Court of Queens Bench of Alberta  
Citation: NEP Canada ULC v MEC OP LLC, 2021 ABQB 180  
Date: 20210401  
Docket: 1201 09690  
Registry: Calgary  
Between:  
NEP Canada ULC  
Plaintiff  
- and -  
MEC OP LLC, MEC OP Transaction I ULC and Merit Energy Company LLC  
Defendants  
Corrected judgment: A corrigendum was issued on May 21, 2021; the corrections  
have been made to the text and the corrigendum is appended to this judgment.  
_______________________________________________________  
Reasons for Judgment  
of the  
Honourable Mr. Justice D.B. Nixon  
_______________________________________________________  
Table of Contents  
I. Introduction............................................................................................................................. 8  
II. Issues and Claims.................................................................................................................... 9  
A. The Issues............................................................................................................................ 9  
B. NEP Claims....................................................................................................................... 10  
Page: 2  
III.  
The Parties and Connected Persons .................................................................................. 10  
A. Entities Connected to the Plaintiff.................................................................................... 10  
1. NEP USA...................................................................................................................... 10  
2. NEP Canada (also known as NEP)............................................................................... 10  
B. The Defendants ................................................................................................................. 10  
1. Merit USA..................................................................................................................... 10  
2. Merit LLC..................................................................................................................... 11  
3. Merit ULC..................................................................................................................... 11  
4. Merit Corporate Chain Summary ................................................................................. 11  
C. Individuals Connected to the Defendants ......................................................................... 12  
IV.  
Business Background........................................................................................................ 12  
A. NEP Business Plan............................................................................................................ 12  
B. The Transaction Assets The MEC OpCo Properties ..................................................... 13  
C. Merit USA Decision to Sell Canadian Oil and Gas Assets ........................................... 13  
D. Due Diligence ................................................................................................................... 14  
E. The RAE Report ............................................................................................................... 14  
F. The 2011 SPA Schedule D ............................................................................................ 14  
G. Employees Retained.......................................................................................................... 14  
H. NEP Protective Steps Self-Disclosure and Production Shut-In..................................... 15  
V. Overview Facts and Context.............................................................................................. 15  
A. Key Lay Witnesses ........................................................................................................... 15  
1. Mr. Plunk ...................................................................................................................... 15  
2. Mr. Hagge ..................................................................................................................... 19  
3. Mr. Moffitt.................................................................................................................... 22  
4. Mr. Carr ........................................................................................................................ 26  
5. Mr. Lambert.................................................................................................................. 26  
6. Ms. Hall ........................................................................................................................ 27  
7. Mr. Terpstra .................................................................................................................. 27  
8. Mr. Shihinski ................................................................................................................ 27  
B. Expert Witnesses............................................................................................................... 27  
1. Ralph David Webster.................................................................................................... 27  
Page: 3  
2. Daryl Glenn Foley ........................................................................................................ 28  
3. Patrick Edmund Keck ................................................................................................... 28  
4. Kenneth Brandon Mullen.............................................................................................. 28  
5. Deryck Harold Helkaa .................................................................................................. 29  
6. Neal Nissim Mizrahi..................................................................................................... 29  
7. Nora Tennant Stewart ................................................................................................... 29  
8. Ronald Steve Burdylo................................................................................................... 29  
9. Alicia Kim Quesnel ...................................................................................................... 30  
10.  
11.  
12.  
13.  
14.  
Theresa Lucy Watson................................................................................................ 30  
Alan John Goddard ................................................................................................... 30  
Keith Murray Braaten ............................................................................................... 31  
Dale Edwin Tremblay............................................................................................... 31  
John Williams ........................................................................................................... 31  
C. Background The Parties and Transaction ...................................................................... 32  
1. The MEC OpCo Evaluation.......................................................................................... 32  
2. The Transaction ............................................................................................................ 33  
D. Regulatory Non-Compliance MEC OpCo..................................................................... 34  
1. Pipelines........................................................................................................................ 34  
a. Sweet-to-Sour ........................................................................................................... 34  
b. Discontinued Pipelines.............................................................................................. 35  
c. Depth of Cover.......................................................................................................... 35  
2. Facilities........................................................................................................................ 36  
a. 9-16 Facility.............................................................................................................. 37  
b. 11-20 Facility............................................................................................................ 38  
c. 3-3 Facility................................................................................................................ 38  
d. 7-4 Facility................................................................................................................ 38  
3. Surface Casing Vent Flows........................................................................................... 39  
4. Suspension Requirements for Wells Directive-13..................................................... 39  
E. Merit’s Knowledge – Regulatory Non-Compliance......................................................... 40  
1. Witness Credibility ....................................................................................................... 40  
a. General Comments.................................................................................................... 40  
b. NEP’s Lay Witnesses................................................................................................ 40  
Mr. Bud Newton ................................................................................................... 41  
Page: 4  
Ashley Cross ......................................................................................................... 41  
Darcy Turner......................................................................................................... 41  
Mr. Shihinski and Ms. Hall................................................................................... 41  
c. Merit’s Witnesses – Lay and Expert......................................................................... 41  
Mr. Hagge ............................................................................................................. 41  
Mr. Carr................................................................................................................. 42  
Mr. Moffitt............................................................................................................ 43  
Mr. Williams......................................................................................................... 44  
d. Credibility Assessment Summary Comments ....................................................... 44  
2. Persons of Knowledge .................................................................................................. 44  
a. Mr. Lambert .............................................................................................................. 45  
b. Mr. Carr..................................................................................................................... 45  
c. Mr. Moffitt ................................................................................................................ 45  
d. Mr. Hagge ................................................................................................................. 45  
e. Mr. Terpstra .............................................................................................................. 46  
f. Ms. Hall..................................................................................................................... 46  
g. Mr. Shihinski............................................................................................................. 46  
h. Mr. Plunk .................................................................................................................. 46  
3. Pipelines Non-Compliance Knowledge..................................................................... 46  
a. Sweet-to-Sour ........................................................................................................... 46  
b. Discontinued Pipelines.............................................................................................. 54  
c. Depth of Cover.......................................................................................................... 55  
4. Facilities........................................................................................................................ 55  
a. 7-4 Facility................................................................................................................ 55  
b. 3-3 Facility................................................................................................................ 55  
5. Surface Casing Vent Flows........................................................................................... 55  
6. Directive-13 .................................................................................................................. 57  
7. Drafting Schedule D ..................................................................................................... 60  
8. Conclusion on Merit’s Knowledge............................................................................... 65  
F. Merit’s Representations – Regulatory Non-Compliance.................................................. 66  
1. Contractual Representations ......................................................................................... 66  
2. Due Diligence Calls with Mr. Carnahan....................................................................... 69  
a. Mr. Carr..................................................................................................................... 70  
Page: 5  
b. Ms. Hall..................................................................................................................... 71  
3. Divino Meeting – “Just Paperwork............................................................................. 71  
4. Persons of Knowledge Meetings .................................................................................. 72  
a. Ms. Hall..................................................................................................................... 72  
b. Mr. Shihinski............................................................................................................. 73  
c. Mr. Lambert .............................................................................................................. 73  
d. Mr. Terpstra .............................................................................................................. 74  
VI.  
Analysis............................................................................................................................. 74  
A. Evidentiary Burden ........................................................................................................... 74  
B. The Issues.......................................................................................................................... 74  
1. Was there a breach of contract?.................................................................................... 74  
a. The Law .................................................................................................................... 75  
The Contract Representations and Warranties................................................... 75  
Interpretive Issue – The Term “Potential............................................................ 76  
b. Applying the Law to the Facts .................................................................................. 77  
Schedule D – Interpreting the Term “Potential”................................................... 77  
The 2011 SPA Representations and Warranties ................................................ 83  
(I) Unqualified Warranties..................................................................................... 83  
(II)  
Qualified Warranties..................................................................................... 86  
(III) Schedule D Non-Compliances Not Disclosed ........................................... 87  
(A) Pipelines....................................................................................................... 88  
(B) Facilities....................................................................................................... 90  
(C) Directive-13 ................................................................................................. 91  
(D) Surface Casing Vent Flows ......................................................................... 92  
Conclusion on Breach of Contract.................................................................... 93  
2. Was there deceit in this case? ....................................................................................... 93  
a. The Law The elements of deceit............................................................................ 93  
Misrepresentation by silence or incomplete disclosure ........................................ 94  
Misrepresentation by a half-truth.......................................................................... 95  
Plaintiff’s Position ................................................................................................ 95  
Defendant’s Position............................................................................................. 96  
Page: 6  
Judicial Thoughts The Historical Framework.................................................... 96  
b. Applying the Law to the Facts ................................................................................ 101  
Admissions of Deceit.......................................................................................... 102  
(I)  
Ms. Hall....................................................................................................... 102  
Mr. Shihinski............................................................................................... 102  
(II)  
Other Deceit with Admitted Actual Knowledge................................................. 103  
Mr. Terpstra................................................................................................. 103  
(I)  
(II)  
Mr. Carr....................................................................................................... 103  
(III) Mr. Lambert ................................................................................................ 104  
“Potential”....................................................................................................... 104  
The Actual Knowledge and Recklessness Merit Deal Team & Other Persons of  
Knowledge.................................................................................................................. 105  
(I)  
Mr. Carr....................................................................................................... 106  
Mr. Hagge ................................................................................................... 107  
(II)  
(III) Mr. Plunk .................................................................................................... 110  
(IV) Mr. Moffitt.................................................................................................. 112  
(V)  
Other Persons of Knowledge ...................................................................... 116  
(VI) Conclusion on Actual Knowledge and Recklessness ................................. 116  
Intention .............................................................................................................. 118  
Conclusion on Deceit.......................................................................................... 119  
3. Was there a conspiracy between Merit ULC (the transaction entity) and Merit USA (its  
ultimate corporate parent)? ................................................................................................. 120  
a. The Law What are the elements of conspiracy? .................................................. 120  
b. Applying the Law to the Facts ................................................................................ 121  
4. Did Merit breach its duty of good faith?..................................................................... 122  
a. The Law What are the elements of good faith? ................................................... 122  
b. Applying the Law to the Facts ................................................................................ 123  
Vendor Representation and Warranties Re: No Material Violations Section  
4.1(u)........................................................................................................................... 125  
Page: 7  
Purchaser’s Conditions Re: True and Correct Representations and Warranties of  
Vendor Section 5.1(b).............................................................................................. 125  
Maintenance of Assets Until Closing Sections 9.1(a), (b) and (e)............... 126  
5. Is Merit USA subject to vicarious liability? ............................................................... 127  
a. The Law The elements of vicarious liability ....................................................... 127  
b. Applying the Law to the Facts ................................................................................ 129  
The Merit Deal Team Their Particulars........................................................... 129  
(I)  
Mr. Plunk..................................................................................................... 129  
Mr. Hagge ................................................................................................... 130  
(II)  
(III) Mr. Moffitt.................................................................................................. 130  
(IV) Mr. Carr....................................................................................................... 130  
The Mind and Management of Merit.................................................................. 130  
6. Is Merit USA subject to alter ego liability? ................................................................ 134  
a. The Law .................................................................................................................. 134  
b. Applying the Law to the Facts................................................................................ 136  
VII. Damages.......................................................................................................................... 137  
A. Revised Claims ............................................................................................................... 137  
B. Damages Sought A Summary...................................................................................... 138  
C. Damages General Comments....................................................................................... 139  
1. Damages in Contract................................................................................................... 139  
2. Damages in Tort.......................................................................................................... 139  
3. Guideline Comments No Windfall .......................................................................... 139  
D. Incremental Evidence...................................................................................................... 139  
E. Contractual Restrictions.................................................................................................. 140  
F. Remediation.................................................................................................................... 141  
1. Pipeline remediation ................................................................................................... 142  
a. Sweet-to-Sour ......................................................................................................... 142  
b. Depth of cover......................................................................................................... 143  
c. Inefficient management........................................................................................... 143  
2. Facility Remediation................................................................................................... 144  
a. 9-16 Facility............................................................................................................ 145  
Page: 8  
b. 11-20 Facility.......................................................................................................... 145  
c. 7-4 Facility and 3-3 Facility.................................................................................... 145  
d. Grandfathering Provisions ...................................................................................... 146  
3. Surface Casing Vent Flow and Casing Failure Remediation ..................................... 146  
4. Directive-13 Remediation........................................................................................... 147  
5. Future Remediation Efforts ........................................................................................ 148  
6. De Minimus Default Provisions.................................................................................. 149  
7. The Pinchin Report ..................................................................................................... 150  
8. Betterment................................................................................................................... 150  
9. Conclusion Remediation Costs................................................................................ 151  
F. Loss of Opportunity........................................................................................................ 151  
1. Preliminary Issue ........................................................................................................ 153  
2. Test for Loss of Opportunity ...................................................................................... 153  
3. Application of the Folland Test.................................................................................. 154  
4. Remoteness ................................................................................................................. 155  
5. Mitigation.................................................................................................................... 157  
6. Double recovery.......................................................................................................... 158  
7. Quantum of damages .................................................................................................. 159  
a. Bookends................................................................................................................. 159  
b. Discount .................................................................................................................. 160  
8. Conclusion Loss of Opportunity.............................................................................. 161  
G. Shut-in Production Costs ................................................................................................ 162  
H. Borrowing Costs ............................................................................................................. 163  
I. Punitive Damages ........................................................................................................... 164  
J. Conclusion Damages ................................................................................................... 165  
VIII. Conclusions..................................................................................................................... 166  
IX.  
Costs................................................................................................................................ 167  
I. Introduction  
This case concerns a contractual dispute. The Plaintiff is NEP Canada ULC (“NEPor  
NEP Canada).  
 
Page: 9  
There are three Defendants in this action (the “Action”). They are MEC Op LLC (“Merit  
LLC”), MEC OP Transaction I ULC (“Merit ULC”) and Merit Energy Company LLC (“Merit  
USA”) (collectively, the “Defendants”, and generally referred to as “Merit).1  
NEP alleges that the Defendants misled and deceived it in the context of the Share  
Purchase Agreement dated August 18, 2011 (the “2011 SPA”). In addition to the ancillary causes  
of action discussed below, NEP asserts the conduct of the Defendants constituted multiple  
breaches of the 2011 SPA, as well as actionable deceit.  
In the underlying transaction, NEP acquired the shares of MEC Operating Company ULC  
(“MEC OpCo”). The 2011 SPA documented that share acquisition (the “Share Transaction”).  
The parties to the 2011 SPA were Merit ULC (the Vendor), NEP (the Purchaser) and  
MEC OpCo (being the operating corporation that was acquired). MEC OpCo held the assets that  
NEP was targeting.  
Under the terms of the 2011 SPA, the Share Transaction closed on September 30, 2011  
(the “September 2011 Closing Date”). The assets of MEC OpCo included wells, pipelines and  
facilities in various producing oil fields in Central, West Central and Northern Alberta.  
The assets specific to the Action involve a number of oil fields in central Alberta. Those  
assets include Pembina (the “Pembina Field”), the Leduc-Woodbend (the “Leduc Field”) and  
others (collectively, the “Transaction Assets”).  
NEP alleges that the Defendants did not truthfully disclose what they knew about the  
Transaction Assets. NEP asserts that these entities opted for half-truths. Knowing they would  
leave the impression that there were no known problems, the Defendants are alleged to have  
promised regulatory compliance, and used vague and misleading words within which they hoped  
to conceal actual problems.  
In the weeks leading up to the September 2011 Closing Date, NEP asked whether there  
were any “huge hidden liabilities lurking”. The individuals representing Merit allegedly stated  
that there were none. NEP now asserts that such was not the case, and that it has suffered  
numerous wrongs.  
In 2018, NEP Canada Corp (“NEP HoldCo”) sold its equity interest in NEP to 1830575  
Alberta Ltd (“183Co”) for $479,150,000, subject to adjustments. This 2018 sale of NEP was  
effected through the Share and Partnership Interest Purchase and Sale Agreement (the “2018  
PSA”).  
The 2018 PSA was entered into amongst NEP HoldCo, 183Co and Aspenleaf Energy  
Limited (“AspenleafCo”). The 2018 PSA was dated July 9, 2018.  
II. Issues and Claims  
A. The Issues  
Framed in the context of questions, the issues that I address in this case are as follows:  
1 Before October 1, 2011, “Merit” generally refers to Merit USA, Merit LLC, Merit ULC and MEC OpCo. After  
September 30, 2011, “Merit” generally refers to Merit USA, Merit LLC and Merit ULC, which are also defined as  
the Defendants.  
   
Page: 10  
1. Was there a breach of contract?  
2. Was there deceit in this case?  
3. Was there a conspiracy between Merit ULC (the transaction entity) and Merit  
USA (its ultimate corporate parent)?  
4. Did Merit breach its duty of good faith?  
5. Is Merit USA subject to vicarious liability?  
6. Is Merit USA subject to alter ego liability?  
B. NEP Claims  
[13] As a result of the numerous alleged wrongs, NEP asserts that it has suffered significant  
damages. NEP seeks aggregate damages in the range of $365,565,024 to $515,181,453, with a  
claimed midpoint of $440,373,238.  
NEP seeks judgment in the above amounts against the Defendants, jointly and severally,  
plus prejudgment interest.  
III. The Parties and Connected Persons  
The underlying corporate structure is relevant in this litigation. For that reason, I provide  
the following overview of the parties and other persons with a connection to the dispute.  
A. Entities Connected to the Plaintiff  
1. NEP USA  
Newton Energy Partners, LLC (NEP USA) was incorporated pursuant to the laws of  
Delaware.  
The President and Chief Executive Officer of both NEP USA and NEP Canada is Mr.  
George (Bud) Newton (“Mr. Bud Newton”).  
Kayne Anderson Capital Advisors, LP (Kayne Anderson) is a private equity firm with  
offices in Houston, Texas.  
2. NEP Canada (also known as NEP)  
As part of the underlying transaction, NEP acquired the shares of MEC OpCo. Shortly  
after that acquisition, NEP amalgamated with MEC OpCo.  
Subsequent to that amalgamation, NEP carried on business in the oil and gas industry in  
Alberta. Its business headquarters was in Calgary.  
B. The Defendants  
1. Merit USA  
As mentioned above, Merit USA is one of the Defendants. It is a Delaware limited  
liability company, and it is based in Dallas, Texas.  
             
Page: 11  
Merit USA specializes in owning and operating oil and gas assets. It maintains its  
ownership interest in those assets through various affiliates and subsidiaries.  
2. Merit LLC  
Merit LLC is a Delaware limited liability company. Merit LLC is wholly owned by Merit  
USA.  
3. Merit ULC  
Merit ULC is an Alberta unlimited liability corporation. It is an indirect subsidiary of  
Merit USA. Merit ULC is wholly owned by Merit LLC.  
Merit ULC was formed for the purpose of completing the sale of the shares of MEC  
OpCo to NEP Canada. It was the sole shareholder of MEC OpCo before the shares of that  
corporation were acquired by NEP Canada.  
4. Merit Corporate Chain Summary  
In diagram format, the relevant corporate chain of Merit immediately before the Share  
Transaction on September 30, 2011 is illustrated as follows:  
     
Page: 12  
C. Individuals Connected to the Defendants  
At all material times, the following individuals held positions within Merit USA:  
a. Mr. Jake Plunk was the Vice President of Business Development.  
b. Mr. Chris Hagge was the Vice President, General Counsel and Secretary.  
c. Mr. Ben Moffitt was the Corporate Counsel.  
At all material times prior to September 30, 2011, Mr. Plunk, Mr. Hagge and Mr. Moffitt  
were based in Dallas, Texas. Each of these individuals remained based in Dallas after the  
September 2011 Closing Date.  
Prior to February 2007, Mr. Gayden Carr was the Vice President of Finance for Merit  
USA. He was based in Dallas, Texas at that time.  
Between February 2007 and September 30, 2011, Mr. Carr was employed by MEC OpCo  
as Vice President and General Manager. During that period, he lived in Calgary, Alberta.  
Between September 30, 2011 and December 28, 2011, Mr. Carr was the Vice President  
and Chief Financial Officer for NEP Canada. His employment with NEP Canada came to an end  
on December 28, 2011.  
By way of an email issued by Mr. Hagge on July 21, 2011, certain individuals in  
management positions associated with [its] Canadian assetswere designated by Merit to be  
persons of knowledge. Those individuals were Mr. Plunk, Mr. Hagge, Mr. Moffitt, Mr. Carr, Mr.  
Jason Shihinski, Ms. Sheri Hall, Ms. Keisha Smith, Mr. Tommy Lambert, Ms. Heather Fofonoff  
and Mr. Travis Terpstra, together with all other current officers of Merit ULC (defined as the  
Vendorin the 2011 SPA) and the officers of MEC OpCo (defined as the Corporationin the  
2011 SPA) before the September 2011 Closing Date (collectively, “Persons of Knowledge”).  
Four of the Persons of Knowledge were designated by Merit to take lead roles on the  
divestiture of Merit’s Canadian assets. Those four individuals, whom Merit labels the directing  
minds, were Mr. Plunk, Mr. Hagge, Mr. Moffitt and Mr. Carr (collectively, the “Merit Deal  
Team”): see also NEP Canada ULC v MEC OP LLC, 2017 ABQB 28 at para 8 [Wilson 2017  
NEP Decision].  
IV. Business Background  
A. NEP Business Plan  
Mr. Bud Newton is a petroleum engineer. He has been in the oil and gas industry for 35  
years.  
In 2010, Mr. Bud Newton and his son, Mr. Mitchell Newton (collectively, the “Newton  
Team”), decided to establish their own oil and gas company. The plan of the Newton Team was  
to apply the expertise that Mr. Bud Newton had acquired in developing legacy assets.  
The Newton Team wanted to identify, target, acquire and develop a legacy assetof  
their own. The commercial strategy conceived by the Newton Team had four steps. In summary,  
those four steps were to: (i) identify and acquire an appropriate legacy asset; (ii) invest capital  
to drill new wells in an aggressive drilling program; (iii) workover the existing and new well  
     
Page: 13  
base to increase production and prove up additional reserves; and (iv) sell the “legacy asset”  
within three years (collectively, the “Newton Business Plan”).  
Financial backing for the Newton Business Plan was needed. Mr. Bud Newton leveraged  
a contact at Kayne Anderson to secure funding.  
The Newton Business Plan meshed with the Kayne Anderson business model. The  
collective objective of Kayne Anderson and the Newton Team was to invest in oil and gas plays  
that could generate a 25% return with an exit timeline of approximately three years.  
Kayne Anderson and NEP developed economic models for their joint investment with an  
exit or realization date of December 2014. However, to persuade Kayne Anderson to buy into the  
Newton Business Plan, Mr. Bud Newton had to risk a great deal of his own net worth.  
On the strength of the experience and personal financial commitment of Mr. Bud  
Newton, Kayne Anderson agreed to provide NEP with an initial investment of $75,000,000. That  
investment allowed NEP to seek an investment opportunity.  
With the Kayne Anderson commitment in-hand, the Newton Team began the process of  
identifying and evaluating legacy assetsacross North America. They were seeking an old oil  
field: (i) with multiple producing formations; (ii) where numerous wells had been drilled a long  
time ago; and (iii) which had not had much drilling activity in recent decades.  
B. The Transaction Assets The MEC OpCo Properties  
Between 2003 and September 30, 2011, MEC OpCo operated the Transaction Assets in  
Alberta. A portion of these properties had been acquired from PricewaterhouseCoopers Inc, in its  
capacity as the receiver-manager of Probe Exploration Inc.  
C. Merit USA Decision to Sell Canadian Oil and Gas Assets  
In December 2010, Merit decided to sell all of its Canadian oil and gas interests. Merit  
was going to effect the proposed exit from Canada through a sale of: (i) all of the assets of MEC  
OpCo; (ii) all of the shares of MEC OpCo; or (iii) some combination thereof.  
Merit USA and MEC OpCo retained the law firm Heenan Blaikie LLP as their Canadian  
counsel for the transactions. Mr. Brian Bidyk, from the now-defunct law firm of Heenan Blaikie  
LLP, was the primary Canadian counsel involved with the transaction on behalf of Merit.  
The Transaction Assets appeared to have the characteristics of the legacy asset that Mr.  
Bud Newton was seeking. He was particularly interested in the Leduc Field. The characteristics  
of that field were as follows: (i) the Leduc Field was old; (ii) the Leduc Field had a lot of  
acreage; and (iii) it appeared that after initial exploration by a major company, very little capital  
had been invested in the Leduc Field for development.  
Mr. Bud Newton was also attracted to the existing pipeline infrastructure in the Leduc  
Field. That infrastructure would assist in moving hydrocarbons from existing and new oil wells  
to the point of sale.  
In June 2011, NEP made a bid to purchase the Transaction Assets. That offer was in the  
form of a purchase of the shares of MEC OpCo, which held the Transaction Assets.  
During the summer of 2011, NEP and Merit negotiated the terms of the Share  
Transaction. On August 18, 2011, NEP and Merit agreed to the terms of the Share Transaction,  
   
Page: 14  
and the 2011 SPA was signed on that date (the “August 2011 Signing Date”). As mentioned  
above, the Share Transaction contemplated by the 2011 SPA closed on the September 2011  
Closing Date.  
D. Due Diligence  
NEP was assisted in performing due diligence on MEC OpCo by Niven Fischer Energy  
Services Inc (Niven Fischer) and Bennett Jones LLP (Bennett Jones). The due diligence  
pursued by Niven Fischer was overseen by Mr. Brian Carnahan. The due diligence pursued by  
Bennett Jones was overseen by Mr. Pat Maguire.  
As part of the sales process, Merit established both an electronic data room and a physical  
data room, which contained information on MEC OpCo. Upon request, Merit also provided  
additional information not contained in the electronic data room or the physical data room.  
E. The RAE Report  
In 2010, MEC OpCo retained RAE Engineering and Inspection Ltd. (RAE  
Engineering) to complete various projects with respect to its pipelines. RAE Engineering was a  
third-party consultant.  
On July 22, 2011, RAE Engineering issued a draft report to MEC OpCo (the “Draft  
RAE Report”). That report was forwarded to the attention of Ms. Hall. She was principally in  
charge of regulatory matters at MEC OpCo.  
F. The 2011 SPA Schedule D  
In negotiating the terms of the Share Transaction, Merit and NEP exchanged multiple  
versions of the 2011 SPA (collectively, the Draft 2011 SPA).  
The Draft 2011 SPA included a Schedule D. Merit provided NEP with the first draft of  
Schedule D on July 22, 2011. Both NEP and Merit were involved in the drafting and negotiation  
of the wording and contents of Schedule D.  
On or about July 27, 2011, Mr. Carnahan had a telephone call with Mr. Carr concerning  
Schedule D. The duration of the call was approximately fourteen minutes. During this phone  
call, Mr. Carr and Mr. Carnahan discussed the items listed on Schedule D.  
Merit provided NEP with a second draft of Schedule D on August 3, 2011. That second  
draft incorporated some of the items discussed between Mr. Carnahan and Mr. Carr.  
NEP provided Merit with a third draft of Schedule D on August 17, 2011.  
Merit provided NEP with a fourth draft of Schedule D on August 18, 2011. This fourth  
edition of Schedule D became the final version used in, and attached to, the 2011 SPA.  
G. Employees Retained  
Following the September 2011 Closing Date, some of the former employees and  
contractors of MEC OpCo became employees of, or were contracted by, NEP Canada. These  
individuals included Ms. Hall, Mr. Terpstra, Mr. Shihinski, Mr. Carr, Mr. Darcy Turner, Ms.  
Sylvia King and Mr. Michael Reinhart.  
Of these retained individuals, only Ms. Hall and Mr. Shihinski remained employed by  
NEP Canada as of January, 2018.  
       
Page: 15  
H. NEP Protective Steps Self-Disclosure and Production Shut-In  
Subsequent to the September 2011 Closing Date, NEP took protective steps concerning  
the Transaction Assets. On December 23, 2011, NEP shut-in certain wells in the Leduc Field that  
were situated on the north side of the North Saskatchewan River (the “NS River”). By  
September 2012, NEP had shut-in the remaining wells in the Leduc Field north of the NS River.  
These protective steps were taken for health and safety reasons. The underlying concerns  
raised regulatory issues.  
During the relevant period, there were changes to the regulatory bodies. Prior to June 17,  
2013, the Energy Resources Conservation Board (ERCB) was the regulatory body established  
under the Energy Resources Conservation Act, RSA 2000, c E-10. On and after June 17, 2013,  
the Alberta Energy Regulator (AER) was, and is, the regulatory body established under the  
Responsible Energy Development Act, SA 2012, c R-17.3 (The ERCB and AER are collectively,  
the Regulator).  
V. Overview Facts and Context  
A. Key Lay Witnesses  
The evidence of a number of individuals is relevant to the issues in this case. I focus on  
the evidence of eight individuals.  
My primary focus is on five individuals. They are: (i) Mr. Plunk, Vice President of  
Business Development within Merit USA; (ii) Mr. Hagge, Vice President, General Counsel and  
Secretary within Merit USA; (iii) Mr. Moffitt, Corporate Counsel within Merit USA; (iv) Mr.  
Carr, Vice President and General Manager of MEC OpCo, prior to the signing of the 2011 SPA;  
and (v) Mr. Lambert, Director of Operations of MEC OpCo, prior to the signing of the 2011  
SPA.  
Both Mr. Carr and Mr. Lambert were employed by Merit USA in Texas prior to  
becoming employed with MEC OpCo in 2007 and 2008, respectively. Immediately before the  
Share Transaction closed, Mr. Carr reported directly to the President of Merit USA in Dallas,  
Texas.  
After the Share Transaction, Mr. Carr remained in Alberta and became employed by  
NEP. In contrast, Mr. Lambert transitioned back to Texas.  
My secondary focus is on three individuals who were employed by MEC OpCo prior to  
the Share Transaction. They are: (i) Ms. Hall, who looked after regulatory matters; (ii) Mr.  
Shihinski, who looked after Field Operations; and (iii) Mr. Terpstra, who was the Region  
Manager.  
1. Mr. Plunk  
In February 2011, Mr. Plunk informed Mr. Bud Newton that Merit was going to divest  
itself of its Canadian assets. Mr. Plunk was the chief business person overseeing the Share  
Transaction. He was present at the management presentations that Merit gave to NEP.  
In cross-examination, Mr. Plunk testified that it was the role of senior management  
within Merit to review the schedules to the 2011 SPA. In further cross-examination, he  
       
Page: 16  
confirmed that it was the responsibility of senior management to ensure that the schedules were  
accurate.  
On July 20, 2011, Mr. Plunk received an email from Mr. Carr (the “Carr July 2011  
Email”). The subject of the email was “regulatory issues”. That email stated:  
There will be significant dollars associated with these clean-up efforts and we will  
need to discuss how to disclose them to Newton as it is probably a larger amount  
of expense than they would have seen on past yearslease operating statements.  
The testimony of Mr. Plunk regarding his prior knowledge of the Carr July 2011 Email  
fluctuated. In cross-examination, he initially said he had “possibly” read it. Still in cross-  
examination, he said that he “most likely didn’t even read it”. He then said that he did not recall  
reading it at the time he received it. Within that same cross-examination, he subsequently  
claimed to recall reading only a portion of the email.  
The evidence is that Mr. Plunk sent an email on July 21, 2011 asking the Persons of  
Knowledge to gather information about known regulatory non-compliances (the “Plunk July  
2011 Regulatory Email”). He asked the recipients of the email to provide the information to Mr.  
Moffitt, Mr. Hagge or himself.  
Having made the request for information in the Plunk July 2011 Regulatory Email, Mr.  
Plunk acknowledged in cross-examination that the Persons of Knowledge would be responding  
to him in respect of that request. The evidence is that Mr. Terpstra responded within hours of  
having received the Plunk July 2011 Regulatory Email. In his response, Mr. Terpstra attached a  
spreadsheet of non-compliances, including the sweet-to-sour pipeline issue. When asked about  
this response from Mr. Terpstra, Mr. Plunk testified in cross-examination that he would not have  
opened the attachments.  
Mr. Plunk was subjected to cross-examination on his assertion that he would not have  
opened the attachments to the responding emails. It was put to him that failing to review the  
email and its attachments would have been a dereliction of his duty. He then shifted gears, and  
testified that he could not recall whether he reviewed the attachments.  
In further cross-examination, Mr. Plunk testified that he understood that it was important  
for him to pay attention to the answers from the responding Persons of Knowledge. As part of  
that cross-examination, he conceded that by the summer of 2011, he was aware that MEC OpCo  
had a project related to pipelines and non-producing wells, and that RAE Engineering had been  
retained for that task.  
Mr. Plunk also gave equivocal answers in cross-examination as to whether he reviewed  
other key emails. The evidence is that he received an email from Mr. Carr in September 2011  
enclosing the consolidated comments on Schedule D (the “Carr September 2011 Responding  
Email”). Those consolidated comments were from the field staff and Mr. Carr.  
Mr. Plunk received the Carr September 2011 Responding Email five days before the  
September 2011 Closing Date. That email included particulars concerning the notice from the  
Regulator that 67 wells had been identified as being non-compliant with Directive-13 (“D-13).  
That directive governs the suspension and abandonment requirements for inactive wells.  
In cross-examination, Mr. Plunk testified that he did not recall reading the Carr  
September 2011 Responding Email or other similar emails, including emails marked as being of  
Page: 17  
high importance. Mr. Plunk also confirmed in cross-examination that he did not read many of  
these emails despite the fact that the information in these emails was the specific information that  
he expected to be addressed in Schedule D.  
Throughout the sales process, Mr. Terpstra had continuing communications with Mr.  
Plunk and others, regarding the anticipated Share Transaction.  
Ms. Hall testified in direct examination that she had conversations with Mr. Plunk and  
others, during the summer of 2011 regarding the scope of the non-compliance concerning the  
surface casing vent flows (“SCVF”). She did this in an effort to communicate her knowledge of  
the SCVF issue to Mr. Plunk and others.  
The evidence is that before signing off on Schedule D, Mr. Bud Newton wanted to meet  
with Mr. Carr and Mr. Plunk. This meeting was scheduled in mid-August 2011, and it occurred  
at the Divino Restaurant in Calgary (the “Divino Meeting”).  
Mr. Carr testified in direct examination that at the Divino Meeting, Mr. Plunk chimed in  
and commented on the work that RAE Engineering was doing. Counsel for NEP objected,  
arguing that the narrative of Mr. Carr concerning what Mr. Plunk said about RAE Engineering  
was hearsay. I allowed counsel for Merit to continue with the questioning, but I stated that I  
would not be considering any evidence that was hearsay, unless there was an exception to the  
hearsay rule.  
As I now consider this testimony, I find that the reference Mr. Carr made to Mr. Plunk’s  
comments about RAE Engineering is not hearsay. I make that determination because the subject  
testimony from Mr. Carr is only evidencing that Mr. Plunk was aware of RAE Engineering.  
In cross-examination, Mr. Carr testified that during the Divino Meeting, Mr. Plunk led  
the discussion about what RAE Engineering had been doing. In contrast, in cross-examination,  
Mr. Plunk denied having any knowledge of RAE Engineering before the Divino Meeting.  
Indeed, during that cross-examination, Mr. Plunk testified that the first time he heard the name  
RAE Engineering was at the Divino Meeting.  
Given the consistency of the evidence of Mr. Carr in both direct examination and cross-  
examination, I accept his testimony on this point. Based on Mr. Carr’s evidence, it would seem  
that Mr. Plunk was aware of RAE Engineering before the Divino Meeting, and that he addressed  
RAE Engineering at that meeting. The evidence of Mr. Carr concerning that point is not  
inconsistent with the Wilson 2017 NEP Decision because that decision only made a finding  
concerning Mr. Plunk’s lack of knowledge concerning the Draft RAE Report, which has nothing  
to do with: (i) whether Mr. Plunk was aware of RAE Engineering as an operating entity; and (ii)  
whether Mr. Plunk addressed that entity in some fashion at the Divino Meeting.  
As mentioned above, Mr. Plunk testified that he had not heard of RAE Engineering until  
the Divino Meeting. Notwithstanding the Wilson 2017 NEP Decision, the evidence is that Mr.  
Plunk received the Draft RAE Report by email. While I accept the finding in the Wilson 2017  
NEP Decision, I note that during this trial, Mr. Plunk explained his failure to review the Draft  
RAE Report. In particular, Mr. Plunk testified that he failed to review the Draft RAE Report  
because he was attending a high school reunion, and was therefore not answering work emails.  
While that seems to be a viable explanation, on cross-examination, Mr. Plunk testified  
that he had answered multiple work-related emails the day of the high school reunion. He also  
testified that he had enough time to address certain emails concerning the fact that “El Paso got  
Page: 18  
bought by Apollo”, which I infer was irrelevant to the MEC OpCo deal. I note these evidentiary  
points because they are inconsistent with the assertion of Mr. Plunk that he was not answering or  
addressing work emails on that date.  
In cross-examination, Mr. Carr admitted that in September 2011, he was aware of the  
effect that the can of wormsopened by United Hunter Oil & Gas Corp (“United Hunter”)  
would have on the Share Transaction, and that he discussed this with Mr. Lambert. Briefly,  
United Hunter engages in the exploration of oil and gas properties, and it had engaged in a  
project with Merit, out of which, a dispute arose. As the dispute with United Hunter continued,  
Mr. Carr involved a number of individuals, including Mr. Plunk.  
In direct examination, Mr. Carr testified that he explained to his colleagues in an email  
communication, which included Mr. Plunk, that the pipelines that United Hunter was seeking to  
tie into, as well as the downstream facilities, were not licensed to carry the sour products that the  
subject well would produce. The advice MEC OpCo consistently received from Mr. Lambert  
was not to open a can of wormswith the Regulator while there was a sales process in place.  
Otherwise, the pipeline non-compliance would become public.  
In cross-examination, Mr. Plunk testified that he was aware that the main concern of a  
purchaser is knowing what liabilities they are assuming. In that same cross-examination, he  
again confirmed that it would be very important for a purchaser, such as NEP, to know what  
liabilities it was assuming in the transaction.  
In a later cross-examination, Mr. Plunk testified that he was aware that NEP would be  
relying on Merit to ensure that Schedule D was truthful, accurate and complete. Mr. Plunk also  
confirmed that as the individual signing the Officers Certificate at closing, he expected Schedule  
D would incorporate, with specifics, all known instances of non-compliance of which key  
employees, like Ms. Hall, were aware. In cross-examination, Mr. Plunk testified that if Merit had  
any specific information regarding non-compliances with pipeline licences, SCVFs or suspended  
wells, the information would be set out in Schedule D in appropriate detail for the purchaser.  
In cross-examination, Mr. Carr testified that he sent the Carr July 2011 Email to Mr.  
Plunk and other Persons of Knowledge because he knew that the costs associated with clean-up  
of the MEC OpCo assets were both large and undetectable from a review of the information  
disclosed to NEP. The Carr July 2011 Email was sent to Mr. Hagge and Mr. Moffitt on July 20,  
2011, and Mr. Plunk was copied on the communication.  
In cross-examination, Mr. Plunk testified that he knew Mr. Bud Newton was seeking  
assurances regarding non-compliance matters and Schedule D.  
The evidence is that none of the Persons of Knowledge were permitted to meet with NEP  
alone. Mr. Plunk confirmed in direct examination that he personally sat in on some of the  
meetings. He stated that he attended those meetings because he “...had been the one that put out  
the persons of knowledge e-mail so [he] felt like [he] needed to be there for the meetings”. That  
said, he later testified that he never spoke to the Persons of Knowledge about their responses  
before he attended the Persons of Knowledge meetings with Mr. Bud Newton on August 16,  
2011 (collectively, the “POK Meetingsand individually, the POK Meeting).  
As a summary comment, the evidence is that under the Newton Business Plan, NEP  
planned to drill between 100 and 250 new wells within three years after it purchased the  
Page: 19  
Transaction Assets. Mr. Bud Newton communicated these plans to Mr. Plunk before the  
September 2011 Closing Date.  
Based on the evidence provided by Mr. Plunk, he signed the Officer’s Certification  
notwithstanding that he allegedly made no effort to review the information put forward by the  
other Persons of Knowledge. That is, given his version of the story, Mr. Plunk made no effort to  
compare the data provided by other Persons of Knowledge to what had been disclosed on  
Schedule D.  
2. Mr. Hagge  
Mr. Hagge was the head legal counsel on the Share Transaction. As early as 2009, Mr.  
Hagge was included in email communications concerning compliance issues. The evidence is  
that in an email dated February 23, 2009, D-13 non-compliance was noted as a high-  
enforcementissue. The issue was serious enough to place MEC on Global Referstatus. A  
status of that nature would have prevented MEC OpCo from getting approval for new licence  
applications, and could lead to production being shut-in. This information was circulated by Mr.  
Carr to Mr. Hagge and others.  
Mr. Hagge engaged outside counsel to assist with the sale of the Transaction Assets, and  
he travelled to Calgary in January 2011. The purpose of that travel was to assist with the sale of  
the Canadian assets held by Merit, which included the Transaction Assets.  
During the Share Transaction, Mr. Hagge was the legal point-person. He assumed the  
role of lead legal counsel on the transaction.  
In this role, Mr. Hagge prepared the draft 2011 SPA that was provided to NEP. Based on  
the evidence, he was intimately involved in the negotiation and drafting of the 2011 SPA.  
Mr. Hagge repeatedly denied any knowledge of the sweet-to-sour issue. This denial was  
made despite the evidence that he received communications on the issue from numerous sources,  
and Mr. Carr expressly testified to discussing the issue with him on multiple occasions.  
In cross-examination, Mr. Hagge acknowledged that Mr. Lambert was the most  
knowledgeable person concerning MEC OpCo from an operations perspective. Similarly, in  
cross-examination, Mr. Hagge testified that Mr. Shihinski was the most knowledgeable MEC  
OpCo employee from a field operations perspective.  
Ms. Hall testified in direct examination that during the summer of 2011, she had  
conversations regarding the scope of SCVF non-compliance with Mr. Hagge and others. She did  
this in an effort to communicate her knowledge of the SCVF issue to him and others. Prior to  
circulating the first draft of Schedule D, Mr. Hagge had a discussion concerning a spreadsheet  
that indicated the scope of the non-compliance and identified as many as 40 SCVFs.  
In cross-examination, Mr. Hagge initially testified he had no specificrecollection of  
reviewing the communications concerning the SCVFs. He then hedged his comments.  
Based on my review of his evidence, Mr. Hagge did not deny: (i) having opened the  
attachments; and (ii) reviewing Ms. Halls email. In reviewing the evidence, I note that on July  
26, 2011 at 8:23 am Mr. Hagge sent an email to Mr. Lambert (with copies to Mr. Plunk, Mr. Carr  
and Mr. Moffitt) wherein he specifically addressed the SCVFs. In that communication, two key  
field staff had informed Mr. Carr that they “guestimated” that there were 30 to 40 SCVFs in the  
area. In response to that communication, Mr. Hagge made the following comment in an email:  
 
Page: 20  
If there are currently leaks or other non compliance, we need to list it. If were  
just guessing that there may be leaks in the future, I dont think its appropriate to  
list (akin to listing a spill that may occur simply because we produce and transport  
oil around our properties). We can catch up more later when Im back from  
Heenans offices Thank you  
Based on my review of the evidence, there is no indication that Mr. Hagge further  
investigated this 30 to 40 SCVF reference. I infer from this communication that Mr. Hagge was  
turning a “blind eye” to the SCVF exposure, but that he had been informed of there existence.  
Ms. Hall prepared additional notes on Schedule D. She circulated those notes to Mr.  
Hagge and others on July 27, 2011 (the “Hall July 2011 SCVF Email”). She attached a copy of  
the Draft RAE Report to the Hall July 2011 SCVF Email. In an effort to draw attention to the  
Draft RAE Report, Ms. Hall wrote the following at the top of the email – “Added the Sweet-to-  
Sour Draft Technical Report”.  
In her notes concerning Schedule D that accompanied the Hall July 2011 SCVF Email,  
Ms. Hall specifically noted that the best information available indicated that there were between  
30 and 40 SCVFs. She also underscored that the sweet-to-sour issue should be properly reflected  
in Schedule D by writing the following in red – “Sour Pipeline License Issue (attached draft  
report).  
On July 28, 2011, Ms. Hall forwarded the same email directly to Mr. Carr. By attaching  
the Draft RAE Report and referencing it in the body of the Hall July 2011 SCVF Email, Ms. Hall  
also brought that report to the attention of Mr. Shihinski and Mr. Terpstra.  
Mr. Hagge claims that he missed the Hall July 2011 SCVF Email and its attachment. Mr.  
Carr also claims to have missed the Hall July 2011 SCVF Email and its attachment.  
In cross-examination, Mr. Hagge admitted that he knew that the cost of repairing a single  
SCVF was a material matter that needed to be disclosed to NEP. The evidence is that the repair  
cost amount was in the range of $140,000 per well, although the cost could vary significantly.  
On August 18, 2011, Mr. Hagge was copied on a communication from Mr. Carr, wherein  
Ms. Hall was asked to answer questions raised by Mr. Carnahan concerning an Environment  
Canada matter on Schedule D. However, she was expressly directed not to engage him on any  
other items.  
Based on the evidence before me, I find that Ms. Hall was presenting Mr. Hagge with the  
“best information” she had available at the time. In contrast, Mr. Hagge was relying on a  
“guestimate” comment to avoid addressing the issue on Schedule D.  
In cross-examination, Mr. Hagge described Schedule D as a disclosure schedule. He  
testified that Schedule D was referred to as such because its purpose was to disclose or identify  
matters which qualified the representations that pertain to particular subjects. At another juncture  
in cross-examination, Mr. Hagge conceded that that Merit needed to accurately disclose on  
Schedule D the regulatory non-compliances of which the Persons of Knowledge were aware.  
Throughout the sales process, Mr. Terpstra had continuing communications regarding the  
transaction with Mr. Hagge and others.  
Page: 21  
In an email dated July 20, 2011, Mr. Hagge expressed concerns about a statement that  
Ms. Hall had made about “unsafe” conditions associated with pipelines. This was a regulatory  
issue. Mr. Carr responded with the Carr July 2011 Email.  
In cross-examination, Mr. Hagge testified that he made no effort to follow up with the  
various Persons of Knowledge to ensure that he had received responses to the request for items  
to be disclosed on Schedule D. Further, while Mr. Hagge conceded that he received a number of  
responses to his request for information, in cross-examination, he testified that theres many  
attachments that I didnt open”.  
In cross-examination, Mr. Hagge testified that he was aware that D-13 was on Schedule  
D. Notwithstanding that knowledge, he testified that he made no efforts to inform himself on D-  
13 or who within MEC OpCo might have the best information in respect of that issue, except to  
ask Mr. Moffitt to work on the schedule.  
In cross-examination, Mr. Hagge testified he did not bother to investigate whether D-13  
was a regulatory or a financial matter. When Mr. Carr sent him an email marked high  
importanceto advise of the notice from the Regulator regarding 67 newly flagged D-13 non-  
compliant wells, Mr. Hagge testified that he was not sure if he had read the attachments. Mr.  
Hagge had selective recall of reading only certain paragraphs of the email.  
In cross-examination, Mr. Hagge testified that he made no efforts to gather information  
about the reports of sweet licensed pipelines carrying sour products. In fact, Mr. Hagge said that  
he had no awareness of this issue before the September 2011 Closing Date. He made this  
statement notwithstanding that the issue was put forward for inclusion on Schedule D multiple  
times.  
In cross-examination, Mr. Hagge testified that despite having been involved in a number  
of conversations and email correspondence involving the sweet-to-sour issue (including the  
United Hunter issues), he professed to having no recollection of the matter.  
In direct examination, Mr. Carr testified that he explained to his colleagues in an email  
communication, which included Mr. Hagge, that the pipelines that United Hunter was seeking to  
tie into, as well as the downstream facilities, were not licensed to carry the sour products that the  
well would produce. The advice that MEC OpCo consistently received from Mr. Lambert and  
agreed with during this time was not to open a can of wormswith the Regulator while there  
was a sales process in place. Otherwise, the pipeline non-compliance would become public.  
The evidence is that none of the Persons of Knowledge were permitted to meet with NEP  
alone. Mr. Hagge confirmed in direct examination that he personally listened in on some of the  
POK Meetings. In his testimony, Mr. Hagge described himself as a “quiet listener”. He stated  
that he attended those meetings because Merit was ...at the point of signing any day and if an  
issue came up, [he] wanted to hear it so [he] could address it. That said, he later testified that he  
never spoke to the Persons of Knowledge about their responses before he attended those POK  
Meetings with Mr. Bud Newton. He also testified that he was not aware that any constraint had  
been placed on any individual who was a member of the Persons of Knowledge group.  
With Mr. Carr directly beside Ms. Hall and Mr. Hagge on the phone, Mr. Bud Newton  
asked Ms. Hall if there was anything that should be added to Schedule Dand she responded  
“No”. On this point, Ms. Hall testified that she had been told Schedule D was the method by  
Page: 22  
which Merit was going to communicate the regulatory issues. She further stated that she toed the  
line because she was between “a rock and a hard place”.  
Based on read-ins, Mr. Lambert testified that, in the course of dealing with the United  
Hunter dispute, he had a conversation with Mr. Hagge regarding: (i) the sweet-to-sour issues; (ii)  
the involvement of RAE Engineering with the sweet-to-sour issues; and (iii) the so-called “can of  
wormsthat the sweet-to-sour issues would open with the Regulator. I infer from that evidence  
that Mr. Hagge was informed of those three issues. Further, my review of email correspondence  
from Mr. Hagge to Mr. Carr, dated September 13, 2011, proves, on a balance of probabilities,  
that Mr. Hagge had more than a passing knowledge of the challenges associated with United  
Hunter.  
Based on the evidence before me, Mr. Hagge was designated by Merit as one of the  
people trusted and selected to represent the collective mind of the company. He was, by his  
own correspondence, designated as a Person of Knowledge.  
3. Mr. Moffitt  
Mr. Moffitt was Associate Counsel of Merit USA at the time of the Share Transaction.  
Mr. Moffitt first travelled to Calgary to assist with the Share Transaction in early 2011.  
Merit USA brought Mr. Moffitt into the Share Transaction to assist Mr. Hagge with  
negotiating and drafting the 2011 SPA. He also prepared other ancillary documents associated  
with the 2011 SPA.  
The drafting of Schedule D began in May 2011. Mr. Moffitt created the first draft of  
Schedule D, and he was responsible for the alterations to that document.  
Mr. Moffitt prepared spreadsheets to be populated with known non-compliances and  
circulated them to a number of employees within Merit, including Ms. Hall. Mr. Moffitts  
original email regarding Schedule D described it as a list of: any notices of default any laws or  
contracts; any known issues where MEC could be in default under applicable laws....  
The response of Ms. Hall to the request to report regulatory non-compliances for  
inclusion on Schedule D listed two and a half pages of regulatory non-compliances. The detail in  
the email included MEC OpCos: (i) D-13 non-compliance requiring downhole work; (ii)  
pipeline non-compliance; (iii) improperly abandoned pipelines; and (iv) sour products flowing  
through sweet pipelines as separate regulatory non-compliances. That email was then forwarded  
from Mr. Lambert to Mr. Hagge and Mr. Moffitt for discussion, albeit in two separate emails.  
Mr. Moffitt met with Ms. Hall to discuss known regulatory non-compliances on June 7,  
2011. In that meeting, Ms. Hall explained that in the Leduc Field, MEC OpCo had sweet-  
licensed lines carrying sour products and that there were public safety concerns arising from that  
non-compliance. She also confirmed that there were 20 to 40 unreported SCVFs in the Leduc  
Field.  
In cross-examination, Mr. Moffitt testified it was important for him to seek specific  
details of the non-compliances, given the broad scope of the representation and warranties in the  
2011 SPA. The evidence is that Mr. Moffitt was provided with additional information  
concerning non-compliance items.  
The evidence is that in mid-June 2011, Ms. Hall provided Mr. Moffitt with an email  
detailing the non-compliance of MEC OpCo in respect of D-13 and SCVFs (the “Hall June  
 
Page: 23  
2011 Email”). Mr. Moffitt subsequently asked for additional details on the comments she had  
provided in the Hall June 2011 Email. In responding to that request, Ms. Hall informed Mr.  
Moffitt that she did not then have a complete list of licences that are not compliant. However,  
she advised him that she would request a list of non-compliant pipelines identified by RAE  
Engineering.  
Amongst the items communicated, the Hall June 2011 Email specifically distinguished  
between the Pipeline Integrity Management Program (PLIMP) and the pipeline licencing  
issue. However, in cross-examination, Mr. Moffitt could not provide the Court any assurance  
that he had read the Hall June 2011 Email, notwithstanding that it was a direct response to his  
request.  
I find the testimony by Mr. Moffitt on this point troubling. He had asked Ms. Hall  
specific questions. Since he asked the questions, I infer that he was expecting an answer.  
Ms. Hall provided the answer, but Mr. Moffitt testified that he did not recall reading the  
response. He provided that testimony to the Court notwithstanding the fact that his primary task  
was to draft the schedules to the 2011 SPA.  
In contrast, Mr. Moffitt had a specific recollection of reading two separate email  
responses from Mr. Carr, one of which informed him that Ms. Hall would be providing a  
detailed response. Notwithstanding that recollection, in cross-examination, Mr. Moffitt  
testified he had no recollection of the portions of email from Mr. Carr that would have alerted  
him to the severity of the sweet-to-sour problem, including the cost of compliance.  
In cross-examination, Mr. Moffitt testified he had no recollection of opening the  
attachments to Mr. Carr’s email. That email attached: (i) the consolidated comments from the  
Leduc Field staff; (ii) the RAE Report; and (iii) the email from Ms. Hall referencing the RAE  
Report.  
I have four comments concerning the testimony of Mr. Moffitt wherein he alleged that he  
did not recall opening the attachments to this email.  
First, Mr. Moffit provided this testimony notwithstanding he was asking Mr. Carr to  
incorporatethe comments which had been provided by Ms. Hall. That is, Mr. Moffit asked Mr.  
Carr to incorporate the very comments that he alleges he did not read.  
Second, Mr. Moffit provided this testimony in the context of direct examination. During  
the corresponding questioning, it was mentioned that this particular email was the subject matter  
of the trial before Justice Wilson. While I accept the findings that were made in the Wilson 2017  
NEP Decision, I note that when asked in direct examination where he was when he received the  
email on July 28, 2011 at 7:11 pm, Mr. Moffitt answered with great precision. He was with his  
wife at a weekly church group meeting.  
Third, this was the same email that both Mr. Plunk and Mr. Hagge had no recollection  
opening. I find it remarkable that all three of these individuals did not open the same email.  
Fourth, in cross-examination, Mr. Moffitt testified that while he did not read the email  
from Ms. Hall, he did answer other business emails forthwith on that same day. This was  
evidenced by the fact that he responded to an email from Ms. Fofonoff within four minutes of  
having received it.  
Page: 24  
In direct examination, Mr. Moffitt denied that he had ever been aware of any public  
safety issues prior to the September 2011 Closing Date. Notwithstanding that denial, in cross-  
examination, he testified that after his first meeting with Ms. Hall, he typed the words Public  
Safety concernsinto a schedule which would become the first draft of Schedule D. I view that  
as an internal inconsistency.  
In cross-examination, Mr. Carr testified he had reviewed the changes Ms. Hall made to  
the regulatory issues.xslxspreadsheet, and had been alerted to Ms. Halls public safety  
concerns.  
Based on my review of the email communications that are in evidence, the comments of  
Ms. Hall regarding safety concerns prompted an exchange of emails amongst Mr. Carr, Mr.  
Hagge, Mr. Plunk and Mr. Moffitt. Of particular interest is the email from Mr. Carr to Mr.  
Moffitt and Mr. Hagge on Wednesday, July 20, 2011. This was the Carr July 2011 Email, where  
it stated that there will be significant dollars associated with the cleanup efforts, and that they  
needed to discuss how to disclose the to Mr. Bud Newton.  
Concerning the Draft RAE Report, Ms. Hall forwarded the document to Mr. Lambert  
directly, and provided a brief summary of its findings in the covering email. She also sent it to  
Mr. Terpstra, advising that she would send it to Tommy/Gayden for direction on desire to  
include in any divest schedules (or not)”.  
On the following Monday, July 25, 2011, Ms. Hall discussed the Draft RAE Report with  
Mr. Carr. He instructed her to send the Draft RAE Report to Mr. Moffitt. She then sent the Draft  
RAE Report to Mr. Moffitt, with a covering email specifically noting that the attached report  
related to licence issues with Leduc field. I find that this email is one of many communications  
that Mr. Moffitt received concerning details on pipeline non-compliance. In making this finding,  
it is not intended to contradict the determination in the Wilson 2017 NEP Decision. I just note  
that Mr. Moffitt received the communication.  
In direct examination, Mr. Carr testified that he explained to his colleagues in an email  
communication, which included Mr. Moffitt, that the pipelines that United Hunter was seeking to  
tie into, as well as the downstream facilities, were not licensed to carry the sour products that the  
well would produce. As noted above, the advice that MEC OpCo consistently received from Mr.  
Lambert was not to open a can of wormswith the Regulator while there was a sales process in  
place. The apparent concern was that the pipeline non-compliance would become public.  
In direct examination, Mr. Moffitt testified that Ms. Hall never raised any issues with the  
accuracy of drafts of Schedule D. Notwithstanding that denial, in cross-examination, he  
conceded that Ms. Hall had raised issues with respect to whether various drafts of Schedule D  
included references to certain items. Based on the evidence before me, I accept that Ms. Hall had  
raised issues concerning inaccuracies that she had identified.  
Ms. Hall testified in direct examination that during the summer of 2011, she had  
conversations regarding the scope of SCVF non-compliance with Mr. Moffitt and others. She did  
this in an effort to communicate her knowledge of the SCVF issue to him.  
The evidence is that Mr. Moffitt was sent a list of specific wells with SCVFs. I reviewed  
the attachment, and the detail therein. In cross-examination, Mr. Moffitt testified that he could  
not provide the Court any assurance that he had read the attachment. His specific testimony was  
Page: 25  
that he did not recall ever seeing this worksheet. He then went on to comment that Ms. Hall  
would not have told him about a guesstimateif MEC OpCo had a list.  
Concerning this particular email and its attachments, I have three comments.  
First, counsel for NEP cross-examined Mr. Moffitt on how the word “guesstimate” got  
into his head. Mr. Moffitt responded to the question by stating that: (i) he had seen the word  
“guesstimate” in other places; and (ii) he did not remember from where he got the word  
“guesstimate”.  
The word “guesstimate” has importance in this case because it ties into an email that Mr.  
Moffitt asserts that he did not read. The narrative in that email was as follows – “As discussed,  
Jason and Ed guesstimate 30 to 40 SCVF in the area.  
Second, this is yet another example of Mr. Moffitt allegedly not reading what I view to be  
important documents, for which he is responsible.  
Third, in earlier cross-examination, Mr. Moffitt conceded to having known that MEC  
OpCo had numerous wells that were actually non-compliant with D-13. Notwithstanding that  
knowledge, there is no evidence that Mr. Moffitt made any effort to reconcile that knowledge  
with the disclosure that is on Schedule D.  
On July 27, 2011, Mr. Carr circulated an email to Mr. Moffitt and others, in which he  
stated that he would meet with Ms. Hall to discuss incorporating her comments from the Hall  
July 2011 SCVF Email. He attached those two documents to his email, being her notes on  
Schedule D and the Draft RAE Report.  
Mr. Moffitt responded, explaining that he had reviewed the email from Mr. Carr, and  
understood that Mr. Carr would be the one to revise Schedule D in order to capture the  
comments in the attachments (i.e., Ms. Halls email). In cross-examination, Mr. Moffitt testified  
that he did not read the contents of the email or the attachments which had come from Ms. Hall,  
notwithstanding that he specifically referenced her email.  
The testimony of Mr. Moffitt in cross-examination is troubling. His testimony concerning  
which email he opened and reviewed follows a pattern. In making these comments, I am mindful  
that he is a lawyer. That said, the credibility of Mr. Moffitt was undermined.  
Throughout the sales process, Mr. Terpstra had continuing communications regarding the  
transaction with Mr. Moffitt and others.  
On September 23, 2011, the Regulator issued a notice to MEC OpCo identifying 67 wells  
that were offside D-13 (the “Regulator September 2011 D-13 Notice”). That notice was  
received by Ms. Hall approximately one week before the September 2011 Closing Date. The  
evidence is that Ms. Hall sent Mr. Carr an email concerning this matter on Friday, September 23,  
2011. Mr. Carr took this lengthy note and wrote to Mr. Hagge, Mr. Plunk, Mr. Moffitt and Mr.  
Lambert to update them on the D-13 non-compliances.  
This email from Mr. Carr to Mr. Moffitt and others was sent on Sunday, September 25,  
2011 (the “Carr September 2011 Email”). The Carr September 2011 Email specifically  
acknowledged that the non-compliances would lead not only to paperwork but follow up and  
associated costs. Mr. Carr went on to say to Mr. Moffitt and the others that these costs would  
be NEP’s problem for the Central AB assets going forward…”.  
Page: 26  
When Mr. Carr sent Mr. Moffitt and others the Carr September 2011 Email, he marked it  
as being of “high importance”. I infer that Mr. Carr marked the email as being of high  
importance because of the obvious significance of the Regulator September 2011 D-13 Notice.  
Based on the evidence before me, it is clear that Mr. Moffitt was focused on D-13  
compliance. This is supported by a number of communications that were directed to Mr. Moffitt,  
including the August 17, 2011 email from Ms. Hall to him alone where she reported to him that  
she had “…called over to the ERCB to see what/if any D13 suspension information may be  
publicly available’”. I infer from this particular email that Mr. Moffitt was concerned with D-13  
compliance.  
Based on the evidence before me, I also find that Mr. Moffitt was designated by Merit as  
one of the people trusted and selected to represent the collective mind of the company.  
4. Mr. Carr  
Mr. Carr moved to Calgary in late 2006, and officially became the Vice President and  
General Manager of MEC OpCo on February 1, 2007.  
The knowledge that Mr. Carr had concerning the Share Transaction has been touched on  
thoroughly above. By way of summary, the following key points evidence his actual knowledge:  
(i) the Carr July 2011 Email, where he stated that there will be significant dollars associated with  
the cleanup efforts; (ii) despite his claim that he had not read the Draft RAE Report, on Monday,  
July 25, 2011, he and Ms. Hall discussed the report, after which he instructed her to send the  
report to Mr. Moffitt; (iii) he explained to his colleagues that the pipelines that United Hunter  
was seeking to tie into, as well as the downstream facilities, were not licensed to carry the sour  
products that the subject well would produce; and (iv) Mr. Carr wrote to Mr. Hagge, Mr. Plunk,  
Mr. Moffitt and Mr. Lambert to update them on the Regulator September 2011 D-13 Notice.  
Based on the evidence before me, I find that Mr. Carr was designated by Merit as one of  
the people trusted and selected to represent the collective mind of “the company”.  
5. Mr. Lambert  
At the time of the Share Transaction, Mr. Lambert was at second-in-command at MEC  
OpCo in Canada. The only person above him within the MEC OpCo organization was Mr. Carr.  
While he was the second-in-command at MEC OpCo, the evidence is that Mr. Lambert  
was the primary operational individual in Canada. He was the individual to whom everything  
was reported.  
In cross-examination, Mr. Hagge acknowledged Mr. Lambert to be the most  
knowledgeable person concerning the MEC OpCo operations. Merit considered Mr. Lambert  
sufficiently important that he was expressly named as an individual within the Persons of  
Knowledge. In cross-examination, Mr. Plunk testified that Mr. Lambert assisted in hiring  
consultants for the divestiture, including Sproule as the reservoir engineer.  
Mr. Mark Teshoian was a partner in Kayne Anderson. In cross-examination, he testified  
that Mr. Lambert was “one of the senior guys at MEC involved in the deal”.  
Mr. Lambert was selected both to prepare materials for, and be a presenter at, the  
presentation that Merit and its investment bankers gave to NEP. This evidence was reinforced by  
   
Page: 27  
the cross-examination of Mr. Carr, where he testified that Mr. Lambert was present for many of  
the presentations put on by Royal Bank of Canada to market MEC OpCo.  
Based on the evidence, it is clear that Mr. Lambert effectively managed all of the field  
operations for MEC OpCo. Mr. Lambert also dealt directly with Mr. Teshoian during the  
transaction process.  
Based on the evidence before me, it is clear that the sale of the Transaction Assets was an  
important component of Mr. Lamberts job. This determination is supported by a comment made  
by him during his oral deposition. In particular, Mr. Lambert indicated that the sales efforts  
concerning MEC OpCo were a significant component of his job.  
6. Ms. Hall  
At the time of the Share Transaction, Ms. Hall was the Regulatory Manager for MEC  
OpCo, and the most senior regulatory employee at the corporation. Ms. Hall was responsible for  
staying on top of regulatory non-compliance issues.  
7. Mr. Terpstra  
Mr. Terpstra held a senior position as the Region Manager for MEC OpCo in the Leduc  
area. In this role, Mr. Terpstra reported to Mr. Lambert and oversaw, among others, Mr.  
Shihinski.  
8. Mr. Shihinski  
Mr. Shihinski was the Operations Manager for MEC OpCo at the time of the Share  
Transaction. He was the head of all field operations in the Leduc area.  
B. Expert Witnesses  
A number of individuals gave evidence during this hearing. Since those experts are  
referred to throughout this decision, I thought it appropriate to outline their respective expertise  
at this juncture of the decision.  
1. Ralph David Webster  
[183] Mr. Webster was an expert for NEP. He issued an expert report dated November 30,  
2017.  
[184] I qualified Mr. Webster as an expert for the purpose of giving opinion evidence in the  
following three areas:  
a. The operation and remediation of upstream oil and gas pipelines and related  
infrastructure within the applicable regulatory framework, including the time,  
costs and scope associated with such remediation work.  
b. Industry practice regarding acquisition due diligence on upstream oil and gas  
pipelines and related infrastructure.  
c. The use and application of pipeline operations manuals in pipeline integrity  
management within the upstream oil and gas industry, including the meaning  
accorded to each term within the industry.  
         
Page: 28  
2. Daryl Glenn Foley  
[185] Mr. Foley was an expert for NEP. He issued an expert report dated November 30, 2017.  
[186] I qualified Mr. Foley as an expert for the purpose of giving opinion evidence in the  
following three areas:  
a. The operation and remediation of upstream oil and gas facilities and related  
infrastructure, including pipelines, within the applicable regulatory framework,  
including time, cost and scope associated with such remediation work.  
b. The use and application of pipeline operations manuals and pipeline integrity  
management programs within the upstream oil and gas industry, including the  
meaning accorded to each term within the industry.  
c. Industry practice regarding upstream oil and gas facility.  
3. Patrick Edmund Keck  
[187] Mr. Keck was an expert for NEP. He issued an expert report dated November 30, 2017, a  
Power Point in response to the Report on Surface Casing Vent Flow, Casing Failure and Well  
Suspension by Theresa Watson.  
[188] I qualified Mr. Keck as an expert for the purpose of giving opinion evidence in the  
following four areas:  
a. Industry incident rates of SCVFs and casing failures.  
b. Industry practice on inspection, monitoring, detection and repair of SCVFs and  
casing failures, including wellbores and related infrastructure.  
c. Cost associated with the assessment of and repairs to SCVFs and casing failures,  
including wellbores and related infrastructure.  
d. Industry practice on due diligence of wellbores and related infrastructure, including  
SCVFs and casing failures in a purchase and sale transaction.  
4. Kenneth Brandon Mullen  
[189] Mr. Mullen was an expert for NEP. He issued an expert report dated February 21, 2018.  
His expert report was responding to the Report of Dale Tremblay dated November 28, 2017.  
[190] I qualified Mr. Mullen as an expert for the purpose of giving opinion evidence in the  
following two areas:  
a. The availability and costs of drilling and completion equipment and its effect on  
drilling programs during the relevant periods.  
b. Whether NEP could have completed its original drilling plans as intended.  
     
Page: 29  
5. Deryck Harold Helkaa  
[191] Mr. Helkaa was an expert for NEP. He issued an expert report dated September 15, 2017  
as part of FTI Consulting Inc (“FTI”) and an Experts Responding Report dated March 1, 2018  
as part of FTI.  
[192] I qualified Mr. Helkaa as an expert for the purpose of giving opinion evidence in the  
following two areas:  
a. The value of NEP and its assets at relevant points in time and market conditions at  
relevant points in time.  
b. Proper methods for the valuation of oil and gas companies and their assets.  
6. Neal Nissim Mizrahi  
[193] Mr. Mizrahi was an expert for NEP. He issued an expert report dated September 15, 2017  
as part of FTI and an Experts Responding Report dated March 1, 2018 as part of FTI.  
[194] I qualified Mr. Mizrahi as an expert for the purpose of giving opinion evidence in the  
following two areas:  
a. The value of NEP and its assets at relevant points in time and market conditions at  
relevant points in time.  
b. Proper methods for the valuation of oil and gas companies and their assets.  
7. Nora Tennant Stewart  
[195] Ms. Stewart was an expert for NEP. She issued an Experts Responding Report dated  
February 22, 2018.  
I qualified Ms. Stewart as an expert for the purpose of giving opinion evidence in the  
areas of the evaluation of oil and gas reserves, well economics, evaluation of lost or shut-in  
production and the proper scope of expertise of independent qualified reserve evaluators.  
8. Ronald Steve Burdylo  
[197] Mr. Burdylo was an expert for Merit. He issued a Primary Report dated September 15,  
2017 and a Rebuttal Report dated November 20, 2017.  
[198] I qualified Mr. Burdylo as an expert for the purpose of giving opinion evidence in the  
following five areas:  
a. The operation and remediation of upstream oil and gas pipelines and related  
infrastructure within the applicable regulatory framework.  
b. The design, operation, integrity management and maintenance of pipelines.  
c. The timing, cost and scope of such remediation, including industry practice  
regarding pipeline construction and its planning/estimating.  
       
Page: 30  
d. Industry practice regarding due diligence in the proposed acquisition of oil and gas  
companies and/or assets and related infrastructure.  
e. The use and application of pipeline operations manuals (POM) and PLIMP,  
within the oil and gas industry, including the understood meaning and scope  
ascribed to POM and PLIMP.  
9. Alicia Kim Quesnel  
[199] Ms. Quesnel was an expert for NEP. She issued an Experts Responding Report dated  
September 17, 2017.  
[200] I qualified Ms. Quesnel as an expert for the purpose of giving opinion evidence in the  
area of industry standards and practices surrounding due diligence and disclosure in the context  
of purchase and sale transactions generally and in respect of vendors as to the target involving oil  
and gas companies and assets comparable to those of MEC OpCo.  
10. Theresa Lucy Watson  
[201] Ms. Watson was an expert for Merit. She issued an Experts Responding Report dated  
September 14, 2017.  
I qualified Ms. Watson as an expert for the purpose of giving opinion evidence in the  
following six areas:  
a. Industry incident rates of SCVFs and casing failures in Alberta, including the  
public availability of such information.  
b. The applicable regulatory requirements to wellbores, including suspended wells.  
c. Industry compliance with wellbore regulations.  
d. Subject to the caveat that Ms. Watson was not involved with due diligence at the  
relevant time, industry practice on due diligence of wellbores and related  
infrastructure, including as related to SCVFs and casing failures in a purchase and  
sale transaction.  
e. Industry practice on the inspection, monitoring, detection and repair of SCVFs and  
casing failures, including wellbores and related infrastructure.  
f. The cost associated with the assessment of repairs to SCVFs and casing failures,  
including wellbores and related infrastructure.  
11. Alan John Goddard  
[203] Mr. Goddard was an expert for Merit. He issued an undated expert report.  
[204] I did not qualify Mr. Goddard as an expert.  
     
Page: 31  
12. Keith Murray Braaten  
[205] Mr. Braaten was an expert for Merit. He issued an Experts Rebuttal Report dated  
November 30, 2017.  
[206] I qualified Mr. Braaten as an expert for the purpose of giving opinion evidence in the  
following five areas:  
a. Oil and gas reservoir engineering.  
b. The analysis of well data and production performance.  
c. The evaluation of oil and gas reserves and resources.  
d. Well economics, including the valuation of lost or shut-in production.  
e. Field production plans and economic forecasting.  
13. Dale Edwin Tremblay  
[207] Mr. Tremblay was an expert for Merit. He issued an Experts Rebuttal Report dated  
November 28, 2017.  
[208] I qualified Mr. Tremblay as an expert for the purpose of giving opinion evidence in the  
following four areas:  
a. The availability and class of utilizing drilling and completion equipment.  
b. The impact of the above on possible drilling programs.  
c. The timing of drilling programs.  
d. Whether NEP could have completed its alleged drilling plans given the above.  
14. John Williams  
[209] Mr. Williams was an expert for Merit. He issued an Experts Rebuttal Report dated  
November 30, 2017.  
[210] I qualified Mr. Williams as an expert for the purpose of giving opinion evidence in the  
following four areas:  
a. The valuation of businesses.  
b. The assessment and qualification of economic loss.  
     
Page: 32  
c. The calculation of damages relating to the loss of production and loss of  
opportunity.  
d. Methods of calculating economic loss.  
C. Background The Parties and Transaction  
1. The MEC OpCo Evaluation  
In 2011, NEP was enticed by the potential outlined in the marketing materials provided  
by Merit. It initiated an evaluation stage in its advance toward the Share Transaction.  
During the evaluation stage, a purchaser is typically granted access to limited information  
in a data room for the purpose of doing a calculation of how much oil and gas is left in the  
ground and what is it worth. Whats it going to cost to produce it. Whats it going to cost to  
develop it.  
In the evaluation stage, NEP retained a number of consultants. Niven Fischer was  
retained to assess operational issues. Netherland Sewell was retained to perform an independent  
analysis of the reserves of MEC OpCo, and perform sensitivity runs.  
The evaluation phase is distinguishable from the due diligence phase. During the due  
diligence phase, the assumptions made during the evaluation phase are validated.  
NEP executed a standard form confidentiality agreement. It was then granted access to  
Merits virtual data room (the VDR).  
Merit then gave NEP a presentation. Merit described the formations and upsidethat  
they identified in each field.  
After the presentations by Merit, Mr. Bud Newton determined that the Leduc Field was  
the legacy asset of Alberta. He made this initial assessment because of the size, number of  
formations, age and the way the Leduc Field had been developed (or not developed) in recent  
years.  
Mr. Bud Newton was particularly interested in the upsideor previously unquantified  
opportunity to make more oil and gasthat he saw in the Leduc Field. From his perspective, the  
Leduc Field was made up of four producing zones: the Nisku/D2 (the D2), the Leduc/D3 (the  
D3), the Blairmore ZZZ/Ellerslie (the Blairmore) and the Wabaman.  
While Mr. Bud Newton knew that the D3 was a reliable and established play with  
quantifiable upside, he saw considerable potential in drilling the D2. He made that assessment  
because 90 percent of MEC OpCos production was from the D3, and only two wells were  
producing from the D2.  
The particular upsidethat NEP saw in the D2 was the opportunity to apply horizontal  
drilling techniques to prove additional reserves. Based on his knowledge and experience, he was  
hopeful that these additional reserves would be a home run.  
With the assistance of Netherland Sewell, NEP ran numerous calculations to determine  
what the cash flows might be realized from the Transaction Assets. The cash flow projections  
were based on different drilling plans, cost inputs, and market conditions. Those calculations  
   
Page: 33  
were incorporated into an internal Kayne Anderson model that worked backward from the cash  
flow return required and exit date to sell for an appropriate purchase price (the Waterfall).  
In the eight versions of the Waterfall reviewed at trial, Kayne Anderson forecast an exit  
date of December 2014.  
Based on its calculations, Kayne Anderson created an internal assessment of the  
investment (the Kayne Assessment). While Mr. Bud Newton was confident in the upsidein  
the D2, it was not incorporated into the Kayne Assessment because there was limited data  
available to establish the economics.  
The NEP plan was to drill up and sell the Transaction Assets in some form no later than  
2014. NEP calculated that by the target 2014 exit date, the Transaction Assets would need to be  
producing approximately 8,000 barrels of oil equivalent per day (BOE/Day) to deliver the  
return it had promised its investors. NEP set its development goals accordingly.  
NEP developed an aggressive, multi-rig drilling plan to reach its production target and  
increase the value of the Transaction Assets before selling them. In broad strokes, NEP had  
planned to drill between 100 and 250 new wells within three years after it purchased the  
Transaction Assets. Mr. Bud Newton communicated these plans to Mr. Plunk, Mr. Carr and his  
soon to be employees before the September 2011 Closing Date.  
NEP offered to purchase the Transaction Assets for $170,000,000 by way of a share deal.  
This offer was based on the evaluation that NEP placed on the Transaction Assets that were held  
by MEC OpCo.  
After being led to believe that there were legitimate competing offers, NEP increased its  
bid to $180,000,000. In cross-examination, Mr. Plunk conceded that there was only one offer. As  
a result, Mr. Plunk falsely led NEP to believe there were other legitimate competing offers.  
2. The Transaction  
The VDR contained a draft version of the 2011 SPA. NEP provided its first comments on  
the draft 2011 SPA on June 15, 2011. The parties then began negotiating the terms of the 2011  
SPA.  
The due diligence process preceded the signing of the 2011 SPA. The due diligence  
undertaken by NEP (including public searches, title reviews and site visits) was industry  
standard.  
To facilitate the unique sequence of the Share Transaction, Merit and NEP entered into  
an exclusivity agreement on June 24, 2011. That gave NEP three weeks to conductits title and  
environmental due diligence.  
NEP could not commence its regulatory due diligence process until the first draft of  
disclosure Schedule D was provided to NEP on July 22, 2011. That was the case because NEP  
had no idea what non-compliances might exist within the thousands of pipelines, wells and  
facilities that comprised the infrastructure which MEC OpCo had been operating for eight years.  
On August 18, 2011, the parties signed the final version of the 2011 SPA. The transaction  
closed on September 30, 2011.  
 
Page: 34  
D. Regulatory Non-Compliance MEC OpCo  
In December 2011, Mr. Bud Newton discovered the Transaction Assets were plagued by  
numerous regulatory non-compliances. The evidence is that Ms. Hall revealed the extent of the  
sweet-to-sour issue. She also disclosed that many of the non-compliances were well known by  
MEC OpCo before the September 2011 Closing Date.  
Mr. Bud Newton learned that matters disclosed on Schedule D were not potentialnon-  
compliances that could be remedied with some paperwork. Instead, they were actual known non-  
compliances that would require a material capital investment to remedy. Upon learning that some  
of the regulatory non-compliances posed a threat to the lives of people living in and around  
Devon, NEP immediately shut-in all infrastructure and production that posed a danger to health  
and safety.  
Mr. Bud Newton reviewed Schedule D to ensure that he had not missed the disclosure of  
these serious non-compliances. He concluded that he had not missed the disclosure of the non-  
compliances.  
Mr. Bud Newton emailed Ms. Hall and asked her for the truth. He specifically asked Ms.  
Hall to reword Schedule D to reflect the truth.  
NEP undertook a review of the infrastructure and facilities that it had acquired with the  
acquisition of MEC OpCo. NEP took this step to determine the path forward.  
The review by NEP resulted in the discovery of numerous longstanding regulatory non-  
compliances inherent in the Transaction Assets. NEP promptly moved to disclose these to the  
Regulator through a formal self-disclosure process.  
1. Pipelines  
The review of the pipeline infrastructure acquired by NEP revealed that MEC OpCo: (i)  
had operated pipelines in contravention of its licences; (ii) had not properly discontinued or  
abandoned pipelines; and (iii) had not maintained proper depth of cover on a number of  
pipelines. The evidence is that approximately 90 percent of MEC OpCos pipelines were  
improperly licensed.  
Mr. Kevin Chow was engaged to assist with the self-disclosure of the pipeline issues.  
When NEP retained him, Mr. Chow was a partner with Bissett Resource Consultants. He is an  
engineer with experience in hazards, project management and emergency management.  
He testified in direct examination that his firm had never encountered anything this large  
before in terms of regulatory self-disclosure. In fact, Mr. Chow said he had never seen a field to  
get 90 percent wrong....  
a. Sweet-to-Sour  
The Regulator outlines its requirements for pipelines containing sour products in  
Directive 56. The directive dictates the materials and methods to be used when constructing a  
pipeline containing more than a specified concentration of H2S. They must meet certain  
standards.  
Pipelines must be licensed for the highest concentration of H2S that they might be  
exposed to from any well to which they are connected. In addition to the licencing requirements  
for construction materials and methods, any pipeline or facility handling sour products is  
     
Page: 35  
required to have an Emergency Response Plan (ERP). The ERP is to be reviewed on an annual  
basis.  
As mentioned above, Mr. Bud Newton first learned of the magnitude of the sweet-to-sour  
problem in the Leduc Field in December 2011. That is when Ms. Hall communicated Mr. Kent  
Wimbles risk assessment to him.  
Mr. Wimble advised that MEC OpCo had been operating 144 pipelines in excess of their  
permitted H2S content. Of those 144 pipelines, 107 pipelines needed an engineering assessment,  
and 95 pipelines needed material testing.  
Most concerning, three of the non-compliant pipelines ran through Devon. That posed a  
serious risk to public safety.  
Mr. Chow conducted an analysis of the consequences of a failure in two of those  
pipelines by analyzing: (i) the products being carried by the pipelines; (ii) the pressures of the  
pipelines; and (iii) the absence of any automated shut-down system. As a result of that review,  
Mr. Chow informed NEP that a failure of either of those pipelines could fill the air with deadly  
concentration of H2S.  
Mr. Chow also provided a visual representation of the danger posed by the pipelines.  
That presentation illustrated that the plume released by the pipelines would fill numerous homes  
and a school with enough H2S to immediately cause serious health effects. His evidence was that  
if a leak occurred, the residents and students would not be able to find shelter in time.  
In direct-examination, Mr. Chow described the large hazard and danger to the publicas  
a ticking time bomb. He described the health effects, the deaths and inability of NEP to do  
anything about it in the event of a leak.  
After receiving the assessment from Mr. Chow concerning the risks to the public, Mr.  
Bud Newton directed the immediate shut-in of all production north of the NS River. The purpose  
of that shut-in was to prevent sour products from being transported through the non-compliant  
pipelines in Devon.  
b. Discontinued Pipelines  
NEP also discovered that MEC OpCo had not discontinued or properly abandoned  
pipelines that were no longer in operation. When a pipeline is inactive for more than 12 months,  
the operator is required to take appropriate action to isolate it from the rest of the pipeline  
network, clean it and protect it from corrosion. The operator is also required to change the status  
of the pipelines licence with the Regulator. The discontinuation of inactive pipelines is governed  
by the Alberta Pipeline Rules, AR 91/2005: Part 10 section 82.  
The evidence is that MEC OpCo failed to suspend and properly pig over 220 pipelines.  
The further evidence is that MEC OpCo failed to report that 252 of the pipelines listed as active  
had not been operated in many years.  
c. Depth of Cover  
The evidence is that MEC OpCo had not maintained the proper depth of cover over its  
pipelines. The depth of cover required for pipelines is governed by section 83 of the Alberta  
Pipeline Rules and CSA Z662.  
   
Page: 36  
In normal circumstances, the required depth of cover for a pipeline is a minimum of 0.8  
meters. The Regulator can compel an operator to maintain the depth of cover on all of its  
pipelines, even after abandonment: section 25 of the Pipeline Act, RSA 2000, c P-15. Annual  
surveys of pipelines for depth of cover are required.  
NEP determined that the pipelines under the NS River did not have proper cover. Indeed,  
the pipelines were exposed in the NS River.  
NEP also conducted a survey of the depth of cover of the remainder of the pipeline  
system. As a result of that survey, NEP identified at least 64 pipelines that were exposed above  
ground. This was contrary to the regulations.  
The photos taken of the exposed pipelines were in evidence. Those photos reveal that  
most of the exposed pipelines were several feet above ground, instead of being appropriately  
buried.  
Mr. Woloszyn testified as a lay witness. He worked for a company called Oil Country  
Locating, which often contracts through a company called Line Finders Ltd. The focus of Mr.  
Woloszyn’s employment with these businesses is in the location of pipelines and other utilities.  
He testified that he had been involved in locating pipelines in Alberta for approximately 15  
years.  
Mr. Woloszyn started to work for NEP in 2012, and continued to work for the company  
up to the time of trial. He was a lay witness. I found his testimony informative. I also found him  
to be creditable and reliable.  
In direct examination, Mr. Woloszyn remarked that he had never seen the magnitude of  
pipeline exposure that he found in the Leduc Field. He took photographs of the exposed  
pipelines. Based on my review of the photographs in evidence, the magnitude of this non-  
compliance, and the considerable vegetation that had grown under and around the pipelines make  
it difficult to believe that these pipelines were not exposed as at the September 2011 Closing  
Date.  
Mr. Webster also provided evidence concerning the depth of cover issue. He was  
qualified as an expert in this trial. I outlined his qualifications above. I found Mr. Webster to be  
an extremely qualified expert, including in respect of the operation and remediation of upstream  
oil and gas pipelines and related infrastructure within the applicable regulatory framework.  
It was Mr. Websters opinion that because of the nature of the exposures and types of  
pipelines, it was unlikely that the exposures were recent events. I accept Mr. Websters evidence  
on this point. His opinion is consistent with my common-sense observations of the photographs  
taken by Mr. Woloszyn.  
2. Facilities  
Directive 56 issued by the Regulator governs the licencing of oil and gas facilities which  
handle sour products. The Directive sets out the requirements for safety, recovery of gases and  
prevention of releases into the atmosphere.  
As part of a licencing application or change, an engineering firm is required to represent  
that the particular facility meets all applicable engineering and safety standards. To confirm the  
facility meets those standards, an engineer must be able to verify that the equipment and piping  
 
Page: 37  
in the facility are fit for sour service. An engineer cannot just assume that they are fit for sour  
service.  
NEP discovered that a number of the facilities that it had inherited from Merit were not in  
compliance. NEP retained Caber Engineering Inc. (Caber Engineering) to assess the  
regulatory and engineering compliance of the major facilities previously operated by MEC  
OpCo.  
Caber Engineering used its sour specifications to determine whether each facility was fit  
for sour service. It then conducted site visits to inspect the facilities, and reviewed the  
documentation available. If, after exhausting all possible avenues for investigation, including  
contacting vendors for further information and entertain[ing] all possible options, Caber  
Engineering was still unable to confirm that a component of the facility was fit for sour service,  
it made the reasonable and conservatively safe assumption that it was not and recommended  
replacement. This was a judgment call by Caber Engineering.  
In the case of the 11-20 Facility, 9-16 Facility, 7-4 Facility and 3-3 Facility, Caber  
Engineering determined that the licencing was incorrect. The evidence is that physical changes  
had to be made to each of those facilities to operate them in compliance with the relevant  
regulations.  
The evidence concerning the facilities involved some expert testimony. Mr. Foley was  
one such expert. He was qualified as an expert in this trial. I outlined his qualifications above. I  
found Mr. Foley to be credible and reliable in the areas within which I qualified him as an expert,  
including in respect of the operation and remediation of upstream oil and gas facilities and  
related infrastructure within the applicable regulatory framework.  
a. 9-16 Facility  
The evidence is that 9-16 Facility was licensed as a C350 (sour) Satellite. It needed to be  
re-licensed as a D421 Multiwell Battery.  
During the re-licencing process, Caber Engineering determined that the flare system at  
the 9-16 Facility was not properly designed for sour service. Caber Engineering also identified  
that a number of facility components were not suitable for sour service, and concluded that the  
design of the facility did not meet regulated spacing requirements.  
The purpose of Caber Engineering’s recommendations was to ensure that the facility was  
suitable for sour service. The unchallenged opinion of Mr. Foley was that the recommendations  
of Caber Engineering were reasonably required to make the facility sour service compliant.  
The evidence is that in March 2014, a tank at the 9-16 Facility failed and caused a  
release. This failure caused NEP to re-examine the design of both tanks at the 9-16 Facility.  
Caber Engineering determined that the pressure vacuum release valves on the tanks had  
been set by MEC OpCo above the pressure rating for the tanks themselves in order to operate.  
That caused the tank failure.  
In addition, Mr. Jeremy Johnson, a Senior Operations Engineer with NEP, determined  
that the tanks were not compliant with API650, as required by regulation. He was a lay witness  
in this case.  
 
Page: 38  
To remedy this issue, the tanks were replaced. The replacement tanks had an appropriate  
pressure rating and gas blanketing system.  
After the September 2011 Closing Date, NEP also discovered that the 9-16 Facility had  
been constructed within the right-of-way for Highway 60. That is, the 9-16 Facility had not been  
properly setback from the highway. The evidence is that Alberta Transportation will require the  
facility to be relocated for highway expansion in the future.  
b. 11-20 Facility  
At the September 2011 Closing Date, the 11-20 Facility was licensed as a B030 (sweet)  
Multiwell Battery and a D440 Compressor Station. In contrast to its sweet licence, the Multiwell  
Battery was receiving sour product. The 11-20 Facility had to be licensed as a sour facility to  
comply with regulations.  
Caber Engineering assessed the 11-20 Facility. It determined that the flare system,  
vapour recovery unit, tanks and numerous valves, fittings and instruments were not suitable for  
sour service.  
Mr. Foley also determined that the vapour recovery unit was not suitable for sour service  
because it would release to atmosphere. Further, the flare knock-out drum did not have the  
required secondary containment.  
Paralleling the 9-16 Facility, the tanks on the 11-20 Facility property and relief system  
were improperly designed. That improper design was a concern because a similar flaw at the 9-  
16 Facility had already led to a release.  
Mr. Foley opined that it was reasonable to replace all ancillary equipment that could not  
be confirmed as sour suitable without materials testing. While the licensed rates of 11-20 Facility  
changed, there was no physical work done that resulted in increased capacity. Rather, all the  
costs incurred were to meet regulatory compliance, other than perhaps a $5,000 item which I did  
not view as material.  
c. 3-3 Facility  
The 3-3 Facility was not licensed at all. Further, to the knowledge of Merit, it could not  
be licensed.  
NEP learned after closing that there was no prospect of licencing the 3-3 Facility for sour  
service. Caber Engineering did a site visit. It determined that the majority of the components of  
the 3-3 Facility were not suitable for sour service. Indeed, through his direct observations of the  
3-3 Facility, Mr. Foley confirmed that it had not been designed for sour service.  
Based on the evidence, the 3-3 Facility: (i) was not designed for sour service because it  
did not have a flare system, as required for sour facilities; and (ii) could not be economically  
converted for sour service.  
d. 7-4 Facility  
The 7-4 Facility was licensed as a sweet compressor station. However, it was handling  
sour products. When Caber Engineering attempted to assess the 7-4 Facility for sour suitability,  
it found sparse information.  
     
Page: 39  
Mr. Foley reviewed the configuration of the 7-4 Facility. He determined that it was more  
economical to replace components of the 7-4 Facility than to perform materials testing in an  
attempt to qualify them for sour service. He was particularly concerned because there was no  
indication where the equipment was sourced, who built the components and how they were  
welded.  
Based on the evidence, the 7-4 Facility: (i) was not designed for sour service; and (ii) it  
was more economical to replace components of the 7-4 Facility than to perform materials testing  
given the absence of comprehensive documentation.  
3. Surface Casing Vent Flows  
A SCVF occurs when either: (i) gas from below the surface migrates up through the  
surface casing of the well, and escapes through a vent attached at the wellhead; or (ii) the casing  
of the well is compromised and gas from inside the casing migrates up the annulus into the  
surface casing, and escapes through the surface casing vent attached at the wellhead.  
Interim Directive 2003-01 issued by the Regulator establishes the protocol for the  
detection, monitoring and repair of SCVFs and casing failures. All SCVFs must be reported to  
the Regulator within 30 days of being identified.  
The directive effectively classifies SCVFs into two categories: (i) serious; and (ii) non-  
serious. SCVFs that are serious or deemed serious must be repaired within 90 days of being  
discovered.  
Non-serious SCVFs must be monitored on a yearly basis, for a minimum of five years. A  
non-serious SCVF can be resolved by proving to the Regulator that the flow has died out  
naturally. However, this can be done only after multiple negative tests over an appropriate period  
of time to avoid false negatives.  
By April 2012, NEP had discovered 30 wells that had active SCVFs and a further 37  
required more testing to confirm. To ensure that its testing regime was not compromised by  
winter conditions, NEP continued its SCVF testing program into the summer of 2012.  
By July 2012, NEP had completed its testing of wells. Through that testing, it determined  
that a total of 41 wells had active SCVFs.  
4. Suspension Requirements for Wells Directive-13  
As mentioned above, D-13 governs the suspension and abandonment requirements for  
inactive wells. Yearly inspections of well sites are required.  
D-13 classifies wells into different risk categories, being low, medium and high. It  
outlines how and when inactive wells are to be monitored, reported and suspended. While work  
is needed for all D-13 wells, each category of well has different requirements for monitoring,  
physical downhole work and reporting to the Regulator.  
Low-risk wells do not require any downhole work when they stop producing. However,  
after 10 years they are classified as medium-risk wells. Medium and high-risk wells require  
actual downhole work, such as the setting of packers and plugs.  
NEP reviewed its wells and determined that 291 wells that were not compliant with D-13.  
Of those, 120 wells required physical downhole work to bring them into compliance.