testified that he advised Mills to obtain another mud pump and recalls a discussion in which Mills considered sourcing a pump from BJ Services. Cripps testified that he told Mills they needed a bigger pump and he would have liked to obtain a 1,000 horsepower replacement pump but none were available.
Mills’ notes confirm that Cripps advised him on November 21, 2005 that the mud pump was not big enough. He also stated that Cripps advised him that the OPI 700 pump was not appropriate for the job. Mills also confirmed that he tried to obtain another pump from BJ Services and another supplier, Nabors, who advised that they had a pump but would not make it available to Blaze.
Roll’n agreees that two pumps are recommended for deep hole operations in remote locations but argues that Mills made the decision, at least initially, to proceed with only one mud pump. It argues, that as a result, any damages that Blaze suffered as a result of the repairs that had to be made to the first mud pump, could have been avoided if Mills had taken two mud pumps.
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It was Ward’s opinion that Roll’n should have supplied two pumps for the Blaze Well operations. He opined that while a well can be drilled with only one pump, a second pump should be available if the first pump fails. Wards’ opinion was that two pumps were necessary for the Blaze operations.
Jacobsen opined that in drilling operations such as the Blaze drilling operations, it was practical to have two pumps so as to have a standby. However, based on his information Blaze had declined a second pump.
Ward said that on a typical job like the Blaze job, you wouldn’t expect the mud pump to breakdown at all or very little, it if were properly maintained.
Jacobsen opined that the two pumps provided by Roll’n were of adequate size to drill the required 152 mm well bore, as demonstrated in items 4 and 6 of the “Statement of Facts” in his report. The approximately 50 hours accumulated mechanical down time, including trip time is
4.25 percent of total rig time and is excessive. He explained that if the pump goes down, the pipe has to be tripped into the casing. However, approximately half of that pump down time was due to not having a second or stand-by pump on location, and having to wait for one to be delivered, serviced and rigged up. In comparison, the Ensign rig that completed the Well in April 2006, had approximately 13 hours of mechanical down time on the top drive during the drilling operations, representing 3.18 percent of time on the well.
As usual, there is much conflicting evidence and opinion on this issue. In the final analysis, I find that the mud pumps supplied were technically adequate in that they had the necessary specifications to do the job. In that regard, I prefer and accept the opinion of Jacobsen to that of Ward. I note in particular Jacobsen’s observation that Roll’n’s rate of penetration with its pumps was faster than the rate of penetration of either of Precision or Ensign.
However, having regard to the evidence of Cripps, Cawsey and Nadem, the evidence is overwhelming that, whatever the technical capacity of the pumps, they did not always function to capacity and they were subject to an abnormal number of breakdowns and repairs, over and above routine maintenance.
It was Mills’ decision initially not to take a second or standby pump in case the pumps supplied with the Rig went down. It was also Mills’ decision to continue on with the Rig pump in the face of Cripps’ express concerns to Mills in mid-November about the mud pump. It was also Mills’ decision to continue on with Rig 4 and its mud pump rather than release Roll’n from the job under the provisions of the MWS Contract. That may, however, be due to the lack of alternatives. In that regard, I note again that the industry was running at full capacity and that, despite inquiries made by Mills, he was not able to find another mud pump to rent.
In the final analysis however, Roll’n must be held responsible for the deficiencies in its mud pumps.
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Accepting Jacobsen’s opinion that the accumulated mechanical downtime, including trip time, amounts to 4.25 percent of the total Rig time and is excessive, and that Roll’n’s successor, Ensign’s mechanical downtime was 3.18 percent of total rig time (and presumably reasonable) the difference in rate is 1.07 percent. Taking 1.07 percent of Roll’n’s total rig time of 1,200.5 hours amounts to $6,936, which I find is the cost of rig time due to mechanical deficiencies with the mud pumps. This was rig time billed to Blaze. However, the combined affect of s. 4(2) and s. 9.10 of the MWS Contract and s. 3(f) of the Services Work Order is to limit Blaze’s recover to $0.
Blaze argues that Roll’n breached the MWS Contract by failing to provide personnel who were experienced in drilling sour gas wells, as this is one of the requirements for drilling critical sour gas wells, and this was part of the Contract because the Drilling Program was part of the MWS Contract, which included this requirement. I have concluded under Issue 3, that the Drilling Program was not incorporated into the MWS Contract.
Blaze also argues that Roll’n breached the MWS Contract by failing to provide personnel who were experienced in oil and gas drilling reentries generally.
The experience of each of the crew members that worked on Rig 4 is set out in Ex. 005, Tabs 075-110. A document entitled Summary of Employee Experience for Rig 4 Crew - October 26, 2005 - Dec. 2006 (Ex. 005-076) was prepared by Brad Rowbotham for the purposes of this litigation. Rowbotham testified that the Summary was prepared based on a review of the Roll’n personnel files which included the crew resumes and applications in Ex. 005-75-110.
Cripps testified that although the Roll’n Rig 4 crew may have been experienced for a service rig, they were “green” or inexperienced on a drilling rig. He said this was obvious from the fact that one of the drillers did not have a class one BOP ticket which was required for open hole drilling. He said that although the crew was willing they did not know how to do many of the things that he asked them to do. Cripps agreed that throughout October to December 2005, the oil and gas drilling and servicing business was extremely busy, which made it difficult to obtain the equipment and crews required. He agreed that as a result, experienced crew were spread amongst the whole drilling and service fleet.
Cawsey, said the Roll’n crews were hard working but they were not accustomed to drilling operations and they were having problems.
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Ward’s opinion was that the Roll’n crew was not qualified to conduct the operations at the Blaze Well. Ward opined that Roll’n failed to provide competent personnel required for the Blaze Well. Ward opined as follows in his expert report:
None of the rig managers had the experience for a critical sour drilling operation and did not have the required training certifications. This is in direct contravention of ERCB D36 and this lack of certification was one of the causes of the shut-down of operations on December 9, 2005.
Only one member of the rig crew had a valid 1st Line BOP certificate and none had the required experience for a critical sour drilling operation. This is in direct contravention of ERCB D36 and the lack of certification was another one of the causes of a shut-down of operations December 9, 2005.
Ward acknowledged that what he was assessing was experience on drilling rigs and that he had discounted all the crew members’ experience on service rigs including Anderson’s 21 years’ of experience, Yearwood’s 7 years’ experience, David’s 19 years’ experience.
Sutherland states in his Expert Report that Mills failed to conduct sufficient due diligence as part of the pre-planning for the Well. He opines that he was not forced to use the personnel or services, but rather chose to use them and it was his choice to continue to use them.
Jacobsen opined in his expert report that the crews provided by Roll’n were competent and the equipment provided was capable of successfully completing the contract. It was his opinion that the downhole conditions and problems encountered during drilling and in fishing stuck tools was not caused by Roll’n’s Rig 4, its crews or the manner in which it performed its services.
Jacobsen stated in his expert report and testified that all of the rig managers and drillers provided by Roll’n had experience in completions and workovers on sour gas wells and some experience on drilling rigs. He also stated that the rig managers, drillers and crew were not required to meet the minimum experience standards for Critical Sour Drilling IRP Volume 1 as the scope of work requiring the Critical Sour Level 4 Classification would not start until after Roll’n’s work was completed. Jacobsen testified that the Roll’n crews were quite experienced and that there were only one or two that had little to no experience, which was quite common in the industry as the majority of the training is done on the job. Jacobsen’s opinion is that they were at least of average experience and in some cases, better than average.
Jacobsen also based his opinion in his expert report on the fact that Rig 4 had no recordable injuries to it’s crews during 2005 and that Roll’n won the Well Service Class Safety Award for having the lowest TRIF in it group of CAODC well service companies.
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Once again the opinions of Jacobsen and Ward appear to be diametrically opposed. I do not accept Ward’s opinion that the crew provided by Roll’n was “incompetent” and that they (and their equipment) were not capable of completing the job. I do accept Cripps’ evidence that some of the crew was at least “green” in so far as working on a drilling rig is concerned. I also accept his evidence that at the time in question the industry was extremely busy which made it difficult to have experienced personnel. I accept Jacobsen’s evidence that the crew was not required to meet the minimum experience standards referred to above for the reasons he gave.
However, it is clear on the evidence that the crew did not have all the certificates required and that Roll’n appears to have been rather haphazard in checking whether or not the personnel it sent out as a crew had the necessary qualifications.
From October 28 to November 11, 2005 Roll’n prepared the wellsite, set up its equipment and conducted the abandonment operations. Blaze did not provide Roll’n with information on the downhole conditions and it was a difficult operation.
Between November 11 and 15, 2005, Roll’n Rig 4 and its crew assisted third party service providers to set a cement plug in the existing well bore. This was done to seal off the existing well bore so that sour gas could not flow to the surface.
It took from November 15, 2005 when the whipstock tools were run in the hole until November 19, 2005 to mill the window in the existing well casing. Ward agreed that the actual milling operations would take some time.
The Tower Sheet from November 17, 2005 indicates that the whipstock was set and the first window was being cut in the exiting well casing.
The Tower Sheet for November 18, 2005 indicates that drilling of the main hole had commenced from the window in the existing well casing into the formation outside the window.
Between November 19, 2005, when Roll’n finished drilling the window, and November 24, 2005, Roll’n drilled down from 3,507 to 3,672 metres.
Drilling did not proceed any further after November 24, 2005. On that date, the drill string became stuck in the hole, it was never retrieved, and the first re-entry was eventually abandoned. Between November 24 and December 1, 2005, a number of other events occurred which slowed the operations and resulted in further expense. The parties dispute the cause of the failure of the
first re-entry attempt and the cause of the slowed operations between November 24 and December 1, 2005. The responsibilities for the failure of the first re-entry attempt and the resulting costs incurred by Blaze during that period is discussed below.
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From December 2 to December 7, 2005, Roll’n Rig 4 and its crew were involved in the directional drilling operations. During this time the new well bore was drilled from a depth of 3,507 metres to a depth of 3,664 metres, approximately 157 metres.
The well operations were shut-down by the AEUB on December 9, 2005.
After rectifying the deficiencies cited by the AEUB and receiving the AEUB’s approval, the operations commenced again on December 14, 2005. The directional drillers cut a third window in the well casing above the previous two windows. When the window mill assembly was pulled from the casing, the mill shoe was gone.
On December 16, 2005 an attempt was made to fish and recover the mill shoe but it was unsuccessful. The drill pipe with fishing tools came off in the hole. Roll’n was released on December 17, 2005.
Between December 17 and 20, 2005 Roll’n disassembled the Rig and moved offsite on December 20, 2005.
The evidence indicates that directional drilling using a service rig rather than a drilling rig takes more time. There is no convincing evidence that the actual pace of the operations was unreasonable given the conditions encountered. In fact, Jacobsen noted in his expert report that Roll’n’s drilling rate of penetration was faster than that of Precision, the company that had originally drilled the well, and Ensign, the company that later finished the re-entry program in April 2006.
Blaze argues that the first re-entry attempt failed because of the incapacity and state of disrepair of the Roll’n mud pumps and the inexperience of the Roll’n crew.
Roll’n argues that first re-entry attempt failed because the hole was tight and unstable from the depth of 3,595 metres (the depth reached on November 20, 2005), to 3,676 metres (the depth reached on November 23, 2005) because of swelling caused by the absorption of the water-based drilling fluid and because Blaze failed to maintain the drilling fluid in a state where it could function as required, and that Blaze failed to notice this and correct it. It argues that if Blaze had used the invert mud stipulated for the re-entry in the Drilling Program or properly maintained the quality of the drilling fluid, the first re-entry attempt could have been successful.
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Between November 19, 2005, when Roll’n finished drilling the first window in the well casing, and November 24, 2005, Roll’n drilled down from 3,507 to 3,672 metres.
The directional drillers, Directional Plus, was responsible for drilling the hole in the well casing and drilling the new hole into the Nisku.
The first window was milled through the existing well casing on November 19, 2005, from 3501.2 metres to 3505.2.
On November 19, 2005, the drilling of the new leg into the Nisku commenced. The hole was drilled from a depth of approximately 3507 metres to a depth of 3585 metres.
On November 20, 2005, the hole had been drilled from a depth of 3585 to a depth of 3,595 metres. Progress stopped because the hole was tight. Horizon’s DOR for November 20, 2005, prepared by Cripps, states at 5:15 to 6:30 “pump first 3 singles out due to tight hole. POOH free to 3496 m.” Cripps explained that this indicates that the pipe was coming off the bottom of the hole and mud was being pumped down the tubing to circulate mud through the bottom of the hole to free the pipe so it could be pulled back.
It was Cripps’ opinion that the tight hole conditions were caused by the fact that the Roll’n mud pumps lacked the capacity to pump the volume and pressure required to circulate the drilling fluid through the well to clean it of drill cuttings and they were therefore settling down to the bottom of the well and trapping the drill string.
On November 21, 2005, the hole was drilled from a depth of 3,595 to 3,638 metres. Cripps left the Wellsite and Mills replaced him as the wellsite supervisor.
Cripps said that when he left on November 21, 2005, he had directed that the mud be changed from a water based mud to invert mud, an oil-based mud. Cripps had planned to circulate the hole with invert mud and continue drilling with it. He said that invert mud would prevent swelling in the formation around the drill pipe and was better at capturing and bringing the drill cuttings to the surface. Cripps said that when Mills relieved him at the Well site, he informed Mills that he had arranged for trucks to haul away the water being used to circulate the hole. He said that Mills did not comment on this. He said that after he left the site that day he received a telephone call from the mud man that was onsite saying that Mills had directed that KCL water, rather than invert mud, be used to drill the upper part of the hole. He agreed that he had responded that the mud man should tell Mills to call the fishermen because he was going to get stuck.
Mills acknowledged the Drilling Program directed that after drilling the window and drilling approximately two metres into the formation with water, the drilling fluid would be switched from water to invert mud. He agreed that there was no mud program attached to the Drilling Program. He also agreed that when he sent the Drilling Program to Roll’n he did not send
the mud program. He agreed that when he took over supervision of the Well from Cripps on November 21, 2001 he did not switch the drilling fluid from water to invert mud.
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On November 22, 2005, drilling progressed to a depth of 3638. The Blaze DOR (Ex. 003-022), prepared by Mills, indicates that Roll’n was prevented from drilling further that day because of problems with the directional tools. These tools were not owned or provided by Roll’n, but by the contractor conducting the directional drilling. Mills was now the onsite well supervisor and he agreed that the directional tools were not working and had to be brought to the surface and cleaned. This stopped drilling for the entire day, through no fault of Roll’n.
The November 23, 2005 the Blaze DOR (Ex. 003-022) prepared by Mills indicates that Roll’n drilled down from a depth of 3,638 to a depth of 3,676 metres. In the morning the Rig was back in the hole with new tools moving back down to the bottom of the hole. At 12:00 to 13:00 hours the rig encountered 16 metres of fill that had fallen back into the hole and this was cleaned out between 13:00 and 14:00 hours. The Rig had been out of the hole for a day on November 22, 2005 because of the repairs required to the directional tools. Mills said it was not uncommon for fill to fall back into the hole when the tools have been out for a day.
On November 24, 2005, the drilling had reached a depth of 3,672 metres (4 metres above the depth it had previously reached) when the pump broke down halting operations. It was down for 2 .5 hours. During that time, the pipe and tools remained where they were, outside the casing approximately 160 metres below the window.
Mills was onsite on November 24, 2005. He was relieved later that day by Edel, a wellsite consultant hired by Blaze.
Roll’n’s Pason Report for November 24, 2005 provides more information about what happened that day. It states that Roll’n tried to regain circulation on the Well from 7:30 to 19:00 hours. It states that from 19:00 to 21:00 hours, Roll’n rigged up a wireline, which Mills said was a line which runs inside the drill pipe. It states that at 21:00 hours, the Rig was in the hole with a primer cord. Mills explained that a primer cord is used to shoot off an explosion inside the pipe near the pipe joint to free the pipe. The drilling equipment and pipe were still stuck in the hole at midnight.
Throughout that day attempts were made to pull the pipe and tools out of the hole and back into the well casing. They were unsuccessful. Mills was the onsite well supervisor on November 24, 2005 and directed the operations. Over the next seven days, other third parties provided well supervisor services, however Mills was in charge. He ordered that various actions be taken to free the directional tools and pipe that had been stuck in the hole but nothing worked. Mills finally decided to cement the tools and pipe in the hole and start the re-entry operations again. Roll’n Rig 4 was used and its crew assisted in the operations to free the pipe from the hole and eventually to cement the tools and pipe in the hole. A number of other third party well service providers were also involved.
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Mills gave his account of what happened and why. He said he woke up that morning at 5:30 a.m. and realized there was no drilling going on. He saw activity at the pump house so he went there and was told by the Roll’n crew that the pump had stopped and they thought the problem was the pump heads, which they had tried to repair. That did not work and they continued to look for other problems with the pump. Mills said that he then went and woke up Anderson who did not know anything was wrong. He said Anderson went to talk to his crew. Mills said he asked Anderson to start the second pump, which had been brought to the site a few days earlier. Mills said that when the pump stopped, the Roll’n crew should have switched over to the second pump and pulled the drilling equipment and pipe back into the existing well casing. He said if the pump Is not working, no fluid is being circulated through the hole which means that the drill cuttings are not being pulled out of the hole and the hole can cave in, trapping the pipe and tools in the ground. He said that for this reason, a driller should never stop when the pipe and tools are in an open hole outside of the casing. He said the crew did not tell Anderson the pump had quit because they were afraid to. Mills said that after the second pump was started, they could not get circulation with it. They tried numerous things to free the tools and pipe in the open hole but nothing worked. They were stuck 150 metres in the open hole section of the Well.
Anderson was the rig manager on November 24. He testified that he was sleeping when the string and tools became stuck in the hole. He agreed that he had told Hogg and the rest of the crew not to start the second pump without talking to him. Anderson said he went to the drill floor and his crew, Cawsey, and Mills were there. Anderson said they were stuck in the hole could not circulate the drilling fluid down and up the hole to clean the hole of debris and drill cuttings
Hogg was the driller and Anderson said he was experienced. He said Hogg had worked his way up in the oilfield during that time from roughneck to driller. When asked if Hogg had open hole drilling experience, Anderson’s response was not clear.
Anderson testified that the Pason data shows him that early in the morning of November 24, drilling was progressing when the pump lost pressure. Anderson said prior to this the pump was pumping at a continuous .92 m3/minute. Anderson said that the Pason data shows that the driller immediately lifted the drill string, the bit came off the bottom and circulation was being regained. The Pason data recorded that the hook load (the pull on the rig due to the weight it is holding in the hole) increased almost immediately after the pump stopped. He said the hook load is lower when drilling is occurring because weight is put on the bit, decreasing the pull or hook load on the rig. The increase in the hook load indicates that the driller immediately pulled on the drill string, lifting the bit off the bottom. Anderson said the string weight recorded in the Pason data also indicates that the driller immediately attempted to lift the drill string. The Pason data shows that the string weight increased and that there was string overpull. Anderson said this indicates that the string became stuck in the hole at this point, increasing the string weight. The Pason indicates that from approximately 3:30 to 7:30 a.m., the driller attempted to work the pipe free moving it up and down trying to jar it loose.
On cross, it was also suggested that the Pason also indicates that the weight on the drill stayed at zero for several minutes and which means that the driller was not trying to pump back
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and forth, increasing and decreasing pressure on the drill bit in the hole, to free the drill string. It was suggested that since the drill bit was larger than the drill pipe it was attached to it, when the drill string was pulled back, the bit acted like a cork in the hole and instead of pumping it back and forth the driller did nothing. Anderson disagreed stating he would not have recommended he put the bit back in the hole until he had circulation, which required the pump to be repaired. When it was suggested that the second pump should have been started, Anderson said the driller thought he could quickly fix the pump being used but he could not and he was then stuck. Anderson agreed that the reason the pump was not turned on was because he had left instructions to wake him up so he could be there when the second pump was started as he was not sure how it would perform. The second pump was started as soon as Anderson arrived almost three hours after the drill string became stuck in the hole.
Anderson confirmed that the Tower Report shows that up until November 21, 2005, the drilling fluid being used was water based. Mud was then added on November 21, 22, 23, and the
24. Anderson’s opinion was that there was not enough mud in the drilling fluid when the pipe got stuck on November 24. He said that Roll’n did not have the expertise and it was not its role to check the viscosity of the mud. This is normally done by a third party who tests the fluid and makes recommendations to the well supervisor. Anderson said there was no mud man on location. Blaze was responsible for hiring a mud man.
Anderson said that the Pason data showing a “funnel viscosity” of 42 refers to the time it takes the drilling fluid to which mud has been added to drain through a funnel based on its thickness. He said this indicates that there was not much mud in the fluid, that it was “very close to water”
Cawsey explained that if the pump shuts down it stops the drill cuttings from being transported back up the hole with the circulating mud, and this can cause the cuttings to avalanche back down the hole and trap the tools and pipe in the hole. He said the greatest chance of this occurring is when directional drilling is being conducted between 45 and 65 degrees, which it was in this case. He said it appeared that this is what had happened. In his opinion, the crew should have been directed to stop circulating mud down the hole and to attempt to pump the drill bit back and forth to free it. Cawsey said he gave this advice to Mills but he disagreed and directed the crew to pump more mud down the hole at a higher pressure. In Cawsey’s opinion this packed the drill cuttings around the mud motor and made it impossible to move it.
Jacobsen gave extensive opinion in his expert report as to the cause of the November 24, 2005 failed reentry.
Jacobsen stated in his expert report that if the recommended invert mud had been used, it may have resulted in better wellbore stability and hole cleaning, which could have prevented the drill string from getting stuck in the hole on November 24, 2005. Jacobsen also notes that Blaze did not engage a mud engineer to analyse and make recommendations as to whether the KCL water that was used for the re-entry program was appropriate. He also notes that no detailed mud reports were recorded or documented and that it is therefore not possible to determine the ability
of the drilling fluid to perform the expected operations. His report also states that the efficiency of Roll’n’s drilling/rate of penetration indicates that the drilling fluid used was conducive to increased penetration but may not have been acceptable for successful cleaning of the drill hole.
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Jacobsen also opined in his report that Roll’n’s lack of success in fishing for the drilling string and side-tracking the well was not adversely affected by the manner in which Roll’n performed its services since the fishing and side-tracking operations were performed under the direction of Blaze. He concludes that, as a result of the foregoing, it is not possible to determine whether the KCL water was the appropriate drilling fluid for the re-entry. He concluded that the use of KCL water rather than invert mud contributed to the drill string getting stuck.
Jacobsen opined in his expert report that the crew could have attempted to pull into the casing after the pump shut down but that this would have been time consuming, given that they were working with a power swivel. He stated that this would have entailed laying down the power swivel, which would have taken at least one hour, or laying down one single of drill pipe at a time with the power swivel still rigged up. He opines that either process would have been time consuming and perhaps not possible due to the fact that they were already stuck in the hole. He concludes that a service rig trips pipe and BHA much slower than a drilling rig because of the foregoing factors. He stated that in comparison the Ensign drilling rig with a top drive allows for circulating drilling fluid through the drill string and up the well bore, if required, when tripping, and greatly reduces the risk of getting stuck with the drill string in open hole.
Jacobsen opined that successful drilling operations require the drilling fluid to be well maintained. He opined that well maintained drilling fluid will, in most cases, prevent the drill string from becoming stuck in the well bore. He explained that the primary function of drilling fluid is to stabilize the well bore, contain formation pressure, clean and lubricate the drill bit while drilling, and carry drill cuttings and solids out of the well bore to the surface. It was his opinion that the drilling fluid used during the Blaze re-entry was not well maintained, and therefore was not of sufficient quality, to perform its required functions. He came to this conclusion based on his review of the Pason reports and the Blaze DORs. There was no evidence in the reports that a detailed mud analysis had been performed or documented by any mud engineer during any of the Blaze re-entry operations. Jacobsen stated that while the rig crew maintains the drilling fluid, it does so under the direction and supervision of the Drilling Fluids Company’s Mud Engineer and the wellsite supervisor representing the owner. He concluded that during the Blaze re-entry operations, the wellsite supervisors did not provide adequate direction and supervision of the drilling fluids maintenance.
Jacobsen also noted in his expert report that a water-based drilling fluid had been used for the Blaze re-entry as opposed to the oil-based mud stipulated in the Drilling Program. Jacobsen’s opinion was that the re-entry could have been successfully completed using a water- based mud. This is what was used by Precision when the well was originally drilled and by Ensign when the well was successfully completed. However, he stated that in both cases, a daily detailed mud analysis was performed, recorded and reported by a trained Mud Engineer employed by the Drilling Fluids Company. This included daily checks of key drilling fluid properties including
density and viscosity, to ensure that the drilling fluid was well maintained. This was not done during the Blaze re-entry.
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Jacobsen opined in his expert report that if the recommended oil based drilling fluid had been used it was possible that better well bore stability and hole cleaning could have prevented the drilling string from getting stuck on November 24, 2005. Jacobsen testified that invert mud is more expensive but widely used because it adds lubrication and reduces pressure loss, which reduces the pump pressure and stabilizes the wellbore. He said that unlike water-based mud, oil-based or invert mud does not react with the formations being drilled and thereby prevents the well bore from sloughing in which prevents the drill string from getting stuck. Jacobsen also said that the volume of fluid going down the drill pipe to drive the mud motor turning the drill bit is much less than the volume of fluid being pushed back up the well bore carrying the drill cuttings out of the well. Therefore, the fluid being pushed back up the well bore moves at a much slower rate than the fluid inside the drill pipe. As a result, some of the drill cuttings will sink slightly as they move in the fluid up the well bore. This is referred to as “slip velocity”. He said the lower the density or viscosity of the drilling fluid the higher the slip velocity. Jacobsen’s opinion was that based on the viscosity of the fluid recorded as being used in the Blaze re-entry operations, the fluid had insufficient viscosity to clean the well bore and keep the drill string from getting stuck.
Jacobsen explained that one of the factors to be considered in deciding whether to use an oil-based mud is that oil-based mud will slow operations. He explained that this is due to the higher viscosity, or thickness, of the mud-based drilling fluid. The higher the viscosity the higher the capacity of the mud to capture and carry the drill cuttings out of the well. However higher viscosity mud is more dense which increases the hydrostatic pressure, thereby slowing the drilling time. Another consideration in determining whether to use invert mud is that it is more expensive to use.
Jacobsen’s expert report states that from a review of the Pason reports for November 24, 2005, “...at 0334 hours the drill string pulled tight immediately while pulling 3 m off the bottom at 3,678 m. after the pump was shut-down”. He notes that the pump was shut-down to replace a leaking head and liner. He notes that attempts to move the drill string 15 minutes later indicated that the drill string was stuck and that intermittent attempts to move the drill string from then until 0517 were unsuccessful. He also notes that circulation could not be regained when the pump was put back online at 0517 hours. Jacobsen states that Precision’s drilling records document that when the well was originally drilled, the drill string also became stuck for 1.5 hours in the similar zone.
Jacobsen testified that Pason report electronic drilling recorder log records various data including the penetration rate, pump pressure strokes, and pump output. He said it shows that just prior to the pump being shut-down for repairs, it was pumping at .9 m3/m. He said it also shows that as soon as the pump was shut down, the hook load immediately increased showing the drill string pulled tight immediately when an attempt was made to pull the drill string off the bottom but it was stuck. In his opinion, this indicates that the drill string was stuck at the time the pump was shut-down. He said the fact that the crew was unsuccessful in pulling up the drill string 15
minutes later also shows that it continued to be stuck. This is evidence that the pump shut-down and the length of the pump shut-down did not contribute to the drill string becoming stuck:
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Mills testified that on November 27, 2005, he decided to determine a value for the tools and other equipment that were stuck in the hole, which he calculated in an attempt to determine whether it was more cost efficient to try to recover the tools or abandon the hole and leave them in there. He said that he also discussed this with Blaze’s insurance company. He said that his notes indicate that the total cost of the tools stuck in the hole was approximately $370,000. He said his notes also indicate that it was costing $38,000 per day to attempt to get the tools and equipment out of the hole. Mills decided to leave the tools and equipment in the hole and plug it with cement.
On November 28, Mills directed that the pipe and directional tools that could not be freed were to be left in the hole and the hole was to be abandoned by plugging it with a cement plug.
Ward opined in his expert report as follows:
A review of the drilling records showed that when the pump went down at 0330 hrs, November 24, 2005 no attempt was made to trip the pipe prior to repairing the pump. Any reasonably experienced crew would have pulled the pipe out of the open hole until back inside the casing before attempting to repair the pump. This would have prevented the pipe from become stuck.
Sutherland also opined in his Expert Report under the heading Operator’s Due Diligence, item 8:
Item 8
The drilling program called for mudding the well up when the window had been milled and the directional tools are at the window. On November 24, 2005, at a depth of +- 3638mKB with no drilling mud in the hole, the drilling string became stuck. This was (3638mKB-3506mKB) 132 metres outside intermediate casing. Ed Mills was on location and signed the tour sheet. Had Ed Mills directed the drilling program to be followed using an invert drilling mud, I doubt that his string would have become stuck. He could have drilled to total depth and avoided an expensive fishing job and plug back operations.
Sutherland testified that the invert mud makes the side of the hole slick, which promotes the stability of the hole and prevents it from caving in on itself. If the hole caves in, it builds up around the drill bit preventing it being retracted. Sutherland testified that invert oil mud is the preferred fluid for directional drilling on highly deviated wells.
Sutherland opined in response to Ward’s opinion under item 3, that Mills was ultimately responsible for the fact that the drill string became stuck on November 24. He bases his opinion
on the fact that Mills was onsite and directed that the well be drilled with water contrary to the specifications in the Drilling Program.
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It might have been helpful to have Hogg’s evidence, the driller on shift on November 24, as to what he did or observed. Neither side called him as a witness. No explanation was given by anyone as to why he was not called. He was examined for discovery by Blaze and some of his evidence was read-in by Blaze as being part of the information of Roll’n. However, the read-in did not deal with getting stuck. Presumably, if he had given evidence at discovery which supported Blaze’s position, it would have been read-in. In the circumstances, and having regard to the law discussed earlier in these reasons, I do not draw an adverse inference against any party for not calling Hogg as a witness.
I accept Jacobsen’s and Sutherland’s opinions on this issue. The weight of the evidence satisfies me that the primary reason the drill string and tools became stuck in the hole was because Mills had decided to use KCL water drilling fluid rather the invert mud specified in the Program, and which Cripps intended to be used and indeed had made arrangements to use, before he was replaced by Mills. Another contributing factor or reason was the mud content of the drilling fluid Mills was using and the fact that Mills was not using a mud engineer to monitor the mud content.
While there has been much evidence as to the capacity of the mud pumps, I accept the evidence of Anderson and the Pason Report, that immediately before the mud pump failed, it was pumping at a continuous .92 m3/m, which was within the range required for this task.
I find that Hogg erred in failing to quickly start up the second pump but in my view, no harm or damages flow from that given the balance of my findings on this issue.
Criticisms made that Roll’n was negligent in not pulling back into the well casing are not valid. As Jacobsen points out in his evidence, it would take considerable time to do this with a power swivel and besides, it would be ineffective if they were already stuck in the hole.
This raises the issue of when the drill string and tools became stuck in the hole - at or before the pump went down or sometime thereafter when circulation was lost.
I prefer the opinion of Jacobsen whose opinion, based on the Pason data, was that the drill string was stuck at the time the pump was shut-down and was still stuck 15 minutes later.
Therefore, I conclude that Roll’n was not responsible for getting stuck in the hole or for the loss of the tools.
During the operations to free the directional tools and pipe from the hole, the Rig floor was damaged. The remainder of November 25, 2005 was spent repairing the Rig floor.
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Blaze alleges that the fact that the jarring tools caught the edge of the Rig floor and damaged it was because of the lack of experience and carelessness of the Roll’n crew.
Roll’n argues that it had performed many operations in which BHA tools including jarring tools had been pulled out of the hole and had done so without incident. It argues that the reason the jarring tools caught on the Rig floor was because the Rig had sunk over the hole. It argues that this was because of the condition of the leasehold, which it tried to reinforce when it arrived at the site and because the jarring operations conducted during the abandonment operations had pulled and pushed the Rig back and forth wearing a crevice under the Rig.
Anderson said that on November 25, they also put a jar tool down the hole with a hydraulic piston on it, with the object of stretching the piston so it snaps the drill string with tremendous force to attempt to free the pipe. When the jarring tools came out of the hole they hooked the Rig floor, which was leaning into the hole, and bent the floor. Anderson said he had spoken to Mills about the fact that the Rig was sagging and leaning into the hole. This had occurred because the Rig was moving back and forth when they were attempting to pull pipe out of the hole and it had created a crevice at the wellhead. Anderson said that Mills had taken pictures of it and had been aware of it for some time.
On cross, it was suggested to Anderson that the reason the jar tool caught on the Rig floor and damaged it when it was coming out of the hole is because the driller did not know where the pipe was connected in the hole because he had not accurately keep track of how much pipe was down the hole. It was suggested that as a result, the crew did not know where the pipe would loosen and caused the jars on the end of the drill pipe to unexpectedly come out of the hole and catch on the Rig floor, when the pipe did loosen. It was also suggested the because the driller’s pad was so far below the Rig floor, he could not see what was happening on the Rig floor which caused the jar tool to catch the floor. Anderson disagreed saying that when the string shot is shot off in the hole to put a reverse torque on the drill pipe and free it, the weight on the string lessens causing the tools on the drill pipe coming up to shoot out of the hole. When it was suggested that Roll’n should have been more careful in these circumstances, Anderson said they were. Anderson said the reason the jars hit the floor was because the Rig was leaning which caused the Rig floor to be in the way of tools coming out of the hole.
Anderson said that on November 26, they waited on a welder to come and repair the Rig floor and made up tools to fish tools out of the hole left behind on November 24.
Barker explained how the jars had damaged the Rig floor. He said that the ground had started to thaw as a result of the steam heaters being used on the wellhead which caused the Rig to start to settle back. This caused more weight to be placed on the line, causing more weight to be placed on the derrick which caused the Rig to tip back and the Rig floor to tilt back. The jar tool has a lip on it and when it came out of the hole it caught the edge of the leaning Rig floor causing
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it to buckle backwards. In addition, Barker said that Roll’n was not able to put down all the mats underneath the Rig that would normally keep it level and secure because pipe was sticking out of the ground around the wellsite. This contributed to the back of the Rig settling and titling and exacerbating the jarring effect.
Jacobsen stated in his expert report that the Rig was leaning badly on November 26. It states that his review of the Precision drilling records showed that when the original well was drilled the Rig had to be levelled shortly after it was moved onsite because it was sinking on the same location. The jars were part of the BHA. Jacobsen said when you are pulling the BHA up and the Rig is leaning, the BHA will swing like a pendulum making it difficult to control. He said it was not surprising that the jars had hooked the Rig floor in these circumstances. His expert report states that it is the responsibility of the operation/prime contractor to have the location in a suitable condition to accept and support the service or drilling Rig.
Blaze’s DOR for that day records 8.5 hours of downtime. Edel was onsite as the well supervisor.
Cawsey agreed that the Rig was leaning badly.
From the evidence, I conclude that the reason the jars caught/hooked on the Rig floor was because the Rig was leaning badly at the time. This was obvious to both Mills and the Rig crew. Given the description about what was involved in the jarring procedures, it is difficult to see what the Roll’n crew could have done to prevent the risk of the jarring tool catching the lip of the Rig floor other than leveling the Rig. That would have taken time, which in the circumstances then pertaining, they did not have and in any event, that decision would be up to Blaze/Mills, not the Roll’n crew.
On November 28 and 29, 2005, after the tools and drill pipe were cemented in the hole, the Rig was disassembled and moved away from the well bore in order to allow the site around the well bore to be filled in and levelled. This also required that the BOP be disconnected. Once the site was levelled, the Rig mats were placed on the ground, the Rig was reassembled on the mats and the BOP and other equipment was reconnected.
Blaze alleges that this was due to Roll’n failure to properly level the site in the first place.
Roll’n alleges this was because the leasehold was in poor condition at the beginning of the operations and because of the action exerted on the Rig during the abandonment operations.
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Anderson testified that on November 29, the Rig was layed down by bringing the top section down and then moved off the mats in order to fill in the hole around the wellhead. This process required the BOP to be unhooked, power systems to be disconnected and moved, the doghouse and light plant to be moved. All this had to be taken apart so the Rig mats could be removed for the land beneath them to be filled in and levelled. Anderson said that when the Rig and its components were taken apart, the Roll’n crew colour coded and tagged everything so they would know how to put things back together again. He said that after the ground around the hole had been levelled, the Rig mats were then put back down and everything was put back together and put back in place. By November 30, 2005 they were operating again.
As noted above, Jacobsen’s expert report states that the Precision drilling records indicate that Precision also had to level its Rig during the drilling of the original well on the site. It was his opinion that it is the responsibility of the operation/prime contractor to “have the location in a suitable condition to accept and support the service or drilling Rig.
Roll’n knew the condition of the site when it arrived. It arranged with Blaze to bring gravel to fill holes on the site. Whatever the opinion is as to whose responsibility it is initially to level the site, I am satisfied based on common sense, that any Rig company is responsible for ensuring that the site where it is going to erect its Rig is satisfactory before doing so. Here, Roll’n erected its Rig and therefore, I assume it satisfied itself that the ground, levelling, etc. was satisfactory to do so. However, Blaze was also responsible, as Operator, for ensuring the lease on which the Well was located was properly prepared for the operations and must also bear responsibility for the Rig leaning. I also accept that conditions/forces exerted on the Rig after operations commenced were such as to cause the Rig to lean. I do not think this can be faulted to any party.
Blaze alleges that the inexperience of the crew and the incapacity of the Rig and its equipment caused the failure of the second re-entry attempt.
On November 28, 2005, after the Rig was reassembled and operational, the tools and equipment that could not be freed (the fish) were cemented in the hole, and a kickoff cement plug was set in the well bore above the fish. Between December 3 and December 9, 2005, sidetrack operations were ongoing in an attempt to drill around the tools that had been cemented in the hole, and start a new leg into the Nisku. Mills was either onsite supervising these operations or was directing the wellsite supervisors onsite. Anderson was the Rig manager between December 1 and 5, 2005, when he left the Rig and was replaced by Terry David.
On November 28, 2005, BJ Services was retained to pour the kickoff cement plug. This involved calculating the amount of cement necessary and pouring the cement into the hole to isolate the first leg of the re-entry operations where the tools were.
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Mills directed that the drill pipe and the BHA attached to the bottom of the drill pipe be left in the hole rather than being removed prior to the cementing operation. Mills directed BJ Services to pour the cement required for the kickoff cement plug through the BHA and the drill pipe. Mills agreed, that as a result, cement got caught in the BHA and the drill pipe left in the hole. In addition, not all of the cement made it to the bottom of the hole and some was left in the pipe and the BHA.
Cawsey said he told Mills and Edel that he was concerned about pouring cement through the BHA but they directed it be done.
Drilling commenced on December 1, 2005. When the drill string was pulled out of the hole, the BHA and approximately 51 joints of drill pipe were filled with cement. Mills acknowledged that the cement had to be removed from the drill pipe and BHA. Anderson testified that as a result, the operations were shut-down while they waited for more pipe joints and for a new BHA to be assembled.
Mills agreed that he made the decision not to add more cement to the cement plug that had been put in the hole by BJ Services. He also acknowledged that he made this decision with the knowledge that approximately 51 joints of pipe and the BHA had been pulled out of the hole with cement in them and this indicated that all of the cement which BJ Services calculated to be used to plug the hole had not made it to the bottom of the hole.
Jacobsen opined that the pumping and setting of the cement plug was done under the direction and supervision of the wellsite supervisor and resulted in the joints of drill pipe being plugged with cement. He also notes that on December 2, 2005, when the well bore was re-entered to start the sidetracking, the cement plug was not felt which he said indicates that there was not a complete kickoff plug down in the well bore.
Between December 3 through December 9, 2005, sidetrack operations were ongoing in an attempt to drill around the fish, by time drilling.
Anderson described time drilling as “building a curve” to get out from the casing and start a new leg. He testified that time drilling is very slow and that the curve has to be far away from the casing so the casing doesn’t interfere with the magnetic tools on the end of the drill bit used by the directional driller to get the drilling turned in the target direction. Mills testified that time drilling is a manner of drilling used to start a hole in a hard surface.
The drilling was slow and difficult because of the complexity of the drilling and the hard surface in which the drilling was occurring. The Blaze DOR for those dates indicates that on each day the “...ledge broke off” and that each time this happened, the drill was pulled back up to a
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slightly higher depth and time drilling commenced again. Mills explained that the drilling tools were leaning on a ledge and drilling out on an angle, that this put too much pressure on the ledge causing it to break. When this happened the drilling had to be commenced again. The ledge broke and the drilling started anew on December 3, 4, and 5, 2005.
Cawsey, the directional driller said at this point they did not know where the cement plug actually was. He said they were drilling at an extremely high dog leg, meaning that the curvature in the hole was almost getting dangerous.
The directional drilling continued on December 3 through 9, 2005. The Blaze DOR for December 7, 2005 “attempt to drill from 3663 m - 3664 m. not enough fluid at bit pulling tight hole”. Mills admitted that this was about the same depth and near the same area where fill was encountered on November 23 and where the bit got stuck on November 24, 2005.
Jacobsen opined at p. 12 of his expert report:
In summary, the fishing and attempt to side track the well did not go well. This unsuccessful operation was not caused by any adverse actions or negligence by Roll’n and it’s crews. The entire procedure was performed under the direction and supervision of Blaze.
I accept Jacobsen’s opinion. I see no basis for finding that the loss of the second re-entry attempt was due to any failures on the part of Roll’n. The entire operation was directed by Mills, through a third party directional driller, Cawsey, using Roll’n’s equipment and crew (with which and whom Mills was well familiar).
As previously discussed at some length in these reasons, the AEUB shut-down the Blaze Well operations on December 9, 2005. Callicott, the AEUB inspector, observed several AEUB violations and issued a “Major Level 2 Enforcement Action” for breach of AEUB Directive 36. He directed that work be stopped until the deficiencies were corrected.
The Well operations were shut down from December 9, 2005 to December 12, 2005.
On December 10, 2005, the AEUB wrote a letter to Blaze citing Blaze’s unsatisfactory drilling operations at the Well and asking Blaze to provide explanations as to why AEUB directives were not addressed in Blaze’s go forward plan: see Ex. 003-031. The letter cited the following infractions:
The choke manifold does not conform to the required configuration for the class of well being drilled. There was not a choke in place (Directive 36, Section 2.2.2.1).
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The kill system does not meet the minimum design requirements for the class of well being drilled. There was only one kill line in place and its size was not adequate (Directive 36, Section 3.3.1).
The accumulator system failed. The accumulator pressure dropped below 8400 kpa after the function test of all required BOP components with the recharge pump off (Directive 36, Section 6.1.1.).
The low and high pressure testing was not conducted on the lower kelly cock and the inside BOP (Directive 36, Section 7.2.1).
The driller does not possess a valid First-Line Supervisor’s Blowout Prevention Certificate (Directive 36, Section 10.2.1.1).
The rig manager does not possess a valid Second-Line Supervisor’s Well Control Certificate (Directive 36, Section 10.2.2.1).
The cause of the AEUB shut-down was the deficiencies noted by Callicott when he inspected the Wellsite on December 9, 2005 and set out in Sommer’s letter of December 10, 2005 (Ex. 003-030). The responsibility for those deficiencies is mixed.
Having regard to the opinion of Ward and Jacobsen, I conclude that Roll’n was not responsible for the deficiencies described as 1, 2, and 4.
The accumulator system failure (deficiency 3) was Roll’n’s responsibility. However, I accept Mills’ explanation/response to the AEUB as well as Jacobsen’s opinion on it. The accumulator had been functioning fine but a valve failed during the test.
Deficiencies 5 and 6 - the BOP certificates - are a mixed responsibility. Roll’n knew, according to Rowbotham’s and Anderson’s evidence that Guide 36 applied so that when a service Rig was drilling more than 50 metres outside the well casing, first and second-line BOP tickets were required. It is difficult, if not impossible, to reconcile the conflicting evidence on this issue. In the end, I conclude that Mills (and thus Blaze) knew or (from the Drilling Program) ought to have known that Guide 36 applied. Whatever the proper interpretation of when Guide 36 applied, in the final analysis it was the AEUB’s decision that mattered and resulted in its finding of an infraction - two of the six that resulted in the shut-down.
I cannot determine from the evidence whether any one of the six infractions would, alone, have resulted in the shut-down. In the circumstances, therefore, I would apportion the cause of the AEUB shut-down equally between Blaze and Roll’n.
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In the circumstance, I do not accept Roll’n’s argument that it was responsible for only one day of the shutdown.
On December 12, 2005, Roll’n set another bridge plug in the existing well bore at about 3,480 metres and then ran a second whipstock down the hole and milled another window in the existing well casing. Later that day the AEUB inspected the operations and gave Blaze permission to proceed with the re-entry. The Blaze DOR states that Sinclair was the well supervisor.
Between December 13 and December 17, 2005 the re-entry operations commenced once again but further difficulties were encountered.
On December 14, 2005, the Rig was back in the hole and operations were being conducted to mill another hole in the well casing to commence the third re-entry. When the pipe came out of the hole, there was no mill shoe, the tool used to mill the window in the casing, on the end of it.
Blaze’s argues that Roll’n twisted off the drill stem because it had not properly torqued the pipe.
Roll’n argues that the pipe was loose because Mills had refused to pull it out of the hole and check to ensure the torque was tight after the reverse torque had been put on the pipe and electric shots fired in the pipe in an attempt to free it from the hole after it became stuck on November 24, 2005.
Cawsey said that they had milled another window. He said that at this point the heavy weight drill pipe that they were using “developed a wash” and circulated itself off, and they lost the mill shoe.
On December 15, 2005, Roll’n was waiting on a third party to come and fish out the mill tool.
On December 16, 2005, continued attempts were made to recover equipment that was left in the hole. Operations were unsuccessful. Mills stated that this was the day he decided Roll’n should be released from the operation and that on December 17, 2005 he directed Roll’n to remove the Rig from the leasehold.
Ward stated that in his opinion, it was prudent to shut down the operations at this point. Sufficient unsuccessful attempts had been made to complete the project, and it was prudent at this time to shut down the operation, back away and re-assess the situation.
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Mills did not produce diary notes for that day. His recollection was that he had a conversation with Sinclair at the site, who told Mills that some pipe had twisted off. Mills said the only way to twist pipe off is with torque. He said that the next step would have been to go back in the hole and attempt to fish out what was in the hole and that in any event they had to plug the hole. He said that he decided that their failure to progress on the Well was due to the disrepair of Rig 4 and the inexperience of the crew and as a result, that Roll’n should be released. He said at this point, the operation was back to step one, which was to set a plug and begin drilling a new hole.
Rig 4 and its associated equipment were disassembled and removed from the Wellsite between December 17 and December 20, 1005. It was taken to a rack site and was thereafter moved to and commenced operations on January 16, 2006.
The evidence does not satisfy me that Roll’n was responsible for the unsuccessful third reentry attempt. Cawsey does not say that. Anderson does not say that and offers another plausible reason for the loss. Sinclair never testified. If find that Roll’n’s conduct during the third re-entry attempt did not breach the terms of the MWS Contract.
Blaze argues that Roll’n failed to provide Blaze with daily reports as required under para.
5.1 of the MWS Contract. It alleges that the reports provided by Roll’n omitted critical parts of the daily operations. It also alleges that Roll’n in fact provided reports with its invoices that did not accurately reflect the daily activities at the site.
As stated earlier in these reasons, Roll’n prepared and provided Blaze with two daily reports: the Pason reports (Ex. 007) and the Tower Reports (Ex. 008).
Jacobsen opined that the Roll’n Tower Sheets and Daily Work Reports appeared to be completed daily and signed by the wellsite supervisors, including by Mills from November 20 to 26, 2005. He opined that a well service crew would have been less familiar with Pason reports as those are completed on drilling operations. They are to include and did not include information on pump data, mud data, bit data, directional data and BHA data. He opined that the wellsite supervisors would have been familiar with these reports and with the assistance of the wellsite supervisors and some training, the supervisors could have ensured that the Roll’n crew knew how to complete the Pason reports.
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I find no merit in Blaze’s claim that Roll’n breached the MWS Contract by failing to provide daily reports as required under the Contract or that they were inadequate. Clearly the well supervisor DORs and verbal reports were provided to Mills daily. The DORs, Pason Reports and Tower Report were signed, inter alia, by Blaze’s onsite representatives, including Mills from time to time. If the Tower Reports and Pason reports were inadequate for Blaze’s purposes, Blaze did not say so at the time, whereupon additional detail could have been added to the reporting. I appreciate that Blaze says it did not receive the Tower or Pason reports until it received Blaze’s invoices, which was after Roll’n had been released from the Well. However, Mills was at the Wellsite on a number of occasions and when he was there, he was responsible as wellsite supervisor to review and sign these reports. Further, there is evidence that the Pason reports could be accessed by Mills in his Calgary office and from a Calgary data hub.
And finally, Mills and Blaze were not novices. Mills had drilled many wells before this. He had to know what kind of DORs and other reports were common in the industry. If he was not satisfied with the reports he was receiving, he could have said so at the time, i.e. somewhere in the approximately six to seven weeks Roll’n was onsite. The fact he did not speaks volumes.
At its essence, breach of contract is simply the failure to perform a contractual obligation. The effect of a breach of contract may vary depending on how the breach (or the contractual term that is breached) is characterized, so that some breaches may justify the innocent party treating the contract as ended, while other breaches may give rise only to damages. Then there is the troublesome notion of “fundamental breach”, which is dealt with elsewhere in these reasons in connection with exclusion clauses (since that is the only context in which it rears its head). It generally does not matter whether a breach of contract is innocent or deliberate, except to the extent that some breaches may be specifically dealt with by the law (such as under the doctrine of impossibility or frustration): Fridman, Contract at 579-581. For the present purpose, the issue is simply whether the MWS Contract was breached at all.
Based on the foregoing, I find that the evidence shows that Blaze made key decisions during the operations which affected Roll’n’s operations. For example, Mills agreed or acquiesced in the use of a 10,000 psi BOP and in the continued use of it. Mills chose to use KCL water instead of invert mud stipulated in the Drilling Program. He initially chose to take out one pump instead of two. He decided to cement the tools in the hole. He chose not to have a mud engineer onsite so the mud could be properly monitored. He continued with the work despite the fact that he had formed the opinion early in November 2005 that there were problems with the Roll’n crew and equipment and in the face of s. 6.1 of the MWS Contract which allowed him to dismiss Roll’n at any time without liability. It is interesting to note that despite all of the allegations of breach of contract by
Blaze and criticisms of Roll’n, Mills offered Roll’n the chance to come back and perform the work in January or February 2006 if he could get the right terms and equipment from Roll’n.
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Based on my findings under the previous 19 grounds canvassed, I find that Roll’n breached the MWS Services in the following respects: a) failing to provide crew members with the required first and second-line BOP tickets; 2) by supplying mud pumps that had a excessive rate of mechanical breakdown; and 3) by contributing to the December 9 AEUB shut-down by failing to provide a driller with a first line BOP ticket and a rig manager with a second line BOP ticket.
Blaze further alleges, in the alternative, that if Roll’n had available the proper equipment and experienced personnel for the re-entry, Roll’n negligently, or alternatively, willfully and intentionally, assigned improper or inadequate equipment and unqualified or inexperienced personnel to the re-entry when Roll’n knew or ought to have known that such equipment and personnel were incapable of conducting the re-entry..
Blaze further alleges that Roll’n had the same or similar problems at other well reentries and that the provision of improper equipment and inexperienced and unqualified personnel to Blaze’s re-entry was part of a continuing course of conduct by Roll’n. Blaze alleges that prior to representing and contracting with Blaze, Roll’n knew or ought to have known that Roll’n was unable to complete Blaze’s re-entry.
Roll’n argues that it made no fraudulent representations and that it was not negligent, grossly negligent nor did it willfully or knowingly breach the MWS Contract. In the alternative, Roll’n argues that if it did, Blaze’s claims are precluded under the exclusion clauses in the MWS Contract. The issue of the exclusion clauses will be dealt with separately under Issue 7.
It is clearly accepted that in appropriate cases there may be concurrent liability in tort and contract: BG Checo International Ltd. v. British Columbia Hydro & Power Authority, [1993] 1
S.C.R. 12, 99 D.L.R. (4th) 577. The majority of the Supreme Court in BG Checo held that, even if a matter is dealt with head-on by the contract, a party can still sue in tort to avail itself of some advantage that may be available (such as the different measure of damages in tort, or a more generous limitation period). It should be noted, however, that this is a two-edged sword. If the subject matter of a tort is dealt with by the contract then the provisions of the contract - including exclusion clauses - may apply. Somewhat less straightforward is how to apply this general rule of concurrency in cases where the subject matter of the alleged tort may not be dealt with by the contract. If the tort is seen to be sufficiently independent from the contract, then the provisions of the contract - including any exclusion clauses - may not apply: see also Fridman, Contract at 706. I discuss exclusion clauses later in these reasons.
With respect to the tort of negligence, Professor Fridman has set out the elements required to establish a cause of action in negligence in his text Torts at 316-317:
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The tort of negligence has been “simply” defined as breach of a legal duty to take care which results in damage, undesired by the defendant, to the plaintiff. It is the function of the court to make a decision as to whether or not there has been breach of duty by measuring the action of the defendant against the court’s concept of how a reasonably prudent man would have acted in similar circumstances. That language makes explicit the various ingredients of liability for the tort of negligence. To establish such liability, it is necessary for the plaintiff to show: (I) that he was owed a duty of care by the defendant; (ii) that the defendant should have observed a particular standard of care in order to perform or fulfil that duty; (iii) that he broke his duty of care by failing to fulfil or observe the relevant standard of care; (iv) that such breach of duty caused damage or loss to the plaintiff; (v) that such damage was not too remote a consequence of the breach so as to render the defendant not liable for its occurrence.
Causation, in turn, is generally to be established using the “but for” test. That is, but for the defendant’s negligence, would the damages have occurred?: Hanke v. Resurfice Corp., 2007 SCC 7, [2007] 1 S.C.R. 333 at paras. 20 to 23, per McLachlin, C.J.C.
Contractual relationships are a recognized category of relationships in which the parties owe each other a duty of care.
With respect to the standard of care to be observed by Roll’n, Blaze appears to have suggested, though somewhat obliquely, that the standard of care is correlative to Roll’n’s contractual obligation to perform the work in a good workman-like manner. In the absence of any other submissions on the nature of the standard of care that Roll’n was to observe, and in the absence of submissions with respect to any independent tort that Roll’n may have committed, I accept that on the matters that are the subject of this action (matters related to the subject matter of the contract), Roll’n’s standard of care was to do no less and no more than what was required by the contract (including as limited by the exclusion clauses, discussed later in these reasons).
The third element of the negligence analysis relates to whether there has been a breach of the duty of care by failing to observe the required standard of care. As I have said above, in this case Blaze has not established that Roll’n owed it a duty to observe a standard of care any different than the duty it already owed under contract to perform the Contract according to its terms. I have made findings elsewhere in these reasons with respect to certain breaches of the contract by Roll’n. These breaches also constitute breaches of Roll’n duty of care in tort.
However, as noted above, to the extent that a particular tort is of a subject matter treated by a contract, and to the extent that the contract includes clauses that can be construed to exclude tort liability related to that subject matter, there will be no liability in tort for the breach. This is the
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case here. Clause 9.14 of the MWS Contract expressly provides that the allocation of risk and the limitation of liability set out in the various clauses of Article IX is intended to replace all other liability that might arise under “any ... theory of legal liability”, including tort. Therefore, to the extent that any of the exclusion clauses in Article IX apply to the specific breaches of the Contract found in this case, there is no liability in tort, notwithstanding any negligence on the part of Roll’n. I have dealt with the application of the specific exclusion clauses to the specific breaches elsewhere in these reasons where the breaches are addressed.
Blaze pleads further that Roll’n “with gross negligence, damaged the well”. Gross negligence has been defined as conduct lacking even that slight amount of care that even a careless person would take, and sometimes as involving “willful, wanton, or reckless misconduct”: Black’s Law Dictionary, 9th ed., sub verbo “gross negligence”, citing Prosser and Keeton on the Law of Torts §34, at 211-12 (W. Page Keeton ed., 5th ed. 1984). The notion of gross negligence was introduced into Canada by statutes (relating to driving, clearing of snow and ice by municipalities, and the provision of first aid) seeking to limit the liability of potential tortfeasors in these contexts to situations in which they were “grossly” negligent rather than just negligent: Fridman, Torts at
402. There is no universal agreement on the meaning of gross negligence, nor on whether gross negligence can be found in the absence of willful or wanton behaviour. It is clear, however, that to demonstrate gross negligence is a much higher bar than to show ordinary negligence. The courts have spoken of “very great negligence”, “such a degree of negligence as excludes the loosest degree of care”, and so forth. Perhaps the most-quoted definition in Canada comes from the motor vehicle context. In the decision of the Supreme Court in McCulloch v. Murray, [1942] S.C.R. 141, [1942] 2 D.L.R. 179, Duff C.J., while declining to define gross negligence, said that it could be found where there is “a very marked departure from the standards by which responsible and competent people ... habitually govern themselves”.
As noted, the contractual breaches in this case also constitute breaches of Roll’n is duty of care, and so are negligent. However, I cannot say on the evidence before me that the breaches rise to the high level of disregard described in the cases. I cannot say that Roll’n was grossly negligent.
Even if the breaches found in this case could be properly characterized as gross negligence, it is still possible that the exclusion clauses would protect Roll’n. In some cases exclusion clauses exclude liability only for ordinary negligence but expressly provide for liability for gross negligence. see for example Adeco Exploration Co. v. Hunt Oil Co. of Canada Inc., 2008 ABCA 214, 437 A.R. 33. The clauses in Article IX of the MWS Contract in this case do not make such a distinction, and the parties made no submissions on this point.
I conclude based on the foregoing and my findings regarding breach of contract, that Blaze’s claim in negligence is made out in so far as Roll’n breached the terms of the Contract as found under Issue 5.
However, Roll’n liability in negligence will depend upon whether the exclusion clauses in the MWS Contract exclude such liability, which is discussed under the following Issue 7.
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Roll’n argues that the alleged losses that Blaze claims are excluded under Article IX of the MWS Contract which sets out the allocation of certain of the risks, responsibilities and potential losses or liabilities associated with the operations and activities at the Wellsite between Roll’n, as Contractor, and Blaze, as Operator.
Roll’n argues that (a) under Article IX of the MWS Contract, Blaze assumed all of the risk and was solely liable for any loss, damage or destruction of (I) any equipment or tools once they entered the well bore; (ii) the Well, reservoir or any underground formation; (iii) the cost of repairing, re-drilling, or re-servicing a lost or damage Well, including the cost of fishing expeditions; regardless of the negligence or fault of Roll’n howsoever arising. Further, Roll’n argues that the parties specifically agreed that under no circumstances would Roll’n be liable to Blaze for any consequential damage or loss including without limitation indirect or consequential damages involving the loss of profit, loss of business or indirect economic loss.
Roll’n argues in relation to the allegation that Roll’n’s conduct was unconscionable, that the fact is that:
the Agreement entered into between the parties was not grossly unfair. The Agreement is a standard form contract widely used in the oil and gas industry which was agreed to after negotiations between CAODC, on the one hand, and the CAAPP, on the other hand. The form of contract has been recommended for use by the CAPP to parties like Blaze and by the CAODC to parties like Roll’n.
There was equal bargaining power in this transaction. Blaze, as an oil and gas company, has been in existence for ten years and is run by experienced personnel. The Agreement was negotiated and executed by Ed Mills, Vice-President and Director of Blaze;
Blaze has superior knowledge of the Well, the geology and the intended target formations;
Blaze was in charge of the Well and made all decisions in respect of the re-entry program;
Blaze enjoyed all of the profits by hydrocarbon production from the Well and properly accepted all of the down hole risks.
Roll’n argues that, in addition, s. 10.5 of the MWS Contract grants Roll’n the benefit of insurance obtained by Blaze against such losses.
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Roll’n further argues that Blaze contributed to its loss, or waived its Rights under the Contract, by authorizing Roll’n to proceed when it was aware of Roll’n’s alleged breach of contract.
Blaze argues that the exclusion clauses in the contract are invalid and unenforceable, because Roll’n intentionally misrepresented its capabilities to perform the Contract and/or performed the Contract in a grossly negligent manner.
[1000] Blaze argues that of the four exclusion clauses that Roll’n relies upon, only s. 9.3 and s. 9.4 expressly exclude liability for negligence.
[1001] Blaze argues that the exclusion clauses are invalid or unenforceable in the face of Roll’n’s fundamental breach of the Contract.
[1002] Blaze alleges that Buan and Rowbothom knowingly misrepresented that the Roll’n crew had the experience and qualifications necessary to perform operations on a critical sour gas well. In particular, Blaze argues that Roll’n knowingly [negligently] misrepresented that the operations were governed by AEUB Directive 37: Service Rig Inspection Manual (February 2006) s. 1070 and that as a result, the Roll’n crew only needed well service BOP tickets.
[1003] I have concluded under Issue 2 that Roll’n’s liability for any pre-contractual representations is not made out . I have also concluded under Issue 4 that Roll’n did not willfully or knowingly breach the relevant legislation.
[1004] Article IX of the MWS Contract, entitled Allocation of Risk and Liability, states:
Except as provided in Sections 9.2 and 9.5 and in sub-section 9.3(b)(I) in respect of a take-over by Operator pursuant to Article VII, Contractor shall at all times assume all of the risk of and be solely liable for any damage to, loss of or destruction of Contractor’s Surface Equipment, regardless of the negligence or other fault of Operator’s Group or howsoever arising and Contractor specifically releases Operator’s Group in regard to any claims that Contractor may otherwise have in regard thereto.
Operator shall at all times assume all of the risk of and be solely liable for any damage to, loss of, or destruction of Contractor’s Surface Equipment...
Operator shall at all times assume all of the risk of and be solely liable for:
any loss of, damage to or destruction of:
except as provided in Section 9.4, Contractor’s Down-hole Equipment;
Operator’s Equipment; and,
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the hole, reservoir or any underground formation, including, without limitation, any loss of, damage to or destruction of down-hole casing or tubulars and any loss of , damage to or destruction of occurring by reason of the failure of Operator’s Equipment during the performance of Well Services;
any loss, liability or damage to any party arising:
during a take-over by Operator pursuant to Article VII;
in whole or in part from the sue of the equipment, materials or supplies, provided by or to be provided by Operator; and,
by reason of any cessation of operations pursuant to Section 6.1;
and
the cost of gaining control of any blowout...
regardless of the negligence or other fault of Contractor’s Group or howsoever arising, and Operator shall defend and indemnify Contractor’s Group from and against any and all actions, claims, losses, costs, damages and expenses resulting therefrom and specifically releases Contractor’s Group from any claims Operator may otherwise make in regard thereto.
Operator shall at all times during a Services Agreement assume all of the risk of and be solely liable for the cost of repairing, re-drilling or reservicing a lost or damaged hole, including, without limitation, the cost of fishing operations, regardless of the negligence or other fault of Contractor’s Group or howsoever arising, and Operator specifically releases Contractor’s Group from any claims Operator may otherwise have in regard thereto; provided, however, that if, by reason of the negligent act or negligent omission or breach of Contractor during a Services Agreement, any downhole equipment is lost or ledged in a Well and Operator determines, in its sole discretion, to undertake fishing operations in order to dislodge or recover such down-hole equipment, Operator shall be relieved of liability to Contractor under the Services Agreement by the amount that is the lesser of:
the sum of :
(i) ...
...
...
and
the amount agreed to by the parties and specified in the applicable Services Work Order.
...
9.10 Should Contractor be in breach of Section 4.2, which breach causes a delay of Contractor’s services under a Service Agreement, then Contractor shall be liable to Operator for the amount, which is the lesser of:
the Contractor’s hour or day rate in effect for each hour or day of such period; and
the associated Costs subject to negotiation up to the maximum amount agreed to by the parties and specified in the applicable Services Work Order.
The amount agreed by the Operator and the Contractor in this Section 9.10 is the sole amount, which may be claimed by the Operator for the breach
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o f t h e C
o n t r a c t o r o f S
e c ti o n 4
. 2
.
...
For greater clarity, Contractor and Operator acknowledge and agree that:
the purpose of this Article IX is to allocate contractually between
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Contractor or Contractor’s Group and Operator or Operator’s Group certain of the risks, responsibilities, and potential losses or liabilities associated with the operations and activities at a Well-Site under a Services Agreement; and,
such allocation shall prevail in the place and stead of any other allocation of risks, responsibilities, or potential losses or liabilities that might be made on the basis of the negligence or other fault of either party or howsoever arising or any other theory of legal liability and notwithstanding the breach or alleged breach by either party of any provision of the Services Agreement not included in this Article IX.
Notwithstanding any other provisions of a Services Agreement, under no circumstances shall either party be liable to the other, by reasons of the Services Agreement or otherwise, for indirect or consequential damages suffered by the other, including, without limitation, indirect or consequential damages involving loss of profits, loss of business or indirect economic loss.
[1005] Whether or not an exclusion clause will operate to benefit a defendant contract breaker is largely a question of construction of the contract, with narrow exceptions made for unconscionability and public policy.
[1006] In the past there has been some confusion over whether there exists a doctrine of “fundamental breach”, such that certain sufficiently serious breaches of a contract might result in a party’s inability to rely on an exclusion clause in the contract. The Supreme Court has recently considered fundamental breach yet again, and has said, in no uncertain terms, “that the time has come to lay this doctrine to rest”: Tercon Contractors Ltd. v. British Columbia (Minister of Transportation & Highways), 2010 SCC 4, [2010] 1 S.C.R. 69 at para. 62. In the same paragraph Cromwell J., for the majority, adopted Binnie J.’s analysis of the law at paras. 82, 104-123.
[1007] In place of the old doctrine, the Court has set out a three-part approach to the applicability of exclusion clauses:
The present state of the law, in summary, requires a series of enquiries to be addressed when a plaintiff seeks to escape the effect of an exclusion clause or other contractual terms to which it had previously agreed.
The first issue, of course, is whether as a matter of interpretation the exclusion clause even applies to the circumstances established in evidence. This will depend on the Court’s assessment of the intention of the parties as expressed in the contract. If the exclusion clause does not apply, there is obviously no need to
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proceed further with this analysis. If the exclusion clause applies, the second issue is whether the exclusion clause was unconscionable at the time the contract was made, “as might arise from situations of unequal bargaining power between the parties” ([Syncrude Canada Ltd. v. Hunter Engineering Co., [1989] 1 S.C.R. 426], at p. 462). This second issue has to do with contract formation, not breach.
If the exclusion clause is held to be valid and applicable, the Court may undertake a third enquiry, namely whether the Court should nevertheless refuse to enforce the valid exclusion clause because of the existence of an overriding public policy, proof of which lies on the party seeking to avoid enforcement of the clause, that outweighs the very strong public interest in the enforcement of contracts.
[1008] Using this approach there is no need to classify breaches as “fundamental” or not.
[1009] With respect to the proper construction of the particular exclusion clauses in the case at bar, Roll’n points to the case of Brinkerhoff International Inc. v. Numac Energy Inc. (1997), 209
A.R. 195, 53 Alta. L.R. (3d) 4. In that case the Alberta Court of Appeal considered the language of a previous version of the CAODC drilling contract. Agreeing with the Chambers Judge with respect to the interpretation principles that apply (though not agreeing with her actual interpretation in that case), the Court noted that words must be given their plain, ordinary meaning unless to do so would result in an absurdity; that if there are two possible interpretations, the court is to select the one that does not lead to an absurd result, and that the contract must be read as a whole in order to seek its true meaning: Brinkerhoff at para. 11. This is consistent with the recent statements of the Supreme Court: Tercon at para. 64.
[1010] For guidance on the interpretation of exclusion clauses Blaze has directed me to the Ontario case of Falcon Lumber Ltd. v. Canada Wood Specialty Co. (1978), 23 O.R. (2d) 345, 95 D.L.R. (3d) 503 (H.C.J.). At para. 24, Griffiths, J. gave these principles of construction:
First, the clause must be strictly construed and the burden is on the party relying upon the exemption to prove that the particular loss caused to the other party was clearly within the scope of the exemption clause. Secondly, if there is an ambiguity in the meaning of the exemption clause and it is capable of more than one reasonable construction, then the rule of contra proferentem will apply and the exemption clause will be construed against the maker. Thirdly, the defendant will not generally be exempt from liability for the negligence of its servants unless express words are used or unless the only possible head of damage for which the defendant may be liable on the contract, lies in negligence.
[1011] Roll’n argues that Falcon Lumber, being a pre-Tercon case, should no longer be considered good law, as Tercon has set out a fundamentally different approach to exclusion clauses. Blaze points out that Falcon has been relied upon in at least one post-Tercon case, Dennis v. Ontario
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Lottery & Gaming Corp., 2010 ONSC 1332, 318 D.L.R. (4th) 110. Cullity J., in Dennis, specifically acknowledges Tercon, and applies it to determine the framework to follow, while applying Falcon for principles of interpretation to aid in the first step of the Tercon analysis. I can see nothing wrong with this approach. Furthermore, I do not agree that Tercon has created a fundamentally different approach to exclusion clauses. Rather, it has clarified the confusion and set out the current state of the law. It is a logical, incremental progression from the cases of the last two decades. It does not require discarding all of the prior jurisprudence on exclusion clauses, only that which is inconsistent with the current approach. The statements above from Falcon on the construction of exclusion clauses are not inconsistent with Tercon, and the Tercon Court itself interpreted an ambiguous exclusion clause contra proferentem.
[1012] On the other hand, as Roll’n points out, the rule of contra proferentem has little application here, since the form of contract used in this case was a standard form contract negotiated between industry participants. Blaze argues that, not being a member of the Canadian Association of Petroleum Producers (CAPP), it cannot be seen as having had anything to do with drafting the contract. They say that the rule should apply against Roll’n, being the party who put forth the contract. I do not think it can be said that either party in this case was the drafter of the document, and while Roll’n did supply the contract, supplying an industry-standard contract that was the product of much negotiation and refinement in the industry is not the same as the unilateral imposition of a contractual term on the other party. Blaze was familiar with this kind of contract and was free to negotiate its terms.
[1013] I agree with Roll’n’s submission regarding the application of the contra proferentum principle. The form of the contract used was not drafted by Roll’n in the usual sense. Rather, it was a form of contract negotiated by the industry for general use in the industry. It was in common use and Blaze was well-familiar with it. It cannot be said to have been drafted by Roll’n.
[1014] I also conclude for the purposes of the Tercon analysis, that the exclusion clauses in this Contract apply generally to the circumstances of this case. However, as to the specific application of specific exclusions, I prefer to deal with them during my analysis of the issues hereafter where they have been raised in answer to a particular claim by Blaze.
[1015] If an exclusion clause is found to apply to the circumstances, the next step is to consider whether the clause is unenforceable as an unconscionable bargain. The Alberta Court of Appeal set out four elements that must be proven to establish unconscionability in Cain v. Clarica Life Insurance Co., 2005 ABCA 437, 384 A.R. 11 at para. 32, citing Morrison v. Coast Finance Ltd., 54 W.W.R. 257, 55 D.L.R. (2d) 710 (B.C.C.A); see also Norberg v. Wynrib, [1992] 2 S.C.R. 226,
92 D.L.R. (4th) 449:
a grossly unfair and improvident transaction; and
victim’s lack of independent legal advice or other suitable advice; and
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overwhelming imbalance in bargaining power caused by victim’s ignorance of business, illiteracy, ignorance of the language of the bargain, blindness, deafness, illness, senility, or similar disability; and
other party’s knowingly taking advantage of this vulnerability.
[1016] With respect to overriding public policy, Binnie J. provides examples of situations in which an exclusion clause should not absolve a party of liability. He considers that cases of knowingly or recklessly selling toxic food products to the public would fall into that category. He also notes with approval the case of Plas-Tex Canada Ltd. v. Dow Chemical of Canada Ltd., 2004 ABCA 309, 357 A.R. 139. In that case the defendant Dow had knowingly sold defective plastic to a customer who used it to make natural gas pipelines. Rather that disclosing its knowledge of the defect to the buyer, Dow chose to rely upon limitation of liability clauses in the sales contracts. In the face of significant property damage and risk to human life, the Alberta Court of Appeal refused to give effect to the exclusion clauses, stating that “a party to a contract will not be permitted to engage in unconscionable conduct secure in the knowledge that no liability can be imposed upon it because of an exclusionary clause.”: Plas-Tex at para. 53. Binnie notes that in this kind of case, “[t]he public policy that favours freedom of contract [is] outweighed by the public policy that seeks to curb its abuse.”: Tercon at para. 119.
[1017] Though Binnie says at para. 120 that “[c]onduct approaching serious criminality or egregious fraud are but examples of well-accepted and ‘substantially incontestable’ considerations of public policy that may override the countervailing public policy that favours freedom of contract”, he does not provide any other examples.
[1018] The first question I must consider is whether the exclusion clauses in the MWS Contract even apply to the present circumstances. At the outset I note that the exclusion clauses in this Contract are broad and apply generally to the circumstances of this case. In particular, I note that clause 9.3 of the MWS Contract assigns to Blaze the risk of any loss or damage to its equipment. The combination of clause 9.4 of the MWS Contract and clause 3(e) of the Services Work Order assigns to Blaze all risk and liability for costs for repairing, etc., a lost or damaged hole, including the cost of fishing operations, regardless of the negligence or other fault of Roll’n or howsoever arising. Similarly, the combined operation of clause 9.10 of the MWS Contract and clause 3(f) of the Services Work Order is to exclude all of Roll’n’s potential liability for delays caused by any failure on the part of Roll’n to maintain its equipment in good working order. Clause 9.14 makes it clear that to the extent that any clause in Article IX of the MWS Contract applies to the circumstances, it applies in respect of a negligence claim just as much as it applies to a claim for breach of contract. Finally, I note that clause 9.15 expressly excludes liability for lost profits and all other indirect or consequential damages.
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[1019] Clauses 9.11 and 9.12 do provide that each party will be liable to the other for damages arising from the negligence or willful acts or omissions of the other, but only where such negligence etc. is not otherwise provided for in Article IX, and, as noted, Article IX provides for a broad range of potential risks and losses.
[1020] As to the applicability of specific exclusions to the claims in this case, I prefer to deal with them during my analysis of the issues hereafter where they have been raised in answer to a particular claim by Blaze.
[1021] On the issue of unconscionability, applying the elements from Cain v. Clarica to this case, I do not find this Contract nor the clauses in it were unconscionable. Both parties were sophisticated participants in the oil patch. Both were quite familiar with the standard form CAODC/CAPP Master Well Services Contract. There was not an imbalance in their bargaining power and Blaze certainly cannot be described as a vulnerable party in this case.
[1022] Finally, given that the exclusion clauses here are applicable and not invalidated by unconscionability, I must consider whether there is any overriding public policy concern that compels me to refuse to enforce the clauses. In argument Blaze submitted that the operation of the exclusion clauses in this case is premised on compliance with the law, that the effect of
non-compliance with EUB regulations is to invalidate those clauses. They argue that the exclusion clauses should not be enforced as the goals of overriding public policy with respect to workers’ safety, public safety, and the environment outweigh the enforcement of the exclusionary clauses.
[1023] This case is not like Plas-Tex, in which Dow was found to have knowingly and deliberately withheld information at significant peril to life and property. I do not agree that technical
non-compliance with regulation of the sort in this case is one of those “substantially incontestable” considerations of public policy that justifies interference with freedom of contract. Apart from that, I consider the effect of the alleged non-compliance with the AEUB regulations elsewhere in these reasons.
[1024] Following the Tercon analysis, I find that the exclusion clauses in the MWS Contract apply generally to the facts of this case, that the exclusion clauses are not unconscionable, and that there is no overriding public policy that would justify my not giving effect to the contractual commitments of the parties. In the result, the exclusions in the Contract are enforceable.
[1025] Blaze argues that invoices submitted by Roll’n to Blaze include overcharges for downtime, double charges, charges for equipment that was not needed for the re-entry totalling $233,956.44;
and improperly give no credit for expenditures incurred by Blaze to lease equipment because of the Rig was not properly equipped and not capable of commencing the re-entry of $74,289.99.
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[1026] Roll’n counters that under Article III of the MWS Contract, Blaze agreed to pay Roll’n for the Equipment at the rate or rates specified in the price list which Roll’n had provided.
[1027] Roll’n issued the following six invoices to Blaze totalling $976,560.13. All but Invoice 001688 state that the terms are “net 30 days”.
[1028] Mills testified, and the Blaze date stamps on the invoices indicate, that Blaze received Roll’n Invoice I0007875 on November 17, 2005; Roll’n Invoice I0007951 on November 29, 2005; and Roll’n Invoice I0007996 on December 13, 2005. Mills also testified, and the Blaze date stamps on the invoices indicate, that Blaze received Roll’n Invoices 001688, I0008048, and I0008049 on December 30, 2005. see Ex. 006-133.
[1029] Darla Briem, Roll’n’s controller, testified as to Roll’n’s billing procedure and the process involved in preparing its invoices.
[1030] Briem had prepared an analysis of the downtime for which Roll’n did not charge: Ex. 003-
045. Looking at the invoices, she noted that Invoice I0007951 did not charge for 6 hours of downtime on November 12; that Invoice I0007996 did not charge for 21 ½ hours of downtime on November 18, for 8 ½ hours of downtime on November 19, and for 2 ½ hours downtime on November 24, 2005, all of which totalled no charge for 38.5 hours of downtime. Briem acknowledged that the calculation was based on a review of the invoices and the Tower sheets but was not based on first-hand knowledge of what occurred onsite.
[1031] Roll’n submits that since Blaze did not dispute the claims made by Roll’n on any of the invoices submitted within 30 days after having received the invoices, the invoices were due and owing 30 days after they were received by Blaze.
[1032] Blaze defends that it did dispute Roll’n’s invoiced charges. It further defends on the basis that Roll’n’s invoices contain improper charges for 291 hours of downtime amounting to
$216,275.36 and with additional overcharges amounted to $238,371.86: Ex. 006-134. It argues that subtracting the downtime and overcharges, Roll’n’s invoiced amount is reduced to
$521,912.91. It counterclaims for $2,908,338.85 and seeks to set-off any amounts owed to Roll’n as against the damages Roll’n caused Blaze. Blaze’s counterclaim will be addressed after it is determined what invoiced amounts are owing to Roll’n including whether it included improper charges in its invoices as alleged by Blaze’s in its Statement of Defence.
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[1033] Roll’n argues that it is entitled to payment for all charges invoiced under s. 3 of the Services Work Order attached to the MWS Contract, which states “[o]perator will pay compensation to Contractor for Well Services provided hereunder in accordance with the rates and terms set out in the attached Rate and Costs Schedule”: Ex. 001-005. The attached Rate and Costs Schedule sets out the contract rates for the Rig and crew, mobilization rates, supplies/service rates, boiler rates and camp rates: Ex. 001-006.
[1034] Blaze claims that a number of improper charges were included by Roll’n in its invoices which are summarized in Ex. 006-134. The validity of each of these claims is decided below.
[1035] Blaze submits that Roll’n improperly charged for generators Blaze argues that the Rig Inventory included a generator and a backup generator sufficient for Roll’n’s equipment, slips elevators and pick racks included, in the Rig Day rate.
[1036] Anderson said the extra generator charge was for extra generators that Cripps had brought to the Wellsite to power his own site shack, both of which were rented from other third parties and brought to the site by Cripps so he did not lose them by returning them and then not being able to rent them again due to the high activity in the industry.
[1037] I find the charge proper.
[1038] Blaze disputes various Roll’n Invoices amounts in Ex. 006-133 charged for crew subsistence totallying $6,600. Blaze argues the Rate and Costs Schedule (Ex. 001-006) states, under Contract Rates, that the crew subsistence rate is $120/man “only if not in camp” and that, in this case, Roll’n’s men were all in a camp, the Peco Inn, which was paid for by Blaze
[1039] Rowbotham testified that these subsistence charges were for the Rig managers who were not in camp at the Peco Inn. Rowbotham said that the charge for subsistence on each of the foregoing invoices was for the Rig manager who was not at the Peco Inn but was onsite. The charge was to compensate him for supplying his own food, bedding and other incidentals: T. 2130.
[1040] This evidence was not contradicted and I find that the charges for subsistence for crew subsistence was a proper charge.
[1041] Blaze disputes the Roll’n Invoice charges (Ex. 006-133) for lite plants totalling $6,625.
[1042] Brad Rowbotham’s testified that the foregoing charges for the lite plants are in accordance with the Rate and Cost Summary (Ex 001-006), which includes a separate rate of $125 per day for the light plant.
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[1043] Anderson testified that the light plants supplied and shown in the Roll’n Rig 4 Service Rig Inventory (Ex. 001-003) were the Rig generators. He said the light plant on Rig 4 was a large one and was capable of powering the Rig and its various components
[1044] This evidence was not contradicted and I find that this charge of $6,625 for the light plant was a proper charge.
[1045] Blaze disputes the Roll’n invoice 10007951 charge for pipe racks totalling $560.
[1046] The Rate and Cost Summary (Ex. 001-006) states that the rate is $35 per day for pipe racks and cat walks.
[1047] Rowbotham testified that there were two sets of pipe racks and catwalks on the job site and that this was a charge for the second set.
[1048] This evidence was not contradicted and I find that the charge for the second set of pipe racks and catwalk was a proper charge.
[1049] Blaze submits that Roll Invoice 10007951 (Ex. 006-133) improperly charges for a Rig manager vehicle 2 for 2 days at $125 per day totalling $250; and associated kilometres for 500 kilometre at 1.25 per kilometre for a total of $625; third crew vehicle for 2 days at $125 per day for a total of $250; associated kilometres for third crew vehicle of 500 kilometres at 1.25 per kilometre for a total of $625; fourth crew vehicle for one day at $12 per day for a total of $125; and associated kilometres for third crew vehicle of 250 kilometres at $1.25 per day for a total of
$312.50.
[1050] Blaze disputes the Roll’n Invoice 100088048 Invoice charges for a second Rig manager vehicle totaling $250.
[1051] Roll’n responds that these charges were for vehicles on location and include vehicles needed for crew changes. The second Rig manager vehicle and associated kilometres are charges for Rig manager crew changes. The charge is for the vehicle and kilometres for one Rig manager to leave the site and the other to come to the site. Similarly for the third and fourth crew vehicles. Besides the two crew vehicles required onsite to take the two crews back and forth to their lodgings another two vehicles are required to bring a new crew to the site and take the other crew offsite.
[1052] The per day and per kilometre costs were those stipulated on the Roll’n Rate and Cost Summary (Ex. 001-006)
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[1053] Anderson testified that the mileage charge for 350 kilometres on October 27 was for when he drove from Grande Prairie to the Blaze site. He said that the mileage charges for 100 kilometres on October 28 and 29, 2005 were not charges for kilometres he had driven but for the minimum charge for the Roll’n pickups that were on location.
[1054] I see nothing improper about these charges.
[1055] Blaze disputes the Roll’n I0008048 invoice for an additional Rig manager for two days at
$1,000 per day totalling $2,000.00.
[1056] The Rate and Cost Summary (Ex. 001-006) states that rate for an extra Rig manager is
$1,000 per day.
[1057] Rowbotham testified that this was the charge for Terry David who came in two days early and worked with Anderson to become familiar with the operations before Anderson left Roll’n’s employ. There were therefore two Rig managers onsite at one time for those two days.
[1058] This evidence was not contradicted and I find that this charge of $2,000 for the extra Rig manager for two days is a proper charge.
[1059] Blaze disputes Roll’n Invoice 1688 charge for an invoice (Ex. 003-043, # 122) paid by Roll’n to Mabbutt Metal Works described as miscellaneous welding to reinforce floor legs and build miscellaneous stairs totalling $2,140.00. Blaze disputes the Roll’n Invoice I0008048 charge for an invoice paid to Mabbutt Metal Works for a weight indicators of $534.
[1060] Roll’n responds that these charges were directly incurred by Roll’n for work on Rig 4 at the Well site. The charge for the metal work was the charge incurred and paid by Roll’n for the modifications made to the Rig to accommodate the BOP but also to modify the equipment to work at the location.
[1061] Blaze has not convinced me that these charges are improper.
[1062] Blaze submits Roll’n improperly charged for 291 hours of downtime, totalling
$216,275.35: Ex. Binder 6, Tab 134. Roll’n counters that it is entitled to payment for services
rendered during these hours under the MWS Contract s. 9.10 except for the 38.5 hours of down time recognized by it in Ex. 003, 045 and for which Roll’n did not charge Blaze.
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[1063] MWS Contract, s. 9.10 states:
Should the Contractor be in breach of Section 4.2 which breach causes a delay of Contractor’s services under a Service Agreement, the Contractor shall be liable to Operator for the amount, which is the lesser of:
the Contractor’s hour or day rate in effect for each hour or day of such period; and
the associated Costs subject to negotiation up to the maximum amount agreed to by the parties and specified in the applicable Services Work Order.
The amount agreed by the Operator and the Contractor in this Section 9.10 is the sole amount, which may be claimed by the Operator for the breach by the Contractor of Section 4.2.
[1064] Section 4.2 of the MWS Contract requires Contractor “...to maintain Contractor’s Equipment, including its well control equipment, in good operating condition at all times...”
[1065] Roll’n argues that it was not in breach of its duty to maintain its equipment in good operating condition during the hours it charged Blaze for downtime and was therefore entitled to payment for downtime. Blaze argues that s 9.10 only applies to damages caused to Blaze as a result of Roll’n’s failure to maintain equipment after properly maintained, working equipment was delivered to the Well. It argues that s. 9.10 does not entitle Roll’n to invoice Blaze for Roll’n’s for downtime even when Roll’n’s men and equipment were not working or for downtime required to repair equipment that Roll’n delivered to the site which was not properly maintained and in good operating condition when it was delivered to the site.
[1066] Cripps acknowledged in cross-examination that although he had concerns, he did not shutdown operations at the site and work continued throughout the time he was there. He stated that his concerns were recorded to determine who was responsible for paying expenses when there was downtime or repairs were being made. He also agreed that he had noted the following: “lost 7.00 hours on draw works repair” and “6 hrs downtime: split time & cost with oil company on the November 12, 2005 Tower sheet; “21.25 hours downtime due to pump” on the November 18, 2005 Tower sheet; and “8.5 hours down time due to pump” on the November 18, 2005 Tower sheet. He testified that he was not aware that Roll’n had not billed Blaze for any of the downtime on November 18 and 19 and only one hour of the seven hours downtime on November 12, 2005.
[1067] Mills testified that he had calculated the downtime for Rig 4 at 291 hours, which amounted to overcharges for Rig time by Roll’n of $216,275.36 and overcharges for other items of
$22,096.50, for a total of $238,371.86. First, he determined the average daily cost that Blaze paid Roll’n for all equipment and services by calculating the average of the hourly rates paid from November 1 to 10, 2005. He calculated the hourly rate for November 11, 2005 separately, as it was
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a statutory holiday, which resulted in a higher hourly rate. Exhibit 006-135 shows the basis of his calculations and his calculation of a $737.80 hourly rate for all days other than November 11, 2005, which he calculated to have an hourly rate of $1,011.71. Second, he examined the Tower sheets (Ex. 8) and CAODC reports (or pason data) provided by Roll’n for each day that it was at the Wellsite and itemized when Rig 4 was down due to what he deemed to be improper decisions made by the crew or faulty equipment. Based on this, he determined that Roll’n had overcharged for 291 hours of downtime. Ex. 006-134, p. 1-2 show his itemization and calculation of the amount of $216,275.36. Second, he determined items which he viewed as overcharges either because Roll’n had agreed to provide these items as part of the Rig 4 inventory or because Blaze had not agreed to pay for certain items. He did this by examining the Tower sheets (Ex. 8) to determine what items Roll’n had charged for and comparing that to the Roll’n Rate and Cost Summary (Ex. 001-006) setting out what Roll’n would provide and what Blaze would pay for it. Ex. 006-134, p. 3 shows his itemization and calculation of the amount of $22,096.50.
[1068] Based on a review of the Roll’n Tower Sheets, Rowbotham testified as to the downtime charges that Blaze claims in Ex. 006-134 as follows: The time for connecting a BOP is the same and doesn’t depend on the size of the BOP. Changing brake linkage, rollers and pins is basic maintenance that must be done on a regular basis. Rig up floor refers to time spent by the crew putting together the tools required to fish materials out of the hole. The crew had to wait for rented pipe elevators for drill pipe as the Rig elevators did not fit around drill pipe. The crew had to wait for third party services. The Rig was inspected because the pipe being pulled out of the hole had parted causing the Rig to experience shock waves. This is routine maintenance. The pump lines being thawed refer to the lines on the Roll’n annular. This did not stop the operations. The draw works was repaired because it was used to lift equipment out of the hole and affected by the jarring used to release the tubing in the hole and was routine maintenance required due to the nature of the operations. The floor is Rigged up on every job. The table slips were supplied by a third party since the drill pipe required different slips and Roll’n was waiting on the third party to supply the equipment. The gyro logging tool was supplied by a third party and Roll’n had to wait until it was supplied. The driller’s pad had to be raised, which was good procedure and was done when the stairs arrived. The HCR is a valve on the BOP stack owned by a third party and not caused by Roll’n equipment. The floor must be moved up to install equipment on the BOP required for the drilling operations and this was routine work. The floor legs had to be braced, v-door assembly, and floor stairs had to be moved up because the floor was moved up to accommodate the BOP height. The BOP had to be tarped so that it could be kept warm with steam. The Rig is leveled using hydraulic jacks to adjust it when the land on which it stands settles and that is routine. The power swivel was supplied by a third party and Roll’n was waiting for it to provide shorter static arms and the wash pipe was part of the power swivel. The November 21repair of the brakes on the Rig was a routine adjustment that would have been made and appears to have been done during a crew change safety meeting and was not downtime. Mills made a handwritten note on the Tower Sheet for that day. It is a standard procedure to slip and cut the drill string to insure that new drill line is continually worked into the system and that the drill string does not wear out. On November 25 and 26 the Rig floor was hooked because the Rig had settled and it was Blaze’s responsibility to have a level site therefore, this was not a valid claim for downtime. On November 27 the hydromatic had to be repaired. Rowbotham said this was Roll’n’s equipment but repair was likely
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needed due to the jarring the Rig had taken conducting the abandonment operations and if that were the case, Blaze should be liable. Rowbotham noted that this was not noted in the Tower Report. NTD: Claim depends upon finding about whether hydromatic affected by abandonment operations. The November 29 and 30 claim for tracing lines is not a downtime expense as this was part of reassembling the Rig, which needed to be done after the Rig had been leveled. NTD: This claim again depends upon whether Blaze or Roll’n responsible for ground caving under Rig. The December 3, 4, and 5 pump repairs were regular maintenance repairs for wear and tear. There was nothing marked on the Tower Sheet showing downtime for these repairs. The claim for downtime on December 6 to transfer fuel and bleed the system on the mud pump is not valid as the Tower sheet shows no downtime for that day. The December 7 claim for downtime to thaw the pump hose and install same is not accepted as the Tower sheet shows time drilling was proceeding, which requires a pump so there couldn’t have been downtime. The December 8 claim for downtime for pump repairs is not accepted as this was to repair packing which is a consumable and results from regular wear and tear. The December 9 claim for downtime for pump repairs is the continuing repair that started on December 8 and is not accepted for the same reasons. The December 9 claim for downtime to trip back into the casing and repair the hydromatic is not accepted on the basis that the wellsite supervisor, Sinclair, did not note any downtime related to this. The December 13 claim for downtime to change the brake liners is not accepted. Rowbotham said this was a repair due to normal wear and tear and that these heads are rubber and can fail within hours depending upon the drilling fluid being used. The December 13 claim for downtime to locate and replace power tong dies is not accepted as this was due to normal wear and tear.
These dyes were kept on the Rig. The December 15 claim for downtime when a third party was
laying down the drill pipe is not accepted as this was third party service required to lift drill pipe up to and down from the Rig derrick so it can used for drilling. The December 17 and 18 claim for downtime for crew time required to Rig out was not accepted. Rowbotham said that Roll’n did not charge Blaze as much as it could have to move the Rig. He said the operator is usually charged for the cost of moving the Rig back to the location it came from which was Grande Prairie. In this case, the Rig was moved to Edson which was much closer the Wellsite than Grande Prairie.
[1069] Rowbotham did not specifically address the December 9 to 11 claim for downtime of 1 + 12 + 24 + 24 but testified earlier that Roll’n was ready to commence work on December 10. As a result it appears they do not accept the claim for downtime on December 10 and 11 totalling 48 hours.
[1070] Rowbotham agreed Blaze had a claim for 1.25 hours of downtime on November 9, 2005 as a result of the altercation between the driller and Rig manager. Roll’n did not charge for 6 hours of downtime on November 12, 2005 to repair the drawworks (see Ex. 003-045) Rowbotham said that the draw works were not needed at this time, so downtime was not required but it appeared the Rig manager had agreed to it. The tower sheets show that Rig was down for 24 hours to repair the Pason sensor and Rowbotham wasn’t sure why as there was noting on the Tower report.
Rowbotham agreed that the repair of the pump brass locking on November 18 was downtime due to the crew cross-threading the brass nut on the pump but he said the downtime would not have been long if Blaze had rented a second backup pump. Rowbotham agreed and deducted 2.5 hours downtime on November 24, 2005 when the Roll’n pump quit based on Mill’s notation on the
Tower sheet for that day that the pump was down that long. see Ex. 003-045). Roll’n did not charge Blaze for December 19. Rowbotham said the crew finished Rigging out on December 18 and then came back and moved the Rig to Edson.
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[1071] Rowbotham also testified that Roll’n could have but did not charge Blaze to change the liners and pump packings after the job was completed, which would have cost between $3,000 and
$5,000. He also said that d Roll’n did not charge Blaze for the OPI 700 pump which would have normally been charged out at $700 per day.
[1072] Jacobsen opined that the following downtime was experienced by Roll’n due to the well location and equipment of third parties: a) from November 28 to November 30, 2005, approximately 40 hours of Rig time was lost due to the Rig 4 sinking on location; b) the power swivel was rented from Weatherford by Blaze and required approximately 20 hours for Rig up and repairs during November 15 and 16, 2005; c) from November 17 to December 13, 2005, approximately 48 hours of additional Rig time was required to test, trip to repair, or replace failed directional tools.
[1073] Jacobsen also provided the following opinions regarding the downtime experienced due to Rig repairs and modifications.
[1074] First he opined that the Rig trailer, mast and draw works were of adequate size and in acceptable condition to handle the depth of the well. The approximately 22.5 hours of accumulated downtime required to change brake pads, repair the hydromatic, drive change and brake linkage was 1.91 % of total Rig time and within acceptable industry averages.
[1075] Second, the two pumps provided by Roll’n were of adequate size to drill the required 152 mm well bore, as demonstrated in items 4 and 6 of the “Statement of Facts” in his report. The approximately 50 hours accumulated mechanical down time, including trip time is 4.25 % of total Rig time and is excessive. He explained that if the pump goes down, the pipe has to be tripped into the casing. However, approximately half of that pump down time was due to not having a second or stand-by pump on location, and having to wait for one to be delivered, serviced and Rigged up. In comparison, the Ensign Rig that completed the Well in April 2006, had approximately 13 hours of mechanical down time on the top drive during the drilling operations, representing 3.18 % of time on the well.
[1076] There is some merit to each side’s argument on this issue. Roll’n has recognized and did not charge for some of the downtime. Section 9.10 does limit the amount recoverable if there is a delay caused by a breach of s. 4(2). Here, however, Blaze’s argument is not that damages were caused by delay but rather for Roll’n’s claim to charge its rates while the Rig is down for repairs and modifications.
[1077] I accept Jacobsen’s opinion regarding the downtime as set out above. Having regard to that
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opinion, 50 hours of accumulate mechanical downtime was for pump repairs and half of that downtime was due to Blaze not having a second or standby pump onsite at the beginning. I would therefore hold that Roll’n was not entitled to bill Blaze for 25 hours of the downtime which amounts to $13,500.
[1078] As to the amount billed between the AEUB shut-down on December 9 and when drilling recommenced on December 13, I note that Roll’n’s position was that they were ready to recommence drilling on December 10, having rectified the deficiencies for which they accepted responsibility and therefore appear to maintain they were entitled to charge for December 10, 11 and 12. I do not accept that position.
[1079] I conclude that Roll’n and Blaze are equally responsible for the downtime caused by the AEUB shut-down. The total amount of the over-billing alleged by Blaze in Ex. 006-134 for December 9 for one hour, December 9 for 12 hours, December 10 for 24 hours, and December 11 or 24 hours, which equals 61 hours in total. Thus, Roll’n’s share of the cost of the shut-down is
30.5 hours which equals a Rig cost of $16,470.
[1080] The charges complained of are valid, except for downtime in the amount of $29,970. Thus the amount to which Roll’n is entitled on its claim is $946,590.15.
[1081] Roll’n claims interest on $976,560.13 at 18% per annum, pursuant to the terms of the MWS Contract, which is a per diem rate of $481.59.
[1082] Exhibit ‘A’ in the MWS Contract provides that interest is payable to Roll’n at the rate of 18 per cent per annum on all overdue accounts. What the contract doesn’t specify is a date when the interest is to commence running. It was left blank. This raises the issue of whether the parties addressed their minds to the date on which interest should begin to run and if so, what the appropriate date is on which interest should commence to run.
[1083] Roll’n argues that in reply to para. 8 of Blaze’s SD&CC, under section 8.3 of Article VIII, Blaze agreed that sums not paid to Roll’n would bear interest at the rate of 18% per annum from the date payment was due up to and including the date of payment: Roll’n Amended Reply and Statement of Defence, para. 7(d). It argues that the agreement respecting the payment of interest is set forth, inter alia, at s. 8.3 of the Well Service Contract and s. 3(d) of the Service Work Order.
[1084] Blaze argues that it disputed those claims and that since the parties did not agree when interest was to begin to accrue, no interest is payable under the MWS Contract.
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[1085] Section 8.2 and 8.3 of Article VIII of the Master Well Service Contract between Roll’n and Blaze provides for the payment of interest on overdue accounts.
If Operator disputes any invoice or any part of an invoice in good faith, Operator shall give Contractor written notice of the details of the dispute ("Dispute Notice") within thirty (30) days of receiving the invoice and Operator shall be entitled to withhold payment of the portion of the invoiced amount relating to the dispute. Operator shall make timely payment of any undisputed portion of the invoiced amount. Except for any claim that Operator may make as a result of an audit undertaken pursuant to Article XVIII, Operator expressly releases Contractor in respect of any claim not communicated to Contractor by Dispute Notice timely delivered and waives any claim it may have against Contractor in respect thereof.
Any sum not paid when due (including sums ultimately paid in respect of any dispute) shall bear interest at the rate specified in the applicable Services Work Order.
[1086] Section 3(d) of the Services Work Order provides that interest on overdue invoices is to be paid at 18 percent per annum but fails to specify when interest begins to run:
Any sum not paid within days after the date of receipt of the invoice shall bear interest at a rate of 18% per annum from such due date until paid.
[1087] Roll’n submits that given the s. 8.2 MWS Contract obligation on Blaze to make “timely payments(s)” on undisputed amounts, the Court should imply an obligation into s. 3(d) of the Services Work Order to pay interest on any sums not paid within 30 days after the date of receipt of the invoice. It argues that this accords with the industry practice. It points out that other service providers that worked on the Well invoiced Blaze on a “net 30 days” basis. It also points out that the contract between Blaze and Ensign, under which Ensign completed the Well, provided that Blaze would pay Ensign interest on any sums not paid “within 30 days” after the date of receipt of the Ensign’s invoice: Ex. Binder 006 -114 at s. 7.15(f).
[1088] Blaze argues that it provided Roll’n with a Dispute Note objecting to the payment of Roll’n’s invoices (Ex. 003-034) and did not agree to pay any of Roll’n’s charges without set-off. It further argues that the MSW Contract provided that interest would only begin to accrue on some date after the receipt of Roll’n’s invoices. As the parties never agreed as to when that date would be, they never agreed on the payment of interest.
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[1089] Mills testified that he received Roll’n’s invoices on December 19, 2005. After receiving them, he telephoned Rowbotham and told him that Blaze was not satisfied with how the operations had been conducted and this needed to be remedied. He said he told Rowbotham that matters could be remedied if Roll’n sent out a crew experienced in drilling critical sour gas wells and a pump capable of doing the job. Mills said they agreed to meet on January 12, 2006.
[1090] Mills testified that on December 19, 2005, he facsimiled a letter to Roll’n disputing invoice I0007875 dated November 10, 2005 which Mills testified was received, and which is date stamped as being received, by Blaze on November 17, 2005; invoice I0007951 dated November 25, 2005 which Mills testified was received, and which was date stamped as being received, by Blaze on November 29, 2005; and invoice I0007996 dated December 9, 2005 which Mills testified was received, and which is date stamped as being received, by Blaze on December 13, 2005: see letter at Ex. 003-034. Mills said he knew that under the MWS Contract, Blaze had a specified period in which to dispute invoices and that he believed that, except for Invoice I0007875 dated November 17, 2005, his December 19, 2005 letter was sent within that time period. The letter states that Blaze is “trying to better quantify its damages” and would provide further information when it was able to do so. It also confirms the planned January 12, 2006 meeting. Mills agreed that the time period within which disputes had to be made was within 30 days of receipt of the Roll’n invoice.
[1091] Mills agreed in cross-examination that his letter facsimiled to Roll’n on December 19, 2005 did not complain that Roll’n’s Rig 4 was dilapidated and unable to perform the work required.
[1092] On January 12, 2006, Mills and Rowbotham met to discuss the progression of the operations and attempted to come to a solution. Mills said he asked that Roll’n pick up the costs incurred by Blaze from the time that the first re-entry attempt was made on November 11, 2005 to the date when Rig 4 was released from the Wellsite on December 17, 2005. Mills said he offered to pay Roll’n for the work required to complete the operations with an experienced crew having the required BOP tickets and the proper pump. Mills said they also discussed using either Rig 4 or Rig 5 and Mills responded that they could use whatever Rig they said could do the job as long as the crew had the proper qualifications and experience and a proper pump was provided. Mills said Roll’n refused this offer and suggested instead that they be paid for the invoices and that they work off what was owing to Blaze by working at other sites or working at the Blaze site. There was no agreement and Roll’n never returned to the Wellsite.
[1093] Mills said in trying to come to an agreement about what would be done to rectify the matters of which Blaze was complaining, it suggested to Roll’n that it work for nothing to get back to the depth of 3,679 metres and that it work for free until it had worked the equivalent of
$500,000 worth of hour work after that. At that point Blaze would start paying Roll’n again and would also give it work on other projects. Roll’n declined that offer.
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[1094] Mele disagreed by offering Roll’n the chance to come back and finish the Blaze Well with men and equipment that could do the work, it must have believed that Roll’n had the men and equipment that could do the work. He acknowledged that Blaze’s offer was made on the condition that Roll’n would do the work at a substantial discount.
[1095] Roll’n relies on Beller Carreau Carreau Lucyshyn Inc. v. Cenalta Oilwell Servicing Ltd, 244 A.R. 349, 209 W.A.C. 349, wherein the Alberta Court of Appeal ruled that in a commercial relationship it was reasonable to imply that the parties intended interest to be paid on overdue accounts at a reasonable rate.
[1096] Blaze distinguishes the Beller Carreau decision on the basis that in that case there was a prior agreement respecting interest and the interest awarded was awarded under the Judgment Interest Act. Blaze argues that where parties have not agreed to the payment of interest under their contract, this court is required to limit any award of interest to that provided for under s. 2(1) of the Judgment Interest Act.
[1097] I find that Blaze’s letter facsimiled of December 19, 2005 is sufficient to constitute the dispute notice referred to in s. 3.2 of the MWS Contract. It was served in time to cover all the Roll’n invoices except Roll’n invoice #I0007875. That invoice was not disputed within the 30 days agreed to under s. 3.2.
[1098] The parties agreed under s. 8.2 that Blaze could withhold payment of the amount disputed in good faith. Blaze was obliged to make timely payment of amounts not in dispute. I am satisfied that Blaze disputed the other invoices in good faith.
[1099] Invoice I0007875 was for the sum of $69,508.27. As it was not disputed in time, Blaze should have made “timely payment” of the amount. I interpret “timely payment” to mean the time period specified in s. 8.1 which refers to payment within the period specified in the applicable Services Work Order, which does not specify a period for payment. Although s. 3(d) contemplates fixing a date after which any sum unpaid is to bear interest at 81 percent, the space for a date has been left blank. The invoice itself does not specify a date or time period for payment.
[1100] Obviously, the undisputed invoice should have been paid within some period of time. It cannot remain outstanding forever. In the absence of the parties having specified a time in their contractual documents, I would imply a “reasonable time” which I find to be 30 days after receipt of the invoice. I arrive at 30 days on the basis of extrapolations from Article 8.2. If, under that article, the Operator has 30 days to dispute an invoice, I infer that, absent disputing it, it should pay it within the same time frame.
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[1101] However, I do not accept Roll’n’s submissions that interest at 18 percent should run from 30 days after receipt of the invoice. While one can readily infer that the parties agreed that the invoice should be paid within a reasonable time, it does not follow that they agreed that interest at 18 percent would run from that time. The fact that no date was inserted in s. 3(d) of the Services Work Order is entirely consistent with Blaze not having agreed to pay interest at 18 percent and I so find. In the result, I find that there is no agreement between the parties to pay interest on any amounts owing. Any interest awarded must therefore be governed by the Judgment Interest Act,
R.S.A. 2000, c. J-1.
[1102] Blaze’s counterclaim seeks judgment for damages in the amount of $2,908,338.85, consisting of $261,153.40 in unnecessary costs paid by Blaze to Roll’n and other third parties up to November 11, 2005; $1,883,719.65 in unnecessary costs paid by Blaze to third parties after November 11, 2005; $350,988.80 paid by Roll’n to other third parties in getting a new Rig onsite and into position to commence drilling operations; $322,477.00 in lost revenue, and damages of
$90,000.00 for wrongful registration of builders’ liens. Blaze claims that these costs were unnecessary and resulted from Roll’n’s failure to provide the services it contracted to provide.
[1103] Roll’n argues that if Blaze suffered damages, which it denies, they did not result from any improper acts or conduct of Roll’n.
[1104] Roll’n argues, in the alternative, that if Blaze suffered any damages resulting from negligence or other fault of Roll’n, which it denies, then Blaze, under the terms of the MWS Contract, assumed all risk and sole liability for the loss or damages alleged and Roll’n is thereby relieved of liability to Blaze for the amounts claimed.
[1105] Roll’n argues in the further alternative, that Blaze’s claims for damages are exaggerated and excessive and Roll’n puts Blaze to the strict proof thereof.
[1106] Roll’n argues in the further alternative, that if Roll’n caused the losses and damages alleged, which it denies, Blaze failed to take reasonable steps to mitigate such losses and damages.
[1107] Biagio Mele, Blaze’s President, testified as to the damages claimed by Blaze. Mele had been President of Blaze since 1995. His was in charge of the Blaze corporate affairs including business development and reporting to corporation’s shareholders and board of directors. He said that Blaze had been in business for 15 years and had a good reputation with it service providers, the Crown and its shareholders. He said Blaze’s core business was in the Brazeau area where the Blaze Well was located and which included the Nisku formation.
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[1108] Blaze claims $261,153.40 paid by it to third parties from October 29, 2005 up to November 11, 2005 when Roll’n was conducting abandonment operations on the Well. The invoices for the third party costs paid during this period are contained in Ex. 9. Blaze argues that these expenses were paid to third parties to support Roll’n’s decision to install a 10,000 psi BOP as opposed to the 5,000 psi BOP specified in Blaze’s Drilling Program, including the rental costs for the BOP and the Rig modifications required to accommodate the larger BOP, none of which was required or approved by Blaze. It claims that these expenses were incurred as a result of Roll’n’s use of the 10,000 lb BOP which should not have been used. It claims that it received no benefit from these expenditures.
[1109] Mabbutt Metal Works invoiced Blaze $10,324.55 for the welding that had to be done to accommodate the larger 10,000 psi BOP, including rebuilding the v-door and refabricating the Rig floor on November 6, 2005: see Ex. 9, p. BEL005699. Blaze paid that invoice and claims that amount from Roll’n on the basis that this work would not have been done had Roll’n not wrongly required the use the 10,000 psi BOP.
[1110] Palomino Pipe Handler invoiced Blaze $30,120.50 for equipment and services provided to pick up and pull tubing out of the existing well bore in early November 2005 (Ex. 9, p.
BEL005725 - BEL005728). Blaze paid that invoice. Rig 4 was used assist in these operations. Mills testified that the large 10,000 psi BOP was on the Rig and in the way, which caused Palomino problems in laying the tubing down and therefore increased its costs. He claimed that since the 10,000 psi was not needed, and Roll’n and Horizon were responsible for it being there, half of Palomino’s invoice, not including GST, should be paid for by them, being $14,075: T. P. 617-618.
[1111] Circle T Service & Rental Ltd. invoiced Blaze $431,778.50 (see Ex. 9, p. BEL006092 to BEL006111) for the 10,000 psi BOP and related equipment which it rented or sold to Blaze. Blaze claims $143,892.27, which excludes GST, for the amount of this cost up to November 11, 2005.
This claim includes $200 and $648 for “2 7/8" EUE 90 degree conventional tubing elevator” on p. BEL006099 of the invoice; $315 and $999 for “2 7/8" MYT slip type tubing elevator”, and $235 and $756 for “2 7/8" du long rotary slips” on p. BEL006100 of the invoice; $460 and $1,620 for “(2) web wilson type ‘B’ rotary tongs “ on p. BEL006103 of the invoice, all of which should have been supplied with Rig 4 according to Mills.
[1112] As I have previously found, the decision to use a 10,000 psi BOP was taken by or with the consent of Mills. The additional expenses to accommodate the Rig were incurred not just because a 10,000 psi BOP was used. Rather, it was because the particular 10,000 psi BOP supplied was unusually large. It was the only one available at the time and it must be remembered that there were time constraints and the oil patch was extremely busy. The modifications and resulting expenses were incurred to accommodate this particular BOP to Rig 4. Further, as I have noted
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elsewhere, Mills was either onsite or had photographs sent to him of the BOP. With his experience, he had to appreciate that modifications to the Rig would be necessary. When the expenses came in for payment, he did not question or challenge them. Blaze paid them. In my opinion, Blaze’s attempt to claim those expenses back from Horizon and Roll’n must fail.
[1113] Blaze claims a further $1,883,719.65 paid by it to third parties from November 12, 2005 when Roll’n had drilled the window in the well casing and was commencing the re-entry operations on the Well to December 19, 2005 when Blaze released Roll’n from the MWS Contract. The invoices for the third party costs paid by Blaze during this period are contained in Ex. 10. Blaze argues that these expenses were paid to third parties to support Roll’n’s drilling operations. It argues that because Roll’n used an unqualified and inexperienced crew and inadequate equipment during this time period, in breach of its MWD Contract, it accomplished nothing, and as a result the third party costs incurred by Blaze during this period were of no benefit to it.
[1114] Mills explained how he arrived at the amount of is $280,749.19 claimed for payments to Directional Plus at front of Ex. 10. DP’s invoice [Ex. 10, p. BEL006327] adds in 17.4% of
$351,569 which was the amount of the tools DP lost down the hole on November 25, 2005 [see Ex. 10, p. BEL005217 - few pages past BEL006327 b/c not in order]. DP was repaid some of that cost by insurance but had to pay its deductible for that loss which was $61,524.58 [see Ex. 10, p. BEL005217]. It therefore added that to the invoice for services rendered on Ex. 10, p. BEL006327 which came to a total of $300,401.63. Blaze paid DP that amount. It claims that amount less the GST which is $280,749.19
[1115] Mills explained that the amount of $145,253.97 claimed for payments made by Blaze to Circle T after November 11, 2005 includes all amounts billed by Circle T in its invoice for that period: see Ex. 10, p. HBEL000324-HBEL000332. He stated that the circled items are charges by Circle T for equipment that Roll’n did not return or that needed to be repaired when returned and for which Roll’n was responsible under the contract with Circle T.
[1116] Roll’n submits that under the terms of the MWS Contract, it is not responsible for any amounts paid by Blaze to other service providers, which resulted from any deficiencies in Roll’n’s equipment. It argues that it complied with s. 4.2 of the MWS Contract, which states in part that: "Contractor agrees to maintain the Contractor’s Equipment, … in good operating condition at all times … ." It argues further that if it did breach it duty to maintain its equipment in good operating condition, s. 9.10 of the MWS Contract limits its liability.
[1117] Section 9.10 of the MWS Contract read in conjunction with s. 3(f) of the Services Work Order limits and excludes any resulting claim.
[1118] Section 3(f) of the Services Work Order specifies the amount as $0.00. Roll’n argues that since the parties agreed under s. 3(f) of the Services Work Order that Roll’n would be liable for
nothing, Blaze has no claim for these third party expenses.
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[1119] Blaze argues that its claim is not based on Roll’n’s failure to maintain its equipment. It further argues that s. 4.2 of the MWS Contract does not apply where the equipment that Roll’n brought to the site was in disrepair and poor working order when it arrived. Blaze argues that Roll’n cannot bill Blaze for the time it took to repair and put the equipment in good working order. Further, it argues that s. 4.2 should not be interpreted to allow Roll’n to bill Blaze for rental of inventory, including the rental of a 10,000 psi BOP, the welding and modifications that were required to accommodate the 10,000 psi BOP without a substructure, and all the services that were retained to support Roll’n’s drilling efforts, when the Drilling Program specified a 5,000 psi BOP and the MWS Contract inventory was supposed to include the 5,00 psi BOP, when the mud pumps supplied with Rig 4 were not in good repair or working order and did not have the capacity specified in Blaze’s Drilling Program, and when the Rig 4 crew did not have the qualifications or experience to operate Rig 4 in the circumstances.
[1120] Further, Blaze argues that while s. 9.10 and s. 4.2 do not expressly exclude negligence, they must be read in conjunction with s. 9.11 which provides that Roll’n is liable for all of Blaze’s losses, costs, damages and expenses that Blaze may suffer “as a result of the negligent or willful acts or negligence or willful omissions of [Roll’n] arising in connection with the work contemplated hereunder.” It argues that the s. 9.10 and s. 4.2 exclusions only apply to loss or damages arising from a delay in the re-entry due to Roll’n’s equipment breakdowns that do not result from its negligence.
[1121] I agree with Blaze’s point that this part of its claim is not founded upon Roll’n’s failure to maintain its equipment. If that were the basis of its claim, I would agree with Roll’n’s position that such a claim would be limited to $0 on the application of s. 9.10 of the MWS Contract and s. 3(f) of the Services Work Order. However, I do not agree with Blaze’s other arguments regarding the inapplicability of s. 4.2. First, the evidence falls far short of persuading me to accept Blaze’s assertion that Roll’n’s equipment was in disrepair and poor working order when brought to the Wellsite. Second, as I have previously held in these Reasons, the decision to use a 10,000 psi BOP was ultimately Blaze’s. to the same effect, are my earlier findings as to the mud pump and crew expertise.
[1122] I also agree with Blaze’s submission that the exclusion provided in s. 9.10 only applies to loss or damages which are caused by a delay in Roll’n’s performance of services due to its breach of s. 4.2 (i.e. failing to maintain its equipment in good operating condition). However, the evidence does not satisfy me that these costs were caused by the negligent or willful acts or omissions of Roll’n.
[1123] Blaze claims a further $350,988.80 paid by it to third parties after December 20, 2005 when Blaze terminated the MWS Contract with Roll’n, which were paid to locate another Rig, in
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this case the Ensign Rig, and to get the Rig moved onto the site and into a position to recommence the re-entry operations on the Well. Blaze claims that these are only the costs expended by it to get into the same position they were in on November 11, 2005, when they had drilled a window in the existing well casing and were commencing the re-entry operations. Blaze clarifies that these third party expenses do not include the cost for Ensign’s drilling operations. The invoices for the third party costs paid by Blaze during this time period are contained in Ex. 11.
[1124] Roll’n argues that Blaze assumed the risk and accepted liability for any additional charges related to the re-entry of the Well under the provisions of the MWS Contract.
[1125] Roll’n argues that as the Operator, Blaze was entitled to stop well services at any time. If it had, it was required to pay Roll’n for costs incurred to that point. Sections 6.1 and 6.2 of the Contract state:
Operator shall be entitled to stop Well Services being undertaken at a Well-Site and to terminate such Well Services at any time prior to the completion thereof.
If work is terminated on any Well-Site pursuant to Section 6.1 either prior to or after the commencement of Well Services at the Well-Site, Operator shall pay Contractor all expenses reasonably and necessarily incurred by Contractor prior to or by reasons of the premature stoppage of the work on such Well, including, without limitation, Contractor’s costs for goods manufactured or purchased specifically for the provision of Well Services at the Well-Site, which amounts shall be in addition to any amounts otherwise to be paid to the Contractor pursuant to Article VII.
[1126] Roll’n argues that if Blaze, as Operator, ceased operations, it was responsible for the resulting loss to any party under Section 9.3 (b) (iii).
[1127] Roll’s argues further that s. 9.4 of the MWS Contract applies.
[1128] Section 3(d) of the Services Work Order states “[t]he amount agreed to by Contractor and Operator pursuant to Section 9.4(b) of the Master Well Service Contract is $0".
[1129] Roll’n points out this clause 6.1 is not a contracting mechanism similar to a typical construction contracting mechanism where, in the case of a breach, the owner must give notice to the contractor to remedy the breach, failing which the owner can bring in another contractor to complete the work and bill the original contractor for costs incurred in excess of the original contract price. Roll’n argues that this affects Blaze’s claim for third party costs. It argues that Clause 6 shows that the payment of third party costs was not contemplated under the MWS Contract.
[1130] Blaze argues that it is not seeking damages for the cost of repairing, redrilling or reservicing a lost or damaged hole contrary to s. 9.4 of the MWS Contract. It is only seeking to recover the costs paid to Ensign to get it into position to commence drilling operations.
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[1131] Further, Blaze argues that Roll’n should not be paid for services when the reason Ensign’s services were required was because Roll’n’s Rig 4 did not have the capacity and its crew did not have the qualifications or experience to meet the regulatory requirements. Further these costs were not incurred during the term of the MWS Contract with Roll’n but after the Agreement had been terminated because Roll’n was unable to complete the Drilling Program.
[1132] In my opinion, Blaze’s claim to these third party costs must fail. It was Blaze who decided to terminate Roll’n’s services and bring in another Rig. Blaze was entitled to do so under s. 6.1 of the MWS Contract. However, s. 9.3 reads in part as follows:
9.3 Operator shall at all times assume all of the risk of and be solely liable for:
...
(b) any loss, liability or damage to any party arising:
...
(iii) by reason of any cessation of operations pursuant to Section 6.1.
regardless of the negligence or other fault of Contractor’s Group or howsoever arising, and Operator shall defend and indemnify Contractor’s Group from and against any and all actions, claims, losses, costs, damages and expenses resulting therefrom and specifically releases Contractor’s Group from any claims Operator may otherwise make in regard thereto.
[1133] This is a broadly worded provision and covers costs, expenses and liabilities incurred after termination. In my opinion, Blaze’s claim for the costs and expenses incurred by it to locate and bring in another company and Rig to replace Roll’n and Rig 4 falls within the provisions of s. 9.3 and is therefore barred.
[1134] Blaze argues that as a result of the breaches by Horizon and Roll’n, Blaze was not able to get the Well into production until June 1, 2006, when it should have been into production at the beginning of December 2005. It argues that as a result, it incurred a loss of revenue in the amount of $322,477.00: Ex. 12.
[1135] Roll’n argues that s. 9.15 of the MWS Contract precludes Blaze’s claim for loss of revenue.
[1136] Roll’n claims, in the alternative, that Blaze’s claim for loss of revenue is greatly exaggerated.
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[1137] Mills testified that Blaze had obtained Devon’s well file which contained tests showing the well was capable of production prior to October 2005.
[1138] A production record prepared by AccuMap for this litigation shows that in 2002, the Well produced more water than gas and that in 2003, production stopped: Ex. 006-137. Mills also testified in examinations for discovery that the original well bore had entered the Nisku formation and had been producing both water and gas from that formation.
[1139] Roll’n refers to the evidence of Paul Sharp, a Chartered Accountant and a Chartered Business Valuator who gave expert evidence on behalf of Roll’n and Horizon, to quantify the loss of revenue, if any, that Blaze would have suffered. He calculated the loss of revenue at between $0 and $50,000.
[1140] Blaze argues that s. 9.15 of the MWS Contract is inapplicable because Blaze’s claim for loss of revenue is a direct damage claim arising from the delay in re-entry and not an indirect or consequential damages claim. It argues that Blaze’s loss of revenue is the direct result of Roll’n’s non-performance under the MWS Contract and its negligent misrepresentation regarding the Rosetta project which induced Blaze to enter into the MWS Contract. The exclusion applies only to “consequential damages involving loss of profits” and “indirect economic loss”.
[1141] Blaze also notes that Paul Sharp agreed that Blaze had lost revenue as a result of the delay in bringing the Well into production. It argues further that the amount of lost revenue calculated by Sharp was based on the restrictions placed upon him by Roll’n and Horizon’s counsel, which were inaccurate. It argues that Sharp was instructed to calculate Blaze’s damages looking at the entire life of the production of the Well as opposed to the six month delay. It argues that if Sharp had calculated Blaze’s damages based on a six month delay, the lost revenue calculation would have come closer to the six month loss Blaze claims.
[1142] His calculation of Blaze loss of revenue as a result of the delay in production is set out in Exhibit 12. The calculation is based on estimates based on prices Blaze received for wells in the area and based on the Canadian Gas published report. Mele estimated the loss based on the volume of gas that Blaze would have produced from the Well if the re-entry had been completed in December 2005. He said it was the “actual production from the wellbore brought back the six months” from June 2006 when it was actually produced to December 2005 when it was anticipated it would start produce.
[1143] Blaze produced the Blaze Well from June 2006 until July 2007. Its claim is based on the assumption that the Well should have been producing in December 2005. To calculate its claim, it simply backed up the production figures six months to start on December 2005. The Well ceased
production by the end of July 2007. In fact, it would appear from Ex. 12-152 that there was very minimal production after March 2007. Blaze sold the Well in March 2008
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[1144] Mele, testified as to the economic loss claimed by Blaze as a result of the delay in production of the Well.
[1145] Roll’n and Horizon suggest that it would have been a cost saving to Blaze if Roll’n Rig 4 had been used to perform the abandonment operations, to drill and set the intermediate casing and stop just above the Nisku zone, then to drill into the Nisku.
[1146] In fact, Blaze’s plan was to use Rig 4 to perform the work up to the entry into the Nisku. Next Rig 4 would be moved off the site, a coil tubing Rig would be moved in, mobilized, and used to drill into the Nisku (assuming there were no complications) and then demobilized and torn down and moved off the site. Mele testified that if there were no complications, this should have taken six weeks at the most. Other equipment and services would then have to be moved in and operated to put the Well into production. Mele testified that there was an existing pipeline system from the Well to a distribution system in the area, so there would not have been much cost involved in moving the production from the Well to the distribution system. Mele testified that the re-entry with the coil tubing Rig would have cost $1.5 to $2.2 million. He did not say what the cost would have been for moving the Roll’n Rig 4 off the site and the other operations necessary to put the Well into production after the coil tubing Rig had been moved off the site. He said he could not say what the cost savings would have been.
[1147] Ensign worked on the well in May 2006 for a total of 33 days.
[1148] Concord Well Service performed well completion operations on the Well for a further period of 9 days.
[1149] There are a number of problems with Blaze’s claim for lost revenue. The first is that it would appear to fall within the exclusion found at s. 9.15 cited above. The calculation of lost production results in a claim for lost profits and/or indirect economic loss and is therefore excluded. Second, the method of calculation used by Blaze as found in Mele’s evidence, is not convincing. I prefer the methodology used by Sharp. Third, Blaze delayed replacing Roll’n. Roll’n was released in mid-December 2005. The replacement company, Ensign, did not commence until May 2006. It took Ensign 33 days to do their work and then another company 9 days to do completion work. As a result, in my opinion, Blaze cannot blame Roll’n for this full six months of delay in production, even were it not excluded.
[1150] The evidence before me is inadequate to permit me to conclude that there would have any cost saving or if so, the amount of same. Further, it was not Blaze’s plan to use Roll’n Rig 4 to drill into the Nisku. I see no merit to Roll’n’s claim for a cost saving and I reject it.
[1151] If I am wrong, based upon Sharpe’s analysis, I find that $30,000 would have been adequate compensation under this head.
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[1152] Blaze claims that Roll’n and Horizon caused Blaze to suffer damages of $90,000 as a result of the improper filing of builders’ liens. The amount of damages was calculated as one percent of the losses suffered in a private flow-through share placement where the share price was reduced from a net asset value of $3.10 to $2.35 per share ($0.75) on 12 million shares.
[1153] Roll’n argues that under Article XI of the MWS Contract, Blaze authorized Roll’n to file a builders’ lien against the Well and thereby bars this claim by Blaze.
[1154] Section 11.5 of Article XI of the MWS Contract states:
11.5 For the purpose of any claim Contractor may have against Operator for failing to pay amounts outstanding in respect of a Services Agreement, Operator acknowledges and agrees that:
(a) Contractor is entitled under the Services Agreement to register, pursuant to applicable legislation, a lien or liens against the interests of Operator’s Group in any parcel of land for which Well Services have been provided by Contractor under the Services Agreement to the extent that there are amounts owing to Contractor for Well Services provided in respect of that parcel of land; and …
[1155] Biagio Mele, Blaze’s President, testified as to the basis of the claims for wrongful registration of the builders’ liens. He testified that the value was based on the 2008 difference of the net asset value that it argues in could have obtained on a private flow-through share placement, had the liens not been registered ($3.10 per share) and the lower net asset value it obtained on the placement of $2.35 per share because of the registration of the liens. Blaze multiplied the difference of .75 cents per share by the $12 million shares outstanding, which equals $9 million and allocated one percent of the loss in value to the negative effect that the liens had on the sale price, for a total claimed loss of $90,000.
[1156] Mele testified when they sold the share placement, they would have to explain why the liens were registered on the property and this negatively affected the price of the share placement. He testified that typically when a flow-through share placement is offered, the seller obtains a premium to net asset value of the shares. He said because of the negative effect of the liens, Blaze ended up selling its placement at a discount.
[1157] Mele testified in cross that the net asset value was the value in 2008 when Blaze’s interest in the Well had been sold, therefore none of the asset value was attributed to the Well. Since the property had been sold, any decrease in value that resulted was not a result of the liens on Blaze’s
property but a result of the litigation against Blaze: T. P. 1386. Further, because Blaze attributed no value to its interest in the Well when it was sold in 2008 it gave away the property for no return.
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[1158] Mele testified in cross that the mechanics of a private flow-through share placement are that shares are sold in the company and a portion of the company exploration expenses flows through to the investor to be claimed as a tax deduction and are thus a tax benefit to the investor. The investor’s adjusted cost base for the share is zero. It was suggested that the total loss of $9 Million discount Blaze alleges was used as a loss and thus a tax discount on the investing parties’ taxes.
[1159] Mele said he did not attribute any part of the $90,000 loss Blaze was claiming to the mere fact that statements of claim had been filed against Blaze’s interest in the Well and the effect that this would have had on the flow-through share placement value. Mele also agreed that while Horizon’s statement of claim and builders’ lien was filed in March 2006, neither party took any steps advance the litigation until the fall of 2008. Mele also agreed that Blaze took no steps to remove Horizon’s builders’ lien after it was filed or to pay the amount of $39,000 Horizon builders’ lien into trust and have it removed from the property. Mele stated the Mills proposed to Horizon that Blaze would pay Horizon’s account in exchange for reports from Cripps and Allen. He also confirmed that the builders’ lien remains on the interest in the Well today even though Blaze sold its interest in the Well.
[1160] I cannot find that the lien filed by Roll’n was wrongfully filed. There were amounts owing to it by Blaze under the MWS Contract. Under s. 11.5 of the Contract, it was entitled to file a lien.
[1161] Even if I am wrong on this conclusion, I find, having regard to Mele’s evidence as to how its damages are calculated under this claim, that they are excluded by virtue of s. 9.15 of the Contract, as I consider this to be a form of indirect economic loss.
[1162] I also find that Horizon’s lien was not filed wrongfully. Money was owing to it and remained unpaid at the time of the lien’s filing. It was entitled to file its lien pursuant to the provisions of the Builders’ Lien Act.
[1163] Blaze submits that it is entitled to full recovery for the amount of lost tools and that this is not precluded that it had insurance to cover the loss.
[1164] Roll’n submits that the tools that were lost in the Well were leased and insured by Blaze and the claim for recovery of their value from Roll’n is precluded by the MWS Contract.
[1165] Section 9.3(a)(ii) of the MWS Contract states that Blaze, as Operator, assumes all risk and liability for loss, damage or destruction of “Operator’s Equipment”, which is defined in s. 1 of the Contract to mean "all equipment, materials or supplies owned or leased by Operator and furnished by Operator for the Well-Site …, whether such equipment, materials or supplies are located at ,
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above or below ground level". In addition, s. 10.5 of the Contract states that where the Operator has insurance to cover the risks and liabilities it assumes under the Contract, it shall ensure that such policies, to the extent possible, are for the benefit of both parties. The Contractor’s Group is included as "named insureds".
[1166] Blaze argues that s. 9.3(a)(ii) of the MWS Contract does not apply where the loss of the Operator’s tools was caused by a Rig manager who did not have his second-line BOP ticket and directed the crew not to start a second mud pump which resulted in the pipe not being pulled into safe casing when the mud pump stopped working. It argues that Blaze only accepted the risk of loss of its tools by a properly qualified crew.
[1167] Blaze further argues that s. 10.5 of the MWS Contract does not apply as it refers only to third party liability insurance described at para. 4 of the Services Work Order and not to the property insurance purchased by Blaze.
[1168] Blaze argues that there is no reason why the tortfeasors, Horizon and Roll’n should benefit from the sacrifices made by Blaze in obtaining private insurance.
[1169] Mele acknowledged that it was claiming repayment of the entire invoice amount paid to Directional Plus for the directional drilling of $300,000 despite the fact that Blaze was insured for the loss and only paid for the insurance deductible.
[1170] I do not accept Blaze’s argument on this point. First, I find that the lost tools are covered under s. 9.3(a((ii) of the MWS Contract. I do not agree with Blaze’s suggestion that this contractual provision is limited as it suggests. Second, I am satisfied that s. 10.5 of the MWS Contract also applies. I do not interpret it, as does Blaze, to be limited only to third party liability insurance. By its words it says “in respect of the risks or liabilities...”. One of the risks was the loss of its equipment downhole. Blaze obtained insurance against that risk and under the terms of s.
10.5, Blaze was obliged to ensure that Roll’n was covered by it. Accordingly, I find that Roll’n is not responsible for the loss of downhole equipment.
[1171] As previously discussed, Blaze and Horizon entered into an oral agreement under which Horizon agreed to provide Blaze with wellsite supervisory services and Blaze agreed to pay Horizon for the provision of those services.
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[1172] The parties have different views as to the nature of the agreement and the duties that arose as a result of their agreement.
[1173] Horizon’s Statement of Claim, states that it “made an agreement with Blaze wherein Horizon agreed to provide technical well site supervision services... in connection with the recompletion of [the Well] and Blaze agreed to pay Horizon for such services”.
[1174] Blaze alleges in its Amended Statement of Defence, that “on October 24, 2005 Blaze retained [Horizon] to provide experienced engineering expertise, management, and supervisory services and advice for the drilling and recompletion of a critical sour gas well...The services included, but were not limited to: managing, supervising, and advising Blaze as to all aspects of the drilling and recompletion, including cost control, and [AEUB] directives; ensuring Blaze’s instructions were carried out; and keeping Blaze informed as to the status of the drilling and completion”.
[1175] Blaze argues that Horizon breached its contract and a duty of care owed to Blaze by Horizon to provide technical well sit supervision services.
[1176] Horizon replies that Horizon “does not and ...did not provide engineering or management services”. It states it was not a term of the agreement that it would provide engineering or management services in connection with the Well. It argues that at all times. Blaze maintained engineering and management responsibility for the operations at the Well.
[1177] Horizon maintains that it contracted to provide onsite supervisory services under the direction of Blaze. It draws a distinction between “superintendent services” and “onsite supervisory services”. It characterizes “superintendent services” as directing and supervising field operations, including providing advice and direction on how operations are to be conducted. It characterizes “supervisory services” as working in the field overseeing the execution of operations and reporting to and taking direction from the Operator, in this case.
[1178] In order to determine what the terms of that contract were, this court must make a number of fact findings with respect to the disputed evidence.
[1179] Blaze alleges that it retained Horizon to provide experienced engineering expertise, management, and supervisory services and advice for the drilling and recompletion of a critical sour gas well. It specifically alleges that it relied on Kindjerski’s advice that AEUB Guide 37 applied to the Blaze operations. Kindjerski denies giving Blaze such advice.
[1180] Blaze alleges that Kindjerski told Mills at their initial meeting in the Horizon offices on October 25, 2005 that the Blaze project could be completed with a service Rig and a crew with well service BOP tickets.
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[1181] As discussed previously in these reasons, the BOP tickets required depended upon whether AEUB Guide IG11 (Guide 37) or AEUB Guide 36 (Ex. 002-011) applied to the Blaze operations. Guide 37 stipulates that if well service operations are being conducted with a service Rig, the driller and Rig manager must have well service BOP tickets. The Roll’n crew had these well service BOP tickets. Guide 36, s. 1070 states that when drilling with a service Rig the operations are classified as drilling operations, and Guide 36 applies, if more than 50 metres of the new hole is drilled. Clause 10.2.1 states that in this case, the driller on such operations must possess a PITS issued first-line BOP ticket or second-line BOP ticket, and s. 10.2.2 states that the licensee’s
well-site representative and Rig manager must possess a PITS issued second-line BOP ticket. The Roll’n driller and Rig manager did not possess the BOP tickets required under Guide 36.
[1182] When the AEUB shut-down the Blaze operations on December 9, 2005, it determined that
Guide 36 applied.
[1183] The facts indicate that Mills and Kindjerski had not had any professional dealings prior to Horizon and Blaze entering into the agreement regarding Horizon provisions of supervision services in late October 2005 and therefore would not necessarily have known the engineering experience of the other.
[1184] Kindjerski and Mills first met by chance on a downtown street in Calgary on October 24, 2005. Mills had just received a well licence for the Blaze Well that morning but was having difficulty obtaining a Rig and well supervisor services. Mills told Kindjerski that Blaze needed a well supervisor with expertise with critical sour gas wells. Kindjerski told Mills that he would try to find someone. Kindjerski then called his partner, Flynn, and they determined that Allen had the qualifications required. Kindjerski called Allen and Mills and they met in the Horizon offices and discussed the Blaze project the next afternoon, on October 25, 2005.
[1185] The facts also indicate that Mills and Kindjerski were both very experienced in oil and gas operations.
[1186] At the time Kindjerski and Mills met in late October 2005, Kindjerski was a partner in and the Vice-President of Horizon. Horizon was in the business of providing well project management services, field supervision services and engineering work for oil and gas drilling and completion operations. Kindjerski’s responsibilities at Horizon included preparing drilling programs and providing superintendent services. He had Bachelor of Science in Petroleum Engineering, was registered as a professional engineer in Alberta and British Columbia, and at the date of trial, had been practicing as a petroleum engineer for 23 years.
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[1187] Mills was also very experienced in oil and gas well operations. He obtained a fourth class engineer certificate from the Southern Alberta Institute of Technology in 1991. Prior to his involvement with the Blaze Well, he testified that he had conducted hundreds of oil and gas reentry operations where the hole was sidetracked off and drilled vertically or horizontally. He also testified that he had conducted 30 or 40 reentries on sour wells, although he said they were only one or two percent sour, as opposed to the Blaze Well, which was 17 percent sour. Of the 30 or 40 reentries Mills had conducted on sour wells, he said that two were with service Rigs, as opposed to drilling Rigs.
Discussions re Guide 37
[1188] Blaze argues that Mills and Kindjerski discussed whether a service Rig could be used, and that Kindjerski assured Mills that it could. Kindjerski denies advising Mills that a service Rig could perform the Blaze re-entry operation or that Guide 37 applied: Transcript 01/03/2010, p. 29, lines 5-12.
[1189] As previously discussed, Mills wrote two letters to the AEUB in December 2005 explaining why Blaze had failed to comply with AEUB Guide 36. In his December 16, 2005 letter (Ex. 003-032), Mills states that Blaze relied on Roll’n’s advice that Guide 37 applied but does not mention any involvement, or advice from or discussions with Kindjerski. In that letter, Mills also states that he confirmed himself that Guide 37 applied.
[1190] As previously discussed in these reasons, in Mills’ second letter to the AEUB, dated December 20, 2005 (Ex. 003-035), Mills deletes the fact that he himself confirmed that Guide 37 applied and states, to the contrary, that Blaze thought the Drilling Program was being followed [which stated that Guide 36 applied]. In addition, Mills adds a lengthy new passage in which he places the responsibility for failing to comply with Guide 36 not only on Roll’n but also on Horizon. The new passages are quoted again in these reasons for ease of reference:
Blaze Energy had an AEUB pre-approved drilling program specifying that we would follow Guide 36. In preparing for the operation with the contractor Roll’n Well Service and the resource professionals Horizon Resources, we believed that they would follow the drilling program and with it AEUB regulations. We talked about the fact that we would be AEUB audited, it was just a matter of timing, when. Until the December 9, 2005 audit, we did not realize that we were not following the approved drilling program. Blaze relied on the expertise of these professionals with regard to their interpretation of the Guides. Blaze was wrong in doing so.
........Additionally Blaze sent this same drilling program to Ken Kindjerski at Horizon Resources who was to supply the wellsite consultant. Ken went over the program then we sat down and talked about drilling this well with a service Rig. Ken backed up what Roll’n had said. Guide IG11 [Guide 37] was what we need to follow because we are using a service Rig ”
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[1191] Mills testified that he had a conversation with Allen on October 26, 2005 in which Allen assured him that the Blaze operations could be performed by a crew with well service BOP tickets. Mills’ diary notation for that day states: “Mark Allen ...read program & has done before w WS BOP.” He testified that he understood from his conversation with Allen that he had read the Drilling Program and was discussing with Kindjerski whether it could be done with well service BOP tickets.
[1192] Allen was not examined on the issue of whether he made these representations to Mills on October 26, 2005. He did testify on cross-examination that it was his understanding that well service BOP tickets were required during the abandonment operations and that he had been told by Roll’n that the crew had the required tickets, which they did.
[1193] Kindjerski denies advising Mills that Guide 37 applied. He testified that he gathered that the Blaze Well was a critical sour gas well from the documentation which Mills brought to their initial meeting. He said that he was well aware at the time he met with Mills on October 25, 2005 that the work being contemplated by Blaze required compliance with the drilling guideline, Guide 36.
[1194] I conclude that Kindjerski did not advise Mills that Guide 37 applied. Faced with the conflicting evidence of Kinjerski and Mills on this point, I find it persuasive that Mills did not make any reference to this alleged representation by Kindjerski when he wrote his letter of December 16, 2005 to the AEUB. Had the representation in fact been made, this would have been the logical place and time to have mentioned it – not later in Mills’ December 20, 2005 letter to the AEUB.
[1195] Blaze alleges that prior to their October 25, 2005 meeting, Mills sent Kindjerski a copy of the Blaze Drilling Program. It further alleges that Mills, Kindjerski and Allen reviewed the Program at the meeting and that Horizon accepted the Program. The issue of whether Horizon “accepted” the Program is crucial. What Blaze essentially alleges is that it contracted with Horizon for the purpose of obtaining Kindjerski’s advice as to whether the Program could be executed as written, that Kindjerski accepted the Program and thereby represented to Mills that it could and that Horizon, thereby agreed to provide Blaze with experienced engineering expertise, management, and supervisory services and advice for the drilling and recompletion of Blaze’s critical sour gas well.
[1196] Horizon alleges that neither Kindjerski nor Allen received a copy of the Program prior to their meeting with Mills. Horizon argues that it was not necessary for Horizon to review the Program in detail or accept the Program prior to agreeing to provide supervisory services to Blaze because Blaze had already done so. Horizon argues that since it did not prepare the Program and Kindjerski and Allen did not have a complete copy of the Program or review it prior to contracting,
it could not have accepted the Program or agreed that Horizon would provide Blaze with experienced engineering expertise, management, advice. Horizon argues that Mills contracted with
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N.L. Fisher to write the Program, knew what was in the Program as he had assisted in it preparation, and had therefore made the decision to accept it, all prior to the time that Blaze contracted with Horizon to provide its services.
[1197] On October 25, 2005, Kindjerski, Mills, Allen met at the Horizon offices in Calgary to discuss the Blaze project. The evidence conflicts as to whether Horizon was provided with a copy, reviewed and accepted the Blaze Drilling Program at this meeting.
[1198] Kindjerski testified that when he contacted his partner, Flynn, after meeting Mills on the street on October 24, 2005, Kindjerski and Flynn decided they knew two people with the expertise to provide onsite well supervisory services for Blaze - Mark Allen and Randy Cripps. Kindjerski said Mills must have told Kindjerski that the well was a critical sour well, as Kindjerski knew after talking to Mills that Horizon had to provide people with that kind of experience.
[1199] Kindjerski’s evidence is that he never reviewed the Blaze Drilling Program either before or after the meeting with Allen on October 25, 2005.
[1200] Kindjerski said that when he called Allen and Mills to attend the meeting in the Horizon offices on October 25, 2005, he believed that Mills was bringing over a program and that he, Allen and Mills would review the points in the program that needed to be discussed.
[1201] Kindjerski stated that when he contacted Allen about the job he asked Allen to come into the Horizon offices and meet Mills to “go over some type of program”. He told Allen that the work involved sour gas but he said that he did not give Allen any specifics.
[1202] Kindjerski said he could not recall whether his partner, John Flynn, was present at the meeting but did not think he was: T 01/03/2010, p. 29, lines 38-40.
[1203] Kindjerski testified that Mills did not provide him with a complete copy of the Drilling Program prior to or at their October 25, 2005 meeting in Horizon’s offices. He testified that he received an email from Mills with the attached Program on either October 25 or 26, 2005, but that it was definitely after his meeting with Mills and Allen. Kindjerski said he was certain that he did not provide Allen with a complete copy of the Program before their October 25, 2005 meeting.
[1204] Kindjerski testified that when he received the email with the attached Program from Mills, he forwarded it directly to Allen at the Wellsite without looking at it. He said he and Allen did not discuss whether Kindjerski would review the Program. He said he was not being paid to critique the Program and that this is evident from the fact that Horizon did not invoice Blaze for Kindjerski’s services.
[1205] Kindjerski testified that he recalls that Mills brought several documents with him when he came to the meeting on October 25, 2005. He said there was “...a stick diagram, there was a well site plan and there were snippets of various things on the geological side. Basically, we just
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talked around the stick diagram that he [Mills] had.”. Kindjerski said the stick diagram he was referring to was the one page down-hole diagram of the Well in the Blaze Drilling Program, Ex.001-007 at p. RBEL000487. Kindjerski testified that the discussions at the meeting were more focused on the re-entry process, including cutting a window in the existing well casing and directionally drilling a well into the target area.
[1206] Kindjerski said that although he was unsure, he thinks that Allen and Mills discussed things “more on the service side, like what’s lined up, what to expect on site” during their initial meeting on October 25, 2005.
[1207] Blaze alleges that Kindjerski and Mills discussed technical issues pertaining to the operations that they would not have discussed if Kindjerski had not seen the Program, including the type of drilling fluid that Blaze would use.
[1208] Kindjerski testified that he and Mills did discuss whether invert mud would be used as a drilling fluid but that this was the only technical issue they discussed. Kindjerski testified that based on their discussion, he assumed that Blaze would use invert mud for the re-entry operation. Kindjerski denied that he had to have seen the Blaze Drilling Program in order to discuss whether invert mud would be used. He said that the stick diagram led him to discuss the use of invert mud.
[1209] Kindjerski also rejected the suggestion that he would have needed to know the specifics of the Program before he could recommend personnel to assist with supervisory services. He said that he knew the experience and qualifications required of personnel providing supervisory services on a critical sour gas well and that he chose Allen and Cripps on that basis.
[1210] Mills’ evidence on this point is in direct conflict with Kindjerski’s evidence.
[1211] Mills testified that when he met Kindjerski on the street on October 24, 2005, he told Kindjerski he “needed a critical sour gas guy to do this re-entry” and Kindjerski said he would try to find someone.
[1212] Mills testified that he emailed the Program to Kindjerski before their October 25, 2005 meeting, because Kindjerski had to review it before he could determine whether Horizon had personnel with the qualifications and experience to provide well superintendent services. Mills confirmed that there was no notation in his diary indicating that he had sent Kindjerski the Program.
[1213] Mills said the next communication he had with Horizon was on October 25, 2005 at 2:00
p.m. in the Horizon offices. He said he was introduced to John Flynn and Mark Allen. He said that
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Allen had a copy of the Drilling Program. Mills said Kindjerski told Mills that he had talked to Allen about the Program, that Kindjerski had read the Program, and that Allen could do the work. Mills said the Program contained a great deal of information and that Allen said he was going to take it home, digest it, and call Mills the next day. Mills’ diary note for that date states only the following: “Ken....Ross Flynn...Mark can do.”
[1214] As discussed above, Mills testified that on October 26, 2005, he spoke with Mark Allen and made the following notation in his diary: “Mark Allen ...read program & has done before w WS BOP.” He testified that he understood from his conversation with Allen that he had read the Drilling Program and was discussing with Kindjerski whether it could be done with well service BOP tickets.
[1215] In addition, as discussed above, Mills wrote two letters to the AEUB in December 2005 explaining why Blaze had failed to comply with AEUB Guide 36 and only mentions Horizon’s and Kindjerksi’s involvement in the second letter.
[1216] Flynn, Kindjerski’s partner, testified in his March 19, 2009 examination for discovery, p. 27, l. 9-25, read in at trial, that Mills came over to the Horizon offices where he met with Kindjerski, Allen and Flynn. Flynn said that he recalled that Mills had some maps with him and that they talked about the general plan for the Well, some of the logistics, and the directions on how to get to the Wellsite. He testified that Mills had emailed Kindjerski a copy of its Drilling Program and that Kindjerski had opened the email on the morning of October 25, 2005. He said that he knew this because of the properties information in the email software.
[1217] The issue of whether I should draw an adverse inference against Horizon for failure to call Flynn as a witness at trial was discussed under Issue 1. I declined to draw an adverse inference given the fact that Blaze had the opportunity to examine Flynn at examinations for discovery and indeed read-in part of Flynn’s discovery evidence on this issue at trial.
[1218] Allen said he first heard about the Blaze Well project when Kindjerski telephoned him and asked him to come into the Horizon offices. He said he went to the office on the morning of October 25, 2005 and met with Kindjerski and Mills. He said they discussed the Blaze job and that it involved horizontal drilling on a sour gas well. He said all that he was given at the meeting was a stick program, which he described as a down-hole drawing of the Well. He said he understood Kindjerski would send him the Drilling Program by email but he did not recall receiving it.
[1219] Blaze argues that the following entry in Baun’s notes indicates that Allen had a copy of the Program. Buan’s notes of October 28, 2005 refer to Allen and state “phoned me for route map for Rig 4 job - advised he got a copy in the program...” Allen said he could not recall telephoning anyone to obtain a map showing the location of the Well.
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[1220] Despite Kindjerski’s evidence to the contrary, I find that Mills did email the Program to Kindjerski on the morning of October 25, 2005, and prior to the meeting held later that day. I make that finding on the basis that Mills’ evidence to that effect is firmly supported by the evidence of Flynn, which was read-in as part of Blaze’s case. Flynn was the officer of Horizon selected for examinations for discovery. He was not called at trial. His evidence is therefore not explained or otherwise weakened.
[1221] However, despite this finding, I am not persuaded that Kindjerski read the Program before the afternoon meeting with Mills, Allen and Flynn. Kindjerski said he did not. Allen said they did not do so at the meeting. If Kindjerski had read the Program, it is logical to think he would have produced it at the meeting and given a copy to Allen at that time. The read-in from Flynn and the evidence of Kindjerski and Allen indicates that they were talking in general terms at that meeting and that Mills had brought over some maps. There is no suggestion in the read-in that they went over the Program at the meeting. Allen says all he was given at the meeting was a stick diagram.
[1222] Even if I had found that Kindjerski had read the Program before the October 25, 2005 meeting, I would decline to find that Horizon accepted or contracted to provide engineering advice and services in regard to the conduct of the Program based on a number of other factors.
[1223] Mills and Kindjerski met by chance on a downtown Calgary street on October 24, 2005. They were acquainted socially but had never worked together. This is how Mills initiated discussions regarding his need for assistance on the Well.
[1224] Prior to their October 24, 2005 chance encounter, neither Mills nor Kindjerski knew much about the other’s qualifications or experience, and they had never worked together. Mills said he had known Kindjerski for a couple of years and knew he was with an engineering company.
Kindjerski said that he and Mills were only acquainted socially but had never worked together. He said he did not know, and he and Mills did not discuss, whether Mills was a professional engineer.
[1225] Mills testified that he told Kindjerski that he needed someone with critical sour gas experience to do the re-entry. He said Kindjerski reminded Mills that Kindjerski was with Horizon and said he would try to find someone to help Mills. Mills’ October 24, 2005 diary entry does not mention the conversation between Mills and Kindjerski.
[1226] Kindjerski’s evidence was that he did not recall specifically addressing the issue of what services would be provided by Horizon or whether he would be involved in providing those services.
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[1227] Kindjerski said that when he agreed to investigate whether he could find someone to supervise the Blaze job, he did not know anything about the Blaze Drilling Plan and he did not specify what was entailed in supervision.
[1228] Kindjerski stated that his understanding that Horizon would provide Blaze with field supervisory services was based on the fact that Mills already had a drilling program prepared by a third party engineering company, that Mills only provided him with the stick diagram and some geological information at their initial meeting and that their discussions at that meeting were more concerned with what to expect at the Wellsite than on engineering or superintendent services.
[1229] Kindjerski testified that he did not know what Mills asked Allen and Cripps to do onsite, for example, whether Mills asked them to critique the Drilling Program. Kindjerski agreed that he never specifically told Mills that Kindjerski would not be involved in the services and would not be overseeing Allen and Cripps however, it was his view that this was implicit because Mills already had the Program.
[1230] Horizon argues that if Horizon was directing the operations, Kindjerski would have been involved in deciding whether Allen should be replaced. It alleges that this was a unilateral decision made by Mills. Horizon alleges that Mills did not discuss Allen’s qualifications with Kindjerski prior to directing that Allen be replaced. It argues that this indicates that Blaze was not relying on Kindjerski for advice.
[1231] Mills said that after working with Allen on October 28, 2005, he made notations in his diary summarizing his recollection of his dealings with Allen, as he planned to call Kindjerski and talk to him about it. Mills said he did not think Allen was right for the job.
[1232] Mills said that he called Kindjerski on October 31, 2005 and told him that based on what he had observed, he did not think Allen was experienced in critical sour gas wells. He said he told Kindjerski that Allen was working with Roll’n’s Rig manager, Anderson, and that Anderson was “running right over him”. Mills said that Kindjerski’s response was that Allen was “a little bit light on experience, but he had a guy that was good”, Randy Cripps. Mills said Kindjerski said that he did not know if Cripps was available and but that he would check and get back to Mills. Mills’ diary notes from October 31, 2005 state only the following in regard to this issue “Ken..265-8130 -Randy Cripps...11-19-46-14".
[1233] Mills testified that Kindjerski called him back later that day and told him that Cripps could go to the Wellsite the next day.
[1234] Mills directed Allen to leave the site when Cripps arrived on November 1, 2005.
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[1235] Kindjerski testified that Mills did not discuss Allen’s discharge with him prior to his termination on November 1, 2005. He denied being informed by Mills that he was dismissing Allen after discovering that Allen lacked the skills or experience necessary to supervise Blaze’s Drilling Program. Kindjerski testified that he intended that Allen and Cripps would both be onsite during the re-entry operations.
[1236] Cripps’ evidence was that Kindjerski first contacted him about this job on October 31, 2005 when Kindjerski telephoned Cripps and asked him to go out to the Well and relieve Allen. Cripps said Kindjerski told him that Blaze wanted Allen removed from the job and wanted Cripps to go out and take over.
[1237] Allen testified that he did not know that Mills had asked that he be replaced by Cripps. Allen thought he would remain on the job as night supervisor. However, he understood that Mills was not in favour of that so he left.
[1238] Mills’ evidence as to the events surrounding Allen’s departure is largely supported by Cripps’ evidence and therefore, I prefer it to that of Kindjerski. I find that Mills wanted Allen removed and communicated that to Kindjerski. Kindjerski asked Cripps to replace Allen. It was Mills who decided that Allen’s services were no longer required and effectively terminated his services.
[1239] Horizon did not bill Blaze for Kindjerski’s services and Blaze never questioned this.
[1240] Kindjerski’s evidence was contradictory as to his involvement with the Blaze project.
[1241] Kindjerski testified that after Allen went to the Wellsite, Kindjerski had no further input or involvement with the project. He said that anything that came up was forwarded to and dealt with by Allen or Cripps. However, his evidence confirms that he had conversations with Allen and Cripps about certain matters at the Wellsite.
[1242] Kindjerski acknowledged that he had received a telephone call from Allen when he was at the Wellsite in which Allen had expressed concerns about the fact that one of the people monitoring the site had been dismissed and that there was now only one safety person onsite. He said that Allen seemed very upset by this and that he thought Allen had a disagreement with Mills over the dismissal of safety personnel, which resulted in Allen’s dismissal. Other than that, Kindjerski denied speaking to Allen and Cripps about their safety concerns while they were onsite.
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[1243] Kindjerski testified that he recalled receiving one telephone call from Cripps while he was onsite in which Cripps was “...stressed out because there was a lot of stuff that was not lined up or working”. He later said that Cripps telephoned him on November 18, 2005, asking that he be relieved of duty. Kindjerski said that Cripps told him he did not want to stay on location and work for Blaze anymore.
[1244] Kindjerski acknowledged that he also received a call from Cripps while he was onsite in which Cripps told him he was upset when Allen was let go as it was his understanding that he and Allen were going to work together. He said that he received this call on November 18, 2005.
[1245] Kindjerski stated later that Cripps was unhappy that Allen had been sent home when Cripps arrived as this resulted in him being on 24-hour call. He also said that Cripps was frustrated with the lack of progress on the well and this was due in part to problems with Roll’n’s equipment and manpower. Kindjerski said that Cripps told him he had some safety concerns but denied discussing Cripps’ specific concerns, including the fact that the 10,000 psi BOP was causing problems, that there were problems with the mud pump, and that there had been a safety stand down by the Roll’n crew on November 9, 2005.
[1246] Kindjerski stated he could not recall whether he received a call from Cripps while he was onsite in which they discussed the November 9, 2005 safety stand down by the day crew and the altercation between the Roll’n driller and Rig manager.
[1247] Cripps’ telephone records show that Cripps telephoned the Horizon offices on numerous occasions while he was at the Wellsite.
[1248] Cripps testified that he talked to both Kindjerski and Mills. He said he talked to Kindjerski “pretty well daily”. He said he told Kindjerski that the operation was not going well and Kindjerski would tell him to carry on. He said he discussed the “safety thing” with Kindjerski and Mills’ direction to release the air trailer. Cripps said that he and Kindjerski also discussed pulling the tubing out of the hole and rerunning it at a later date. Cripps said Kindjerski told him that the tubing should never be rerun.
[1249] Cripps said he thought he received emails from Kindjerski but nothing directing him on what to do.
[1250] Cripps left the site on November 21, 2005 after he was relieved by Mills. Kindjerski testified that Mills went to the Wellsite to relieve Cripps and that this was the last news he had about who was supervising.
[1251] Cripps said that he did send Kindjerski his notes summarizing his concerns about the Blaze operations. He said that these are the same notes he provided to Kindjerski in February 2006 when Mills pressed for more information. (Ex. 005-070). Cripps stated that he emailed these notes to Kindjerski at Horizon at about the same time that he invoiced Horizon for his work, which he said would have been soon after he left the Blaze site on November 21, 2005.
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[1252] Cripps stated that it was his understanding that as Kindjerski had hired Cripps, Cripps reported to Kindjerski, and Kindjerski would report to Mills and be under his direction. However, later on cross-examination, Cripps acknowledged that while he initially thought he would be taking instructions from Kindjerski, he took instructions from both Mills and Materi at Blaze and from Kindjerski at Horizon. He agreed that he did speak to Mills directly and did not go through Kindjerkski. Cripps’ cell phone records (Ex. 006-129) indicate that he received or made calls to Blaze, Mills or Materi at least once per day while he was onsite and that he also received from or made calls to Horizon or Kindjerski.
[1253] Allen said that he was in communication with Mills while he was onsite and that he was taking directions from Mills.
[1254] Kindjerski testified that after receiving Cripps’ November 18, 2005 request to be removed from the site, he telephoned Mills to inform him so that he would not be left without an onsite supervisor. He said he left it up to Mills to find another supervisor.
[1255] Both Allen and Cripps said they sent the Horizon’s DORs to Kindjerski and Mills.
[1256] Kindjerski stated that although he did receive some of the Horizon DORs, he did not receive them on a daily basis, because he was not involved in providing Blaze with services. He said that while he did receive some of the DORs, he did not send any replies to those reports.
[1257] Kindjerski testified that he only received the Horizon DORs once or twice per billing period and that he received them for billing purposes. However, he later acknowledged that he received and amended Allen’s DORs on a daily basis because Allen was having difficulty using the software program used for the reports. He testified that he simply corrected the billing portion of the reports and returned them without reviewing the information reported. He said he could not recall forwarding these reports to Mills or communicating with Allen or Cripps about the DORs.
[1258] Kindjerski denied directing Allen and Cripps on how the DORs were to be completed or that any verbal advice provided to Blaze did not have to be included in the Horizon DORs.
[1259] Mills said he received the Horizon DORs on a daily basis except on weekends. He testified that Allen and Cripps told him that they also sent these reports to Kindjerski on a daily basis.
[1260] Mills took over from Cripps when Cripps left the Wellsite on November 21, 2005.
The fact that Mills took over from Cripps strongly suggests that Horizon did not contract to provide Blaze with Kindjerski’s professional technical engineering services. Had it, Horizon would have left it to Kindjerski to find a replacement for Cripps.
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[1261] Mills was onsite as the wellsite supervisor on several occasions after Cripps left and also hired others to provide supervisory services.
[1262] Mills acknowledged that Horizon ceased to have any involvement at the Well after Cripps left: cross-examination of Mills on March 12, 2010 at p. 119.
[1263] Mills agreed that Allen and Cripps sent him the Horizon DORs on a daily basis and that he received them daily except for on weekends.
[1264] Mills also received reports from Roll’n and other onsite service providers.
[1265] Domeij, the Roll’n driller, testified that daily safety meetings were held and that copies of notes taken at these meetings [Ex. 003-023] were sent to Roll’n and Blaze. He also said that daily Rig inspection reports, such as BOP tests, were sent to Roll’n and Blaze.
[1266] The issue of whether Allen and Cripps competently provided well supervisory services on behalf of Horizon is examined below. It is not evident from that examination that Mills consulted Kindjerski directly on significant decisions.
[1267] Although Allen and Cripps sent the Horizon DORs to Kindjerski, spoke to him on a number of occasions while they were onsite, and may have initially understood that they were reporting to Kindjerski, the evidence indicates that Mills also Allen and Cripps to report to him and that he was aware, informed and involved in all of the important decisions that were made.
[1268] Mills said that, when he was not onsite, his understanding of what was happening at the Wellsite was based on his telephone conversations with Allen and then Cripps and on a review of the Horizon DORs, which he received on a daily basis.
[1269] Mills was onsite on October 28 and 29, 2005 when Allen was there. Mills testified that he told Allen that Mills needed to know if something was not going right. He said he told Allen that if there was a problem onsite and Allen needed help, he was to call Mills and they would work it out together. Mills’ October 28, 2005 notes state: “Down since 0500 and I not called.” Mills explained that this indicated that the Rig was down from 5:00 a.m. until 11:00 a.m. and that Allen had not called Mills. He stated that he wanted Allen to know that if he could not reach Kindjerski about problems, Allen could call Mills. Mills said he wanted Allen to understand the chain of communications.
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[1270] Mills testified that he also instructed Allen to report to him daily and to send the Horizon DORs to both Mills and Kindjerski. Although Mills testified that he wanted Allen to consult with Kindjerski because he was the engineer and had the experience, there was no evidence that he told Allen this.
[1271] Ward, states in his expert report that in his opinion, Mills in his capacity of the Operator’s representative, relied upon Horizon and its personnel for control of operations in the field and that Horizon provided wellsite supervisors who advised Mills.
[1272] Sutherland, opines in his Expert Report under Report of Stu Ward - Conclusions, item 1, that Mills was ultimately responsible for the operations in his capacity as an officer of Blaze. He states “[Mills] never relinquished the command structure that he was in charge. He did not obtain additional technical expertise but relied on his knowledge and experience to conduct this operation.”
[1273] Sutherland further opined, in his Expert Report, in response to Ward’s expert report, at item 4:
Mr. Ward suggests that Horizon ...supplied technical wellsite supervision, management and technical expertise. In my view Horizon only provided wellsite supervision who were under the direction and control of Blaze Energy Ltd., and Ed Mills at all times.
[1274] Sutherland testified that the distinction between technical wellsite supervision and engineering services and supervisory services is that the former involves project management in which the supervisor directs the activity at the well. He stated that his company provides services to approximately 200 oil and gas operators in Canada, and approximately 90 percent of that work involves providing the operators with wellsite supervisory services.
[1275] On the whole of the evidence, I am not satisfied that there was an agreement between Horizon and Blaze that Horizon would provide Blaze with technical expertise, supervision and direction. Rather, I find that the agreement between Horizon and Blaze was that Horizon would provide Blaze with qualified wellsite supervisors to report to and take direction from Blaze.
[1276] I reach this conclusion, from the foregoing analysis. In particular, while Allen and Cripps provided copies of their DORs to Horizon as well as Blaze, this was partly for billing purposes and courtesy. Blaze provided the direction, control and expertise. Horizon never charged nor was it paid for any technical expertise or direction. The Blaze Drilling Program had already been designed by another engineering expert and was provided to Blaze prior to Horizon becoming
involved. Mills was providing direction to Cripps and Allen. Mills made the decision to dismiss, and in fact did dismiss, Allen. Mills himself took over after Cripps left the Wellsite and did not ask Horizon to find another supervisor to replace Cripps.
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[1277] Blaze relies on Homes by Jayman v. Kellam Berg Engineering & Surveys Ltd. (1995), 171
A.R. 1, 29 Alta. L.R. (3d) 1 (Q.B.), rev’d on other grounds 1997 ABCA 308, 209 A.R. 241in support of its assertion that Horizon, a professional engineering company providing services to Blaze, owed Blaze a duty of care in tort. In Jayman, as in the present case, there was no written contract between the engineering company and the Jayman. Despite this, the court ruled that the defendant professional engineers had a duty to supervise and inspect the work-in-progress of the contractors and had they done so they would have discovered the defects in the work.
[1278] The plaintiff, Homes by Jayman, contracted with the defendants, Kellam Berg Engineering, to design a septic sewage system, and with the contractor, City & Country Contracting to construct and install that system on a development project managed by Jayman. There were problems with the design and construction, and the system failed and had to be replaced at significant cost. The trial judge found that Kellam Berg was under a duty to inspect and supervise the construction and that it failed to meet the required standard of care. As a result the plaintiff’s loss was apportioned between the contractor and Kellam Berg under the Contributory Negligence Act.
[1279] Jayman is distinguishable from the instant case on several fronts.
[1280] First, the nature of the work contracted for differs from that in the present case. In Jayman, the defendant engineering company was hired to design the sewer system that eventually failed. In other words, Kellam Berg was hired to perform professional engineering services, and it was under this rubric that the trial judge implied a duty to inspect and supervise. In the instant case, I have determined that Horizon was not hired to provide engineering services, but rather well supervision services. In practice, Horizon’s commercial relationship may be aptly described as little more than a flow through placement agency for the services for Allen and Cripps.
[1281] In fact, the engineering firm that designed the drilling program was N.L. Fisher. Therefore, if accepted by this Court, the argument from Jayman advanced by Blaze would properly result in
N.L. Fisher owing Blaze a duty to inspect and supervise. This proposition does not impact on Horizon or Horizon’s liability in respect of Blaze’s defence and counterclaim.
[1282] Second, the source of the implied duty differs. In Jayman, as in the instant case, the agreement between the owner and the engineering firm was oral. In neither case was there a written document evidencing the terms of the contract between the parties. In Jayman, the trial judge found that the construction contractor clearly expected to be supervised by Kellam Berg, but Kellam Berg clearly and genuinely believed it was under no obligation to do so.
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[1283] In the absence of written terms, Justice Hunt implied a duty to inspect and supervise based on the surrounding context. For example, Jayman hired Kellam Berg to facilitate the tender process and when the contractor was selected, the contract between Jayman and that contractor was written on a Kellam Berg standard form. While Kellam Berg was not a party to that contract, Kellam Berg was clearly identified within the contract as the engineering company, and many provisions therein implicated it in various inspection and supervision obligations. It was on this basis that Justice Hunt found it reasonable to imply an obligation on Kellam Berg to inspect and supervise the work (see paras. 48-58 of the trial judgment, para. 14 of the CA judgment).
[1284] Those factual circumstance do not exist in the present case. Horizon was not involved in the selection of Roll’n, and the contract between Blaze and Roll’n was not facilitated by Horizon or documented on one of Horizon’s standard forms. While it is true that Horizon was involved in the selection of Allen and Cripps, the context is not the same. Allen and Cripps were hired by Horizon for the purpose of performing Horizon’s well supervision obligations pursuant to its agreement with Blaze. Given the oral nature of the Blaze/Horizon agreement and a lack of evidence to reasonably suggest Horizon was under an obligation to inspect or supervise, there is no basis upon which to imply such an obligation in a manner similar to that employed by Justice Hunt in Jayman.
[1285] Third, Blaze cannot rely on Jayman for the proposition that there is a free standing duty on the part of engineers to inspect/supervise. Blaze refers to a passage in Jayman where Justice Hunt refers, at para. 46, to the following quotation from McLachlin, Wallace and Grant, The Canadian Law of Architecture and Engineering, 2d ed. (Markham, ON: Butterworths, 1994) at 126:
Unless the contract between the architect or engineer or owner provides otherwise, the architect or engineer must supervise the work and inspect it sufficiently often to ensure that the project is being constructed in conformity with the plans and specifications and the contractor’s contractual obligations. Failure to discharge this duty may render the architect or engineer liable to the project owner for damages.
[1286] However, immediately following that quote, Justice Hunt states “[t]he learned authors provide no authority for this proposition ...”. Furthermore, nothing in Justice Hunt’s decision can be taken as her acceptance of the foregoing proposition. She implied the obligation on Kellam Berg based on contractual obligations that did exist, as described above.
[1287] Fourth, freedom of contract militates against implying a duty to inspect/supervise absent terms of the agreement, or surrounding context supported by evidence, that clearly supports such an obligation. The view advanced by Blaze, that there is a free standing duty on an engineer to supervise and inspect work that is governed by a design produced by that engineer, without regard to the commercial arrangements between the parties, runs counter to the principle of freedom of contract. In effect, to recognize this duty would change the allocation of risk in favour of the purchaser of engineering services without any corresponding commercial benefit flowing to the engineer. To the contrary, freedom of contract allows both parties to negotiate whatever consideration each is willing to accept in exchange for undertaking obligations they agree to be
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bound by within the framework of their contractual relationship. While one party may be able to transfer some risk associated with the venture to the other party – as happened in Jayman –sophisticated commercial parties will only rationally accept that risk in exchange for some form of consideration, usually by way of fees.
[1288] To impose a free-standing duty to inspect and supervise an entity that provides personnel who perform services under the direction and control of that entity’s client would derogate from the efficacy of the underlying commercial relations.
[1289] On the other hand, there are a vast many ‘consulting’ companies that do not operate as described above, and for good reason. Many entities operate as little more than placement agencies, and are really just providing a recruiting capability for their clients. This too is reflected in the contractual terms and allocation of risk. Once personnel are placed at a client site those individuals fall under the direction, control, and supervision of the client – as in the instant case. In these circumstances the discovery and placement of suitable personnel is often the entirety of the value proposition.
[1290] Viridian Inc. v. Dresser Canada, 2000 ABQB 707, 274 A.R. 28 is advanced by Blaze for the proposition that where there are several tortfeasors who have contributed to the loss, the plaintiff can recover the whole loss from any one of them. In this same vein Blaze also refers to the Contributory Negligence Act and the Tort-Feasors Act. This proposition is not disputed by any of the parties.
[1291] I conclude that the terms of the agreement between Horizon and Blaze were that Horizon would provide Blaze with qualified wellsite supervisors to provide wellsite supervisory services and report to and take direction from Blaze. Horizon did not owe Blaze a duty of care to provide Blaze with experienced engineering expertise, management, and advice for the drilling and recompletion of a critical sour gas well.
[1292] Horizon provided Blaze with wellsite supervisory services through its subcontract with Allen and Cripps, who contracted with Horizon through their respective corporations.
[1293] Allen was onsite from October 28 to 31, 2005 and left on November 1, 2005 when he was replaced by Cripps. During that time he supervised ongoing operations to prepare the existing well for the abandonment operations: Ward’s testimony T. P. 1273. Mills was also onsite on October 28 and 29, 2005.
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[1294] Cripps was onsite from November 1 to 21, 2005. Between November 1 and 11, Cripps continued to supervise the abandonment operations. Between November 11 and 21, 2005, Cripps supervised the re-entry operations. Mills was also onsite at various times between November 1 and 21, 2005.
[1295] When Cripps left the Wellsite on November 21, 2005, Mills relieved Cripps as the Wellsite supervisor. After that time, either Mills or other third parties acted as the wellsite supervisors.
Whether or not Mills was acting as the wellsite supervisor, he was in charge and directed the operations after November 21, 2005 until Roll’n left the Wellsite on December 20, 2005.
[1296] Blaze argues that Horizon did not fulfill, conduct or complete the services for which it was retained, breaching it agreement with Blaze and also breaching a duty of care Horizon owed Blaze, specifically by a) failing or refusing to employ or to ensure that properly qualified individuals were in attendance at the Well site and failing to ensure compliance with other AEUB directives, which resulted in the shutting down operations on December 9, 2005; b) improperly and wrongfully advising Blaze to employ a substantially larger blow out preventor than was required for the drilling and recompletion; c) continuing to retain independent contractors on an hourly basis after the service of those independent contractors were no longer needed and after Blaze advised Horizon that the services were not longer needed d) failing or refusing to properly maintain and supervise the drilling and recompletion, which resulted in Blaze incurring unnecessary standby charges; e) failing or refusing to ensure that the proper equipment was employed in the drilling and completion; and f) failing or refusing to properly inform, report and account to Blaze as to the status of the drilling and recompletion.
[1297] With regard to the duty to report, Blaze argues that Horizon did not properly report and advise Blaze that Roll’n’s employees were not qualified for the Program, that Horizon was unable to see the tickets and qualifications of Roll’n’s workers, that extensive modifications would be needed to Rig 4 to accommodate the 11" 10,000 psi BOP, and that the mud pump supplied by Roll’n was inadequate.
[1298] Blaze alleges it suffered damages as a result of Horizon’s breach of contract and breach of duty of care in the amount of $5,166,873.43 and seeks to set off any indebtedness to Horizon against damages suffered by Blaze.
[1299] Blaze alleges that all the Defendants by Counterclaim (now Horizon and Roll’n since discontinuance against Allen and Cripps and their corporations) are jointly and severally liable and it relies on the Contributory Negligence Act. Alternatively, Blaze claims proportionate amounts of damages as against Horizon and Roll’n under the Tort-Feasors Act.
[1300] As stated previously, breach of contract is simply the failure to perform a contractual obligation.
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[1301] I have already set out above, in connection with Issue 6, the basic elements required to establish an action in negligence.
[1302] As noted, the test for determining causation is set out in Hanke v. Resurfice Corp. at paras. 21 to 23, per McLachlin C.J.C.:
First, the basic test for determining causation remains the “but for” test. This applies to multi-cause injuries. The plaintiff bears the burden of showing that “but for” the negligent act or omission of each defendant, the injury would not have occurred. Having done this, contributory negligence may be apportioned, as permitted by statute.
This fundamental rule has never been displaced and remains the primary test for causation in negligence actions. As stated in Athey v. Leonati, at para. 14, per Major J., “[t]he general, but not conclusive, test for causation is the ‘but for’ test, which requires the plaintiff to show that the injury would not have occurred but for the negligence of the defendant.” Similarly, as I noted in Blackwater v. Plint, at para. 78, “[t]he rules of causation consider generally whether ‘but for’ the defendant’s acts, the plaintiff’s damages would have been incurred on a balance of probabilities.”
The “but for” test recognizes that compensation for negligent conduct should only be made “where a substantial connection between the injury and the defendant’s conduct” is present. It ensures that a defendant will not be held liable for the plaintiff’s injuries where they “may very well be due to factors unconnected to the defendant and not the fault of anyone”: Snell v. Farrell, at p. 327, per Sopinka J.
[1303] Blaze argues that Allen and Cripps were required but failed to notify Blaze of all of the issues they identified with the Roll’n crew, failed to ensure that these issues were addressed and failed to shut-down operations until these issues were rectified.
[1304] Blaze further argues that Allen and Cripps had a duty to ensure that the Roll’n crew had the required first and second-line BOP tickets. It argues that they failed to do so, that this was one of the reasons the AEUB shut-down the operations on December 9, 2005 and that Blaze suffered damages as a result.
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[1305] Based on the foregoing evidence under Issues 1 to 6, which also applies to the issues between Horizon and Blaze, I find that it was Blaze and Roll’n who determined the personnel in attendance at the Well.
[1306] Further, as noted in the foregoing evidence, Horizon provided well site supervisory services to Blaze in a good and workmanlike fashion, and provided Blaze with current reports on what was occurring at the Wellsite.
[1307] I find that Cripps told Mills on more than one occasion that the operations were not in compliance with AEUB regulations and were being conducted in an inappropriate manner. [1308] Further, I accept Cripps’ evidence that at the very least, he advised Mills when Mills took over from Cripps at the Wellsite that he did not think the Roll’n crew had the required tickets.
Mills knew what tickets were required and it was his responsibility as Operation, Project Manager and wellsite supervisor to ensure the Roll’n crew had the required qualifications.
[1309] If Blaze suffered any damages as a result of Roll’n not having the required certifications, it is Blaze who was responsible.
[1310] Based on the foregoing, I conclude that Horizon did not breach the contract or breach a duty of care to Blaze by failing or refusing to employ or to ensure that properly qualified individuals were in attendance at the Wellsite and if Blaze suffered damages as a result of the AEUB shut-down of operations on December 9, 2005 this was not caused by Horizon.
[1311] Based on the evidence and my conclusions under Issue 5, I find that there is no merit in Blaze’s claim and that Horizon did not breach the contract or breach a duty of care to Blaze by failing to ensure compliance with other AEUB directives resulting in AEUB shut-down.
[1312] Horizon replies that the independent contractors were two safety supervisors the presence of whom was necessary and desirable when drilling a critical sour gas well and that no safety supervisor was retained by Horizon contrary to instructions of Blaze.
[1313] The operations were running on a 24-hour basis.
[1314] Allen was of the view that AEUB requirements stipulated that a critical sour gas well running on a 24-hour basis required 24-hour safety surveillance at the gate to the site to account for the number of people onsite in case of a leak or blowout. He hired someone for gate surveillance. He was also of the opinion that AEUB requirements stipulated that a critical sour gas well have two safety crew on the night duty and two on the day duty. He said he told Mills this and Mills
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disagreed. Mills instructed Allen to dismiss the safety people. Mills confirmed that on October 31, 2005, he telephoned Allen at the Wellsite, told him he had too many security people onsite, and directed Allen to dismiss the person on gate surveillance. Allen followed Mills’ direction, which he was required to do as Blaze was the well operator in charge.
[1315] I find that there is no merit in Blaze’s claim in this regard and that Horizon did not breach the contract or breach a duty of care to Blaze in retaining safety supervisors longer than needed.
[1316] A review of the wellsite services that Allen and Cripps provided from October 27 to November 21, 2005 does not indicate that they failed to maintain or supervise the drilling an recompletion operations.
[1317] Blaze argues that Allen’s lack of experience and qualifications to perform the well supervisory services is demonstrated by the fact that he failed to obtain and review the Blaze Drilling Program prior to commencing any work on the Project. Although the evidence does not indicate that Allen reviewed the Program prior to going to the wellsite, he was at that time concerned with organizing services so that the abandonment operations could commence since Roll’n was already moving to the Wellsite on October 27, 2005 and the Drilling Program was not going to commence until the re-entry which would not take place until the abandonment had been completed.
[1318] On October 25, 2005, after meeting with Kindjerski and Mills, and on October 26, 2005, Allen began to contact the well service providers that he understood would be needed to provide services and/or equipment for the Blaze operation.
[1319] I have found earlier that Horizon did not receive a copy of the abandonment program.
[1320] Ward opined that Allen’s failure to familiarize himself with the Drilling Program demonstrates his lack of qualifications to supervise the operations at the Blaze Well. Ward opined that whether or not the Program was provided to Allen during his initial meeting with Mills and Kindjerski on October 25, 2005, Allen should not have proceeded to contact well services providers before reviewing the Program. He said it is the Program that dictates what equipment and personnel will be required for a project.
[1321] However, Ward agreed on cross that when he prepared his expert report, he was not aware that Allen had not been given a copy of the Drilling Program nor that when Allen met with Mills and Kindjerski on October 25, 2005, Roll’n Rig 4 was already moving to the Wellsite. Further, Ward agreed that it was Mills’ responsibility to give the person he had hired as wellsite supervisor the necessary information about the project. Ward also agreed that it was Mills’ responsibility to
decide whether Allen had the qualifications to do the work required, and Ward could not fault Allen if Mills decided that Allen had the qualifications required.
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[1322] On November 1, 2005, Cripps met with Anderson and Allen to get general information on the project and determine the next steps. He said he did not receive a copy of the Drilling Program at that time but received one from Anderson sometime during his first three days onsite and that he did have an opportunity to read it, although not thoroughly. He did not know if Allen had received a copy of the Program.
[1323] The evidence conflicts as to the condition of the wellsite and wellhead.
[1324] Allen said that on October 27, 2005, he met with Anderson at a gravel pit near the Wellsite where the Roll’n Rig and equipment was being gathered. He said he then went to the Wellsite and inspected it. He said that when he walked around the site, he noticed a hole that needed to be filled and arranged with Mills for gravel to be brought in to fill it.
[1325] Anderson’s evidence corroborates Allen’s evidence. Anderson testified that the wellsite was not prepared for the operations that were to be conducted. There was production equipment that had to removed before Roll’n could begin operations. He also said the ground was uneven. He confirmed Allen’s evidence that gravel was brought in pursuant to arrangements made with Mills in order to level the site.
[1326] Allen and Cripps supervised the setup of the equipment and prepared the wellsite without incident.
[1327] The nature and completion of the abandonment operations is described earlier in these reasons. Allen was present and provided onsite supervisory services during the beginning of the abandonment operations and Cripps was onsite and provided supervisory services during the remainder of those operations. The abandonment operations were completed and the re-entry operations commenced on November 11, 2005.
[1328] Sutherland opined in his Expert Report.
Mr. Allen inherited a fishing job as soon as he got on location. He was very careful dealing with a very sour gas well and attempting to conduct an abandonment while bringing in a Rig and associated equipment. In my opinion Mark Allen and Randy Cripps acted in good workmanlike fashion and were competent well site supervisors.
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[1329] Ward admitted on cross-examination that Allen was qualified to supervise the abandonment operations. The evidence satisfies me that Allen and Cripps had the experience and qualifications to perform the abandonment operations and that they provided appropriate supervision in that respect.
[1330] As discussed earlier in these reasons, Cripps was onsite supervising and managing the operations and reporting to Mills up until November 21, 2005, at which point a window had been cut in the well casing in preparation for the re-entry.
[1331] Cripps left the Wellsite on November 21, 2005 and no one from Horizon provided wellsite supervision services after that time. At that time, Cripps turned over his wellsite supervisor duties to Mills and either he or other third parties hired by him provided the wellsite supervisor services after that time.
[1332] I conclude, based on the foregoing, that Horizon did not breach its contract or breach a duty of care to Horizon by failing or refusing to properly maintain and supervise the drilling and recompletion, and that any damages suffered by Blaze were not the fault of Horizon. Neither Cripps nor Allen were onsite after November 21, 2005. They advised Mills what was happening onsite prior to that.
[1333] Horizon argues that it was Blaze and Roll’n who determined the type of equipment employed in the operations.
[1334] Further, based on my conclusions under Issues 1 through 6 above, Roll’n’s equipment was capable of conducting the operations.
[1335] In regard to the mud pumps, both Allen and Cripps fulfilled their duties to inspect and test the pumps and advised Mills as to their findings and in particular Cripp’s concerns about the mud pumps.
[1336] Allen testified that he inspected the pumps and instructed Roll’n to make repairs which they did.
[1337] While Allen may not have advised Blaze of his concerns about the pump before he left the site, it must be remembered that he was only onsite from October 27, 2005 until noon on November 1, 2005. During that time, he dealt with a number of matters. Mills himself was there on October 28, 2005. It would appear that the problems with the pump did not appear until sometime between October 28 and October 31, 2005. Allen quite naturally asked Roll’n to make the
necessary repairs. It was not apparent at this early stage whether the pumps were capable of performing as required. I do not accept that Allen should have advised Blaze about his observations as to the capacity or repair of the pump before he left on November 1, 2005.
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[1338] There is substantial evidence that Cripps both inspected and advised Mills of the difficulties with the Roll’n mud pump on a number of timely occasions.
[1339] Based on the foregoing and the evidence and my conclusions on Issues 1 through 6 above, I find that this claim has no merit and that Horizon did not breach the contract or breach a duty of care to Blaze by failing to ensure the proper equipment was employed.
.
[1340] Blaze argues that Horizon breached its contract with Blaze by providing DORs that omitted critical details of the daily operations, including the following details: that a 10,000 psi BOP was used rather than the 5,000 psi BOP specified in Blaze’s Drilling Program; that extensive alterations were performed on Rig 4 to accommodate the larger BOP; that Alberta OH&S inspected the Blaze operations on November 10, 2005 and that Cripps was unable to obtain a copy of the inspector’s report; and that Cripps was having difficulty obtaining information on the BOP tickets and qualifications of the Roll’n crew.
[1341] As noted above in this judgment, Horizon prepared and provided Blaze with its DORs: see Ex. 001-021. Allen prepared the Horizon DORs dated October 28 to October 31, 2005, he and Cripps prepared one for November 1, 2005 as that was the day that Cripps arrived onsite, and Cripps prepared the Horizon DORs from and including November 2 to November 21, 2005, the last day he was at the Wellsite. There was a computer-generated error in the Horizon DORs. They show that Mills was the Wellsite supervisor from November 16 to 20, 2005. It was agreed that this was an error and that Cripps was the wellsite supervisor during that period.
[1342] As discussed earlier, Cripps and Allen testified that they sent Mills the Horizon DORs on a daily basis. Mills agreed that he received them on a daily basis except for on the weekends. Mills said he received Horizon’s DORs during the entire time that Horizon was on the job: T. P.
604-606. Mills also testified that he received daily verbal reports from both Allen and Cripps while they were onsite.
[1343] Mills testified that although the bulk of the Horizon DORs were based on the Pason Reports they should also have contained other information which needed to be reported to Blaze and Horizon, such as safety concerns or improper operational procedures.
[1344] Kindjerski agreed that it was part of the Horizon/Blaze contract that Horizon would provide Blaze with separate Horizon DORs for each day of the operations and that the purpose of providing these DORs was to document in writing what was occurring onsite.
[1345] In February and April 2006, after Blaze refused to pay Horizons’s invoices for services
rendered until it obtained more information from Allen and Cripps, Allen and Cripps both emailed Kindjerski further details of what had occurred while they were at the Wellsite: see Ex. 006-116. Allen and Cripps identified a number of concerns that were not reported in the Horizon DORs.
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[1346] Cripps’ evidence, which I accept, is that he also sent Mills a copy of his notes setting out his concerns about the operations soon after he left the site.
[1347] When Cripps was relieved by Mills on November 21, 2005, he said he told Mills that the operation was moving too slowly and was costing too much. He said he discussed his safety concerns with Mills. He said he told Mills that he did not know what BOP tickets the Roll’n crew possessed. He said he did not think the crew was properly trained and that they were inexperienced. He said Yearwood was performing well but Anderson was not. He said he told Mills that he had not received the OH&S report resulting from the November 9th incident when the day crew stood down due to safety concerns.
[1348] I accept Cripps’ evidence as to what he told Mills when Mills took over from him. I reject Ward’s opinion that Cripps failed to advise Mills of his specific concerns. Cripps’ opinion and concerns were clearly outlined to Mills. If Mills wanted further details on specifics, he would have asked for them. Accordingly, Horizon did not breach any contractual obligation or duty in this regard.
[1349] I also adopt and apply my conclusions under Issue 5 regarding the issue of whether Roll’n properly reported to Blaze.
[1350] Based on my findings on Issues 1 through 6 above and the foregoing, I find that this claim has no merit and that Horizon did not breach the contract or breach a duty of care to Blaze by failing to properly inform and report to Blaze.
[1351] Horizon argues that Cripps and Allen were properly qualified to and did perform the wellsite supervision services in competent and workmanlike manner.
[1352] Kindjerski agreed that one of the terms of Horizon’s contract with Blaze was that Horizon would provide Blaze with personnel having expertise and experience with critical sour gas wells. Horizon asserts that it did so by providing the services of Allen and Cripps.
[1353] Allen had extensive experience in the oil and gas industry. He worked in various positions in the industry from 1962 to 1981. He worked in the construction industry from 1982 to 1987.
From 1987 to 2006 he returned to the oil and gas industry and performed completion work over that period.
[1354] Kindjerski stated that he had known Allen for about one and one-half months prior to Kindjerski contacting Allen about the Blaze job. He said he had worked with Allen in the past and that Allen had extensive completion experience.
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[1355] Cripps had worked in the oil and gas industry for 40 years by the time he contracted to work as Horizon’s consultant on the Blaze Well. In 1998 or 1999, he formed his own consulting company, Bush Ape Supervision Ltd., of which he was the sole employee. He had consulted for Horizon on two prior well drilling projects in Alberta. Cripps also possessed a second line BOP ticket.
[1356] Kindjerski stated that he had known Cripps since 1998, that Cripps had some completion, drilling and sour gas experience and quite a bit of experience with critical sour, horizontal drilling: Kindjerski stated that between Allen and Cripps, they probably had about 30 years’ experience.
[1357] Kindjerski testified that he told Mills during their October 25, 2005 meeting that Allen and Cripps were available to provide supervisory services onsite. He stated that there was no discussion as to Allen’s or Cripps’ training or certifications. Kindjerski stated that he knew that, between them, Allen and Cripps had the training and certifications necessary for this type of operation, and he assumed Mills knew this too.
[1358] Mills’ evidence as to the Allen’s and Cripps’ competence varied. At his examination for discovery, he testified that he believed they were properly trained and competent. At trial, Mills took a contrary view.
[1359] Ward’s overall opinion was that Horizon’s personnel were not sufficiently experienced and did not perform the functions they had been hired to perform.
[1360] Ward’s opinion that Horizon’s breached its contract by failing to provide competent wellsite supervisory services during the abandonment operations is of little weight. He admitted that his expertise was in drilling, not in completion and abandonment work. He had written three drilling programs at most and none for completions or abandonments. He did not hold the well service BOP ticket required for abandonment operations with a service rig. Ward agreed that when Allen was at the Wellsite he was preparing for and starting the abandonment operations. He acknowledged that he was not qualified to offer expert opinion on the abandonment operations conducted at the Blaze Well or on whether Allen or Cripps were qualified and competent in supervising the abandonment operations at the Blaze Well.
[1361] I do not accept Ward’s opinion that Allen and Cripps were not qualified or competent with respect to their respective areas of involvement in this project operations.
[1362] Sutherland opined that both Cripps and Allen were competent. See paragraph 1346, supra.
[1363] I also conclude that Allen and Cripps were qualified and experienced and that Horizon did not breach the contract or a duty of care to provide experienced competent wellsite supervisors.
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[1364] In the alternative, Horizon argues it was entitled to the benefit of the exclusion clauses in MWS Contract. Horizon was not a party to the MWS Contract and can not claim benefits under it. There is no merit to this argument by Horizon.
[1365] For the foregoing reasons, I find that Horizon did not breach its contract or duty of care to Blaze in any respect.
[1366] Well site supervisory services were rendered by Horizon to Blaze at the Blaze Well from and including October 27 to November 21, 2005.
[1367] Horizon issued three invoices to Blaze totalling $39,081.35: Invoice 2005-383-MA, dated 7 November 2005 for $10,351.85 for Allen’s well site supervision services from 26 October 2005 to 2 November 2005; Invoice 2005-399-RC, dated 15 November 2004 for $19,046.00 for Cripps’ well site supervision services from 1 November 2005 to 14 November 2005 (incorrectly dated 2004 instead of 2005); and Invoice 2005-410-RC, dated 21 November 2005 for $9,683.50 for Cripps’ well site supervision services from 15 November 2005 to 21 November 2005.
[1368] There was no express agreement between the parties as to Horizon’s rate or other cost of its services. Kindjerski’s evidence was that although he does not recall if he gave Mills a rate sheet at the meeting in Horizon’s office on October 25, 2005, it was his practice to give rate sheets to all new clients. Mills does not recall being provided with information on Horizon’s rates. In either case, Horizon’s invoices were based on a rate of $850 per day for Allen’s services and a rate of
$975 per day for Cripps’ services: Ex. 003-044.
[1369] Cripps confirmed that he had rendered invoices to Horizon on behalf of Bush Ape for Wellsite supervision from November 1 to November 14, 2005 in the amount of $17,173. 50 (Ex. 005-073) and from November 15 to 21, 2005 in the amount of $8,747.25, and that they were based on an hourly rate for services of $975 per day (Ex. 005-074).
[1370] Horizon seeks judgment for the services rendered in the amount of $39,081.35.
[1371] Horizon submits that it provided Blaze with the well supervisory services it contracted to provide, that it invoiced Blaze for Horizon’s services in November 2005, and that Blaze both
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implicitly and explicitly admitted, through its post-contractual conduct, that Horizon was both entitled to payment for the services it rendered and that Blaze would pay Horizon for those services, when Horizon provided Blaze with more complete reports from Allen and Cripps on what happened during the time they were providing services onsite.
[1372] Horizon argues that the Blaze did not complain about the services provided by Allen or Cripps or their qualifications or experience until March 24, 2006, the date that Blaze filed its Statement of Defence and Counterclaim in Horizon’s debt action.
[1373] Horizon submits that, in a series of emails between Horizon and Blaze, exchanged after Horizon terminated its services on November 21, 2005 and prior to Horizon filing its Statement of Claim on March 2, 2006, Blaze not only admitted that it owed Horizon for the services rendered but also agreed to pay Horizon for those services. It argues that this series of emails reveals that Blaze’s refusal to pay Horizon was not because of any breach of contract or breach of duty of care by Horizon, but to obtain further information from Horizon that Roll’n wanted for its anticipated lawsuit against Roll’n. Horizon alleges that those reports were provided and therefore, that the conditions for payment have been satisfied but that Blaze has continued to refuse to pay the Horizon invoices.
[1374] Blaze admits that Horizon invoiced Blaze for services rendered and that Blaze has refused to pay. However, it argues that the series of emails exchanged between the parties is not evidence that Blaze admitted that it owed Horizon payment for services rendered. It argues that the emails support Blaze’s position that Horizon failed to provide Blaze with adequate DORs, as required under their contract. It argues that this failure resulted in Roll’n continuing to provide services at the Well that it was incapable and unqualified to provide and that this resulted in Blaze incurring the damages that it now seeks from Horizon. Further, Blaze argues that it did complain to Kindjerski as soon as Allen starting working at the Wellsite that he did not have the qualifications or experience for the job. It also argues that it made complaints about the lack of information in Horizon’s DORs in early 2006, prior to issuing its Statement of Claim against Horizon.
[1375] The actions and correspondence of Mills, on behalf of Blaze as outlined above is, in my view, inconsistent with Blaze’s position vis a vis Horizon that it did not supply competent, qualified supervisors. Indeed, the whole tenor of the correspondence between Blaze and Horizon was to the effect that Horizon would be paid but first, Blaze wanted additional information which, I infer, Blaze wanted to have to assist it in its dispute with Roll’n.
[1376] Each of the foregoing invoices states: "Total due in 30 days. Overdue accounts subject to a service charge of 1% per month.": Ex. 003-044.
[1377] Horizon alleges that it was a term of its agreement with Blaze that any sums due and owing for the services it rendered, and not paid within 30 days after Blaze’s receipt of the invoice therefor, were subject to a service charge of 1 percent per month (12 percent per annum). It seeks
judgment for a service charge on the sum of $39,081.35 at 12 percent per annum from December 21, 2005 until the date of judgment. Alternatively, it seeks interest on the amounts invoiced under the Judgement Interest Act.
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[1378] The evidence does not support an agreement between Horizon and Blaze that Blaze would pay any service charge, let alone one of 1 percent per month. Horizon’s claim to such a service charge is a unilateral action by it.
[1379] Any claim for interest by Horizon is governed by the provisions of the Judgment Interest Act.
[1380] Horizon claims that the services it rendered were for the recovery of oil and natural gas from the lands on which the Blaze Well was located and that it thereby became entitled to a valid subsisting charge under the Builders’ Lien Act against the estate or interest of the owners of the lands and the minerals when severed from the lands in the amount of $39,081.35 plus a service fee of 12 percent per annum from the 30th day following Blaze’s receipt of the invoices until the date of payment.
[1381] Blaze denies any agreement respecting the payment of interest and denies Horizon’s work improved the lands and as a result that it has a valid builders’ lien against the lands and pleas that Horizon improperly and wrongfully filed its builders’ lien causing if further pecuniary loss and damage of $100,000 and seeks to set off any amount owing to Horizon against these damages.
[1382] Horizon’s debt has been proved and it forms, in the circumstances of this case, a valid basis for filing its lien. I therefore conclude and declare that Horizon was entitled to file a builder’s lien against the subject lands for the foregoing amount of its debt.
[1383] I conclude that Horizon is entitled to judgment against Blaze for the amount of $39,081.35 and interest of same under the Judgment Interest Act from 30 days after the invoices were rendered until the date of payment. I further conclude that Horizon was entitled to file a builders’ lien against the Blaze lands on which the Well was located for the total of the foregoing amounts.
[1384] Based on by conclusions under Issues 1 through 13, Blaze’s counterclaim is dismissed.
[1385] In summary I conclude as follows:
Roll’n is entitled to judgment against Blaze in the amount of $946,590.13, plus interest under the Judgment Interest Act;
Roll’n’s builders lien is declared valid;
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Horizon is entitled to judgment against Blade for $39,081.31 plus interest under the Judgment Interest Act.;
Horizon’s builders’ lien is declared valid;
Blaze counterclaim against both Roll’n and Horizon is dismissed;
If the parties cannot agree on costs they may speak to me. [1386] The parties may speak to costs if necessary.
Heard on the 1st day of March, 2010 to the 7th day of April, 2010 and the 16th day of June, 2010 to the 16th day of July, 2010.
Dated at the City of Calgary, Alberta this 31st day of October, 2011.
G.B. Davison, Q.C.
for Horizon Resource Management Ltd. and Roll’n Oilfield Industries Ltd.
G.R. Vipond
for Blaze Energy Limited, Canyon Oil and Gas Corporation, and Detector Exploration Ltd.
R.J. Mueller
for Blaze Energy Limited, Canyon Oil and Gas Corporation, and Detector Exploration Ltd.
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