Horizon Resource Management Ltd. v. Blaze Energy Ltd., 2011 ABQB 658

Court of Queen ’ s Bench of Alberta Citation: Horizon Resource Management Ltd. v. Blaze Energy Ltd., 2011 ABQB 658 Date: 20111031 Docket: 0601 02899 Registry: Calgary Between: Horizon Resource Management Ltd. and Roll ’ n Oilfield Industries Ltd. Plaintiffs - and - Blaze Energy Ltd., Canyon Oil & Gas Corporation, Detector Exploration Ltd. and Devon Canada Corporation Defendants And Between: Blaze Energy Ltd. Plaintiff by Counterclaim - and - Horizon Resource Management Ltd. and Roll ’ n Oilfield Industries, Ltd. Defendants by Counterclaim

_______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice C.S. Brooker _______________________________________________________ I. Introduction.............................................................................................................. Page: 10 II. Overview.................................................................................................................. Page: 10 A. Parties........................................................................................................... Page: 11 B.

Operations..................................................................................................... Page: 12 C. Claims........................................................................................................... Page: 13 1. Roll ’ n v. Blaze action........................................................................ Page: 13 2. Horizon v. Blaze action..................................................................... Page: 14 3. Defences of Devon, Canyon and Detector........................................ Page: 15 D.

Drilling Program........................................................................................... Page: 15 1. AEUB regulations and industry recommended practices................... Page: 15 2. Geological information..................................................................... Page: 16 3. Description of the equipment............................................................ Page: 16 4. Re-entry Operations.......................................................................... Page: 16 5. Qualifications and experience of wellsite personnel.......................... Page: 18 6.

Well licence granted on basis of Blaze Drilling Program................... Page: 19 E. Applicable AEUB Guides/Directives and Industry Recommended Practices. Page: 19 1. Directive 36...................................................................................... Page: 19 2. Interim Directive 97-6....................................................................... Page: 20 3. IRP Vol. 1 - Critical Sour Drilling - Industry Recommended Practices , Page: 21 4. Industry Recommended Practice,...................................................... Page: 25 5.

Industry Directive 90-1..................................................................... Page: 25 F. Well Operations Reports............................................................................... Page: 26 G. Witnesses...................................................................................................... Page: 27 1. Roll ’ n ’ s witnesses.............................................................................. Page: 27 2. Blaze ’ s witnesses............................................................................... Page: 29 3.

Horizon ’ s witnesses........................................................................... Page: 31 III. Issues........................................................................................................................ Page: 31

Issue 1: Should an adverse inference be drawn against Roll ’ n or Blaze for failure to call certain witnesses?...................................................................................................................... Page: 32 A. Parties ’ positions........................................................................................... Page: 32 B. Facts.............................................................................................................. Page: 33 C. Law and Analysis.......................................................................................... Page: 33 D.

Conclusion.................................................................................................... Page: 35 Issue 2: Did Roll ’ n make pre-contractual misrepresentations to Blaze that caused it to suffer the damages it alleges?......................................................................................................... Page: 35 A. Parties ’ positions........................................................................................... Page: 35 B. Law............................................................................................................... Page: 36 1.

Pre-contractual statements and the parol evidence rule..................... Page: 36 2. Misrepresentation.............................................................................. Page: 36 3. Negligent misrepresentation.............................................................. Page: 37 a. Was there a duty of care owed by Roll ’ n to Blaze based on a “ special relationship ” ?.............................................................................................. Page: 38 b. Were the representations in question untrue, inaccurate, or misleading? Page: 39 i.

Nature and accuracy of representations re similarity of Blaze operations to Rosetta operations..................................................... Page: 39 - Evidence re pre-contractual representations made..... Page: 40 - Evidence re similarity of Rosetta job......................... Page: 41 - Evidence re similarity of Rosetta crew...................... Page: 44 - Conclusions.............................................................. Page: 44 ii. Nature and accuracy of representations re experience of crew that Blaze required..................................................................................

Page: 45 - Evidence re pre-contractual representations made..... Page: 45 - Evidence re Roll ’ n crew experience.......................... Page: 45 - Conclusions.............................................................. Page: 47 iii. Nature and accuracy of representations re capacity of Rig 4 to conduct the Blaze operations........................................................ Page: 47 - Evidence re pre-contractual representations made..... Page: 47 - Evidence re capacity of Rig 4................................... Page: 48 - Conclusions..............................................................

Page: 49 iv. Nature and accuracy of representations re BOP tickets required by Roll ’ n crew.................................................................................. Page: 49 - Evidence re pre-contractual representations made..... Page: 49 - October 24, 2005 conversation between Buan and Mills Page: 50 - October 25 meeting between Buan, Mills and Mele Page: 51 - October 26, 2005 communications between Buan, Rowbotham and Mills.................................................................................. Page: 51 - Buan ’ s evidence regarding exemption...................... Page: 54

- Rowbotham ’ s evidence re knowledge and exemptions from Guide 36 .................................................................................. Page: 55 - Conversations between Mills and Rowbotham re Guide 36 Page: 55 - Anderson ’ s evidence re his understanding of exemption Page: 57 - Anderson ’ s communications re exemption................ Page: 58 - Communications re December 9, 2005 AEUB shut-down Page: 59 - Conclusions.............................................................. Page: 62 v.

Summary Conclusions.............................................. Page: 65 c. Did Roll ’ n act negligently in making the alleged misrepresentations? Page: 65 d. Did Blaze rely on any alleged negligent misrepresentations? Page: 65 e. Was the reliance detrimental?................................................ Page: 66 f. Is liability for misrepresentation limited by the “ entire agreement ” clause Page: 66 C. Conclusions re pre-contractual negligent misrepresentations........................ Page: 68 Issue 3: Did the MWS Contract incorporate the Blaze Drilling Program?................... Page: 68 A.

Parties ’ positions........................................................................................... Page: 68 B. Terms of the MWS Contract.......................................................................... Page: 68 C. Law and Analysis.......................................................................................... Page: 71 1. Intention that contract embody entire agreement............................... Page: 72 2. Independent collateral contract......................................................... Page: 73 3.

Implication to provide business efficacy........................................... Page: 73 4. Implication to effect completeness or give effect to intention of the parties Page: 74 5. Intention to imply terms in express wording of agreement................ Page: 74 6. Surrounding circumstances............................................................... Page: 74 a. Decision to use a service rig.................................................. Page: 74 b. Decision to accept the Drilling Program................................ Page: 75 c. Circumstances surrounding execution...................................

Page: 76 d. Discrepancies between Blaze Program and programs sent to Roll ’ n and Horizon.............................................................................................. Page: 78 e. Decisions made contrary to Program..................................... Page: 79 7. Previous dealings.............................................................................. Page: 79 8. Custom.............................................................................................. Page: 79 9. Statute............................................................................................... Page: 79 D.

Conclusions.................................................................................................. Page: 79 Issue 4: Did Roll ’ n willfully or intentionally fail to comply with AEUB and OH&S legislation Page: 80 A. Parties ’ positions........................................................................................... Page: 80 B. Facts.............................................................................................................. Page: 80 1.

Guides 36/ Oil and Gas Conservation Act requirements and Roll ’ n ’ s efforts to comply .......................................................................................................... Page: 80

2. Compliance with Occupational Health and Safety Act and Regulations Page: 84 a. November 9, 2005 “ safety stand down ” ................................ Page: 85 b. OH&S inspection and reports................................................ Page: 88 C. Law and Analysis.......................................................................................... Page: 90 1. Traditional constructionist approach................................................. Page: 90 2. Modern policy approach................................................................... Page: 92 3. Illegal contract vs. illegal performance.............................................. Page: 93 4.

Summary........................................................................................... Page: 94 D. Conclusions.................................................................................................. Page: 96 Issue 5: Did Roll ’ n breach the MWS Contract?.......................................................... Page: 96 A. Parties ’ positions........................................................................................... Page: 96 B. Facts.............................................................................................................. Page: 97 1.

Failure to provide crew with first and second-line BOP tickets........ Page: 100 a. Facts.................................................................................... Page: 100 b. Conclusions........................................................................ Page: 101 2. Advice to use 10,000 psi BOP........................................................ Page: 102 a. Facts.................................................................................... Page: 102 i. AEUB Directives..................................................... Page: 102 ii.

Information in Blaze Drilling Program.................... Page: 103 iii. Information in Blaze Abandonment Program.......... Page: 104 iv. Pressure rating of casing bowl................................. Page: 105 v. Pressure rating of Roll ’ n mud pump manifold......... Page: 106 vi. BOP used in prior and subsequent Well operations. Page: 107 b. Conclusions........................................................................ Page: 108 3.

Alleged false representations re prior use and required modifications to accommodate BOP........................................................................................................ Page: 108 a. Facts.................................................................................... Page: 109 i. Alleged representations........................................... Page: 109 ii. Extent of modifications required............................. Page: 111 b. Conclusions........................................................................ Page: 111 4.

Performance of Abandonment Operations...................................... Page: 112 a. Facts.................................................................................... Page: 112 b. Conclusions........................................................................ Page: 114 5. Assembly and pressure testing of BOP and testing of accumulator Page: 114 a. Facts.................................................................................... Page: 115 b. Conclusions........................................................................ Page: 119 6.

Continued use of 10,000 psi BOP after knowledge of concerns...... Page: 120 a. Facts.................................................................................... Page: 120

b. Conclusions........................................................................ Page: 120 7. Capacity of Roll ’ n Rig 4 to perform operations............................... Page: 121 a. Facts.................................................................................... Page: 121 b. Conclusions........................................................................ Page: 122 8. Unsafe working conditions............................................................. Page: 123 a. Facts....................................................................................

Page: 123 - Tarps to keep BOP warm........................................ Page: 123 - Size of rig floor....................................................... Page: 123 - Height of rig floor above driller ’ s pad..................... Page: 123 - Floorhand ’ s escape route from rig floor.................. Page: 124 - November 9, 2005 safety “ stand down ” .................. Page: 124 - Hydromatic brakes.................................................. Page: 125 - Failure to conduct safety inspections....................... Page: 126 - Release of safety trailer...........................................

Page: 127 - Static arm modifications.......................................... Page: 127 - Strain on Rig due to jarring operations.................... Page: 127 - Safety generally...................................................... Page: 127 b. Conclusions........................................................................ Page: 128 9. Failure to properly maintain and repair Rig and equipment............. Page: 128 a. Facts.................................................................................... Page: 128 b. Conclusions........................................................................

Page: 130 10. Failure to provide mud pumps with required capacity..................... Page: 130 a. Facts.................................................................................... Page: 130 - Super 48 Pump........................................................ Page: 130 - OPI 700 pump......................................................... Page: 131 - Pump capacity required for the operations.............. Page: 131 - Capacity delivered by pumps.................................. Page: 133 - Cost of downtime and repairs..................................

Page: 136 - Decision to continue to use pumps.......................... Page: 137 - Decision to take only one pump.............................. Page: 137 - Number of breakdowns and repairs........................ Page: 138 b. Conclusions........................................................................ Page: 138 11. Failure to provide crew with required experience and qualifications Page: 139 a. Facts.................................................................................... Page: 139 - Experience in drilling or reentries...........................

Page: 139 - Experience with sour gas wells............................... Page: 140 b. Conclusions........................................................................ Page: 141 12. Slow pace of operations.................................................................. Page: 141

a. Facts.................................................................................... Page: 141 b. Conclusions........................................................................ Page: 142 13. Cause of November 24, 2005 failure.............................................. Page: 142 a. Facts.................................................................................... Page: 143 b. Conclusions........................................................................ Page: 150 14. Cause for jar catching the rig floor.................................................. Page: 150 a.

Facts.................................................................................... Page: 150 b. Conclusions........................................................................ Page: 152 15. Cause for need to level Rig............................................................. Page: 152 a. Facts.................................................................................... Page: 152 b. Conclusions........................................................................ Page: 153 16. Cause of difficulties with second re-entry....................................... Page: 153 a.

Facts.................................................................................... Page: 153 b. Conclusions........................................................................ Page: 155 17. Cause of loss due to December 9 AEUB shut-down....................... Page: 155 a. Facts.................................................................................... Page: 155 b. Conclusions........................................................................ Page: 156 18. Cause of unsuccessful third re-entry attempt................................... Page: 157 a.

Facts.................................................................................... Page: 157 b. Conclusions........................................................................ Page: 158 19. Failure to provide daily reports....................................................... Page: 158 a. Facts.................................................................................... Page: 158 b. Conclusions........................................................................ Page: 158 C. Law and Application................................................................................... Page: 159 D.

Conclusions................................................................................................ Page: 159 Issue 6: Did Roll ’ n negligently perform the MWS Contract...................................... Page: 160 A. Parties ’ positions......................................................................................... Page: 160 B. Law and Analysis........................................................................................ Page: 160 C. Conclusions................................................................................................

Page: 162 Issue 7: Did clauses in the contract exclude or limit Roll ’ n ’ s liability....................... Page: 162 A. Parties ’ positions......................................................................................... Page: 162 B. Facts............................................................................................................ Page: 164 C. Law............................................................................................................. Page: 166 1.

Interpretation of exclusion clauses.................................................. Page: 167 2. Unconscionability........................................................................... Page: 168 3. Public policy................................................................................... Page: 169

D. Analysis...................................................................................................... Page: 169 E. Conclusions................................................................................................ Page: 170 Issue 8: What is owing to Roll ’ n under its debt claim against Blaze?....................... Page: 170 A. Parties ’ positions......................................................................................... Page: 170 B. Facts .......................................................................................................... Page: 171 1.

Roll ’ n ’ s claim for services rendered................................................ Page: 171 2. Alleged improper charges in Roll ’ n ’ s invoices to Blaze.................. Page: 171 a. Generator charges............................................................... Page: 172 b. Crew subsistence charges.................................................... Page: 172 c. Light plant charges.............................................................. Page: 172 d. Pipe rack charges................................................................ Page: 173 e.

Kilometres and vehicle charges........................................... Page: 173 f. Additional Rig manager charges......................................... Page: 174 g. Metal work and weight indicator charges............................ Page: 174 3. Downtime....................................................................................... Page: 174 C. Analysis...................................................................................................... Page: 178 D. Conclusion..................................................................................................

Page: 179 Issue 9: Is Roll ’ n entitled to interest on its debt claim?............................................. Page: 179 A. Parties ’ positions......................................................................................... Page: 179 B. Facts............................................................................................................ Page: 179 1. Blaze dispute of Roll ’ n ’ s invoices................................................... Page: 180 2. Blaze offer to allow Roll ’ n to complete project............................... Page: 181 C.

Law and Analysis........................................................................................ Page: 181 D. Conclusion.................................................................................................. Page: 182 Issue 10: What is owing to Blaze under its counterclaim against Roll ’ n?................... Page: 182 A. Parties ’ positions......................................................................................... Page: 182 B. Facts............................................................................................................ Page: 183 1.

Third party costs............................................................................. Page: 183 a. Third party costs paid by Blaze to support Roll ’ n ’ s abandonment operations Page: 183 b. Third party costs paid by Blaze to support Roll ’ n ’ s re-entry operations Page: 184 c. Third party costs paid by Blaze to get to a point where re-entry operations could recommence........................................................................ Page: 186 2. Loss of revenue............................................................................... Page: 188 a.

Evidence re prior production............................................... Page: 188 b. Evidence re cost savings..................................................... Page: 189 3. Wrongful registration of builders ’ liens........................................... Page: 190

4. Loss of Tools.................................................................................. Page: 192 C. Conclusions................................................................................................ Page: 192 Issue 11: What were the terms of the agreement between Horizon and Blaze?.......... Page: 193 A. Introduction................................................................................................ Page: 193 B. Parties ’ positions......................................................................................... Page: 193 C.

Facts............................................................................................................ Page: 194 1. Advice re whether AEUB Guide 37 applied.................................... Page: 194 a. Mills ’ and Kindjerski ’ s prior dealings.................................. Page: 194 b. Discussions re Guide 37...................................................... Page: 195 c. Conclusion of fact............................................................... Page: 196 2. Horizon ’ s acceptance of Blaze Drilling Program............................. Page: 197 a.

Kindjerski ’ s evidence.......................................................... Page: 197 b. Mills ’ evidence.................................................................... Page: 199 c. Flynn ’ s evidence................................................................. Page: 199 d. Allen ’ s evidence.................................................................. Page: 200 e. Conclusions of fact............................................................. Page: 200 3. Other factors................................................................................... Page: 200 a.

Mills initial request.............................................................. Page: 200 b. Discussion on services to be provided................................ Page: 201 c. Decision to release Allen..................................................... Page: 201 d. Horizon did not bill Blaze for Kindjerski ’ s time.................. Page: 202 e. Kindjerski ’ s direction of Allen and Mills............................. Page: 202 f. Kindjerski ’ s involvement with Mills.................................... Page: 204 g. Receipt of Horizon DORs................................................... Page: 204 h.

Horizon ’ s involvement after November 21, 2005............... Page: 205 i. Reports received by Mills.................................................... Page: 205 j. Mills ’ communications with Kindjerski............................... Page: 205 k. Expert Opinion.................................................................... Page: 206 4. Conclusions of fact......................................................................... Page: 206 D. Law and Analysis........................................................................................ Page: 207 E.

Conclusion.................................................................................................. Page: 209 Issue 12: Did Horizon breach its agreement with its duty of care to Blaze?............... Page: 209 A. Introduction................................................................................................ Page: 209 B. Parties ’ positions......................................................................................... Page: 210 C. Law............................................................................................................. Page: 211 D.

Analysis...................................................................................................... Page: 211

1. Failure or refusal to employ or to ensure properly qualified individuals at the Wellsite resulting in shut- down................................................................................... Page: 211 2. Failure to ensure compliance with other AEUB directives resulting in AEUB shut- down........................................................................................................ Page: 212 3. Retention of independent contractors who were no longer needed. Page: 212 4. Failure or refusal to properly maintain and supervise the drilling and recompletion Page: 213 a.

Preparation for the operations............................................. Page: 213 b. Inspection and preparation of the Wellsite.......................... Page: 214 c. Conduct of abandonment operations................................... Page: 214 d. Conduct of the re-entry operations...................................... Page: 215 e. Conclusion.......................................................................... Page: 215 5. Failure or refusal to ensure proper equipment employed................. Page: 215 6. Failure or refusal to properly inform and report.............................. Page: 216 7.

Failure to provide qualified, experienced wellsite supervisors......... Page: 217 8. Is Horizon entitled to the benefit of Roll ’ n exclusion clauses?........ Page: 218 E. Conclusion.................................................................................................. Page: 219 Issue 13: What is owing to Horizon under its debt claim against Blaze?.................... Page: 219 A. Cost for services rendered........................................................................... Page: 219 B. Effect of series of emails re payment........................................................... Page: 219 C.

Service charges on overdue accounts.......................................................... Page: 220 D. Validity of builder ’ s lien filed by Horizon................................................... Page: 221 Issue 14: What is owing to Blaze under its counterclaim against Horizon?................ Page: 221 IV. Conclusion.............................................................................................................. Page: 221 I. Introduction [ 1 ] Blaze obtained an interest under a farmin agreement in a shut-in sour gas well near Brazeau, Alberta.

In order for Blaze to earn an interest in any future production, it was required to commence operations to abandon the existing well, and drill a new well into the target zone within a relatively short period. The time line was tight and the industry was busy. After some searching, Blaze contracted with Roll’n to provide an oil and gas service rig and a crew to do the job. Blaze contracted with Horizon, an oil and gas consulting firm, to provide supervisory services. The operations were dangerous. Any gas escaping from the well would be at a concentration 175 times the lethal level.

The parties encountered difficulties. Although expected to take two weeks, the operations stretched out over seven. The abandonment operations were completed in two weeks. However, despite three attempts over five more weeks, a new well had not been drilled into the target zone. Horizon’s wellsite supervisors left the wellsite and had no further involvement on the well after November

21, 2005. Blaze released Roll’n from the wellsite on December 17, 2005 and Roll’n left the wellsite on December 20, 2005 and never returned. [ 2 ] Blaze refuses to pay either Roll’n or Horizon for services rendered alleging that neither performed the work for which they were retained. Horizon and Roll’n each initiated separate actions and each sued Blaze in debt.

Blaze defended and counterclaimed each action claiming damages and economic loss allegedly resulting from Roll’n’s and Horizon’s conduct during the operations. [ 3 ] The main issues in the Roll’n/Blaze action are whether Roll’n misrepresented its capability to perform the work and whether it breached its contract to such an extent that Blaze received no benefit, but in fact suffered damages, as a result.

In the Blaze/Horizon action the main issue is whether Blaze or Horizon was responsible for directing the well operations and if Horizon was responsible, whether Horizon breached its contract or duty of care by failing to act as a reasonably competent consulting firm in the circumstances. II. Overview [ 4 ] The trial in this matter was lengthy, involved approximately 28 witnesses and a multitude of exhibits. There was little common ground between the parties. Most things were contested with the result that there were many issues with much evidence on each. Much of the evidence was contradictory.

There were issues of credibility with respect to most of the principal witnesses. Despite the lengthy written arguments as well as the oral arguments it was sometimes unclear as to exactly what cause of action was being argued and therefore it was necessary to resort to the pleadings to ascertain that. Consequently, in order that the parties might better understand my reasons, I have quoted far more evidence and arguments than would otherwise have been necessary. For the same reasons, I have marshalled the most pertinent evidence as well as counsels’ arguments under each issue to be determined.

This has meant that there is some duplication in referring to certain evidence but the intent is to make it easier for the parties to understand these reasons on an issue by issue basis. [ 5 ] As to the issue of credibility with respect to various witnesses, I have reminded myself that the parties and their respective witnesses were trying to arrange for men and equipment to drill a re-entry well under less than ideal circumstances. The industry was working at full capacity and thus equipment and crews were in short supply.

They were not keeping or making notes and communicating with the idea that they would some day be testifying in court as to exactly what was said and when. So, when considering the various conflicts in the evidence between principal witnesses, the following observation of Mr.

Jan Paulsson, a private arbitrator who was faced with significant conflicting evidence of a number of professionals involved in negotiations relative to a business venture, seem appropriate here: ...what seems operant here ... is the familiar human tendency, when recalling an initially ambiguous event in the light of their interest as revealed by subsequent litigation, to become ever more precise and ever less reliable. A. Parties [ 6 ] The Defendant, Plaintiff by Counterclaim, Blaze Energy Ltd., carries on an oil and gas exploration business in Alberta.

Biagio Mele was the President of Blaze, and Ed Mills was the Vice-President of Blaze, at all material times. [ 7 ] The well in which Blaze acquired its interest is legally described as 11-19-46, West of the Fifth Meridian (the Well or the Blaze Well). Blaze acquired its interest under a Farmin Agreement with Petro-Canada Oil and Gas and Devon Canada. [ 8 ] At the time it acquired its interest, Blaze already had an existing interest in the Well under a Petroleum and Natural Gas Lease dated May 18, 2000.

Detector Exploration and Canyon Oil & Gas Corporation, two other defendants in this litigation, also had an interest in the Well under the same Lease: Ex. 003-046. Mills and his wife each held a 50 percent interest in Canyon, and Mills was a director of Canyon. Detector and Canyon are named because they each have either a working interest in the Well or are entitled to a gross overriding royalty from the Well production.

[ 9 ] Blaze contracted with the Plaintiffs, as well as other third parties, to provide services, materials and equipment for the Well operations. Blaze also rented its own equipment and provided its own personnel to perform work at the Well. [ 10 ] The Plaintiff, Defendant by Counterclaim, Roll’n Oilfield Industries Ltd., was the owner and operator of a fleet of oil and gas service rigs. Brad Rowbotham was the General Manager of Roll’n and Rolly Buan was a marketing representative for Roll’n, at all material times: Agreed Statement of Facts, Ex. 001-002.

Roll’n provided a crew and a service rig (Rig 4) and performed abandonment and re-entry drilling operations at the Well between October 27 and December 17, 2005. [ 11 ] The Plaintiff, Defendant by Counterclaim, Horizon Resources Management Ltd., operates an oil and gas consulting business. John Flynn was the President and Ken Kindjerski was the Vice-President of Horizon at all material times. Horizon provided Blaze with consulting services at the Well from October 27 to November 21, 2005.

It did so through two subcontractors, 591696 Alberta Ltd. owned 100 percent by Mark Allen, and Bush Ape Supervision owned 100 percent by Randy Cripps. Mark Allen was at the Wellsite from October 27 to November 1, 2005. Randy Cripps was at the Wellsite from November 1 to November 21, 2005: Agreed Facts, Ex. 001- 002. B. Operations [ 12 ] The Well was originally drilled by Anderson Exploration in October 2001. It was reworked by Anderson in 2002 and by Devon, Anderson’s successor, in 2003. [ 13 ] Blaze acquired its interest in the Well under a Farmin Agreement on or about March 1, 2005.

The Agreement stated that in order for Blaze to earn an interest it must “commence its operations to re-enter, plug back, and drill from the Existing Well” on or before December 16, 2005: see Ex. 002-016. [ 14 ] At the time that Blaze acquired its interest, the Well was shut-in. The existing well bore was approximately 3,800 metres deep and reached the sour gas reservoir in the Nisku geological formation. It was not feasible to produce sour gas from the existing well bore.

Rather, Blaze planned to abandon that well bore and re-entered the Nisku by drilling a new well that would penetrate the Nisku at a different point. This was to be accomplished in two stages. [ 15 ] First, abandonment operations were to be conducted in the existing well bore. This entailed re-entering the well through the existing well casing, cleaning out the existing tubing and debris, and plugging the well bore with a cement plug at a depth of approximately 3,500 metres. [ 16 ] Second, re-entry drilling operations were to be conducted to drill a new well bore into the Nisku formation at a new location.

The re-entry operations entailed dropping down through the existing well casing to a point just above the cement plug, drilling a hole from the inside to the outside of the existing well casing and drilling a new well bore from there down into the Nisku. [ 17 ] The abandonment and re-entry operations were expected to take two weeks. [ 18 ] Roll’n conducted operations at the Well for approximately seven weeks, from October 27 to December 16, 2005. Roll’n prepared the Wellsite for operations, set up its rig and performed abandonment operations from October 27 to November 11, 2005.

The abandonment operations were completed on November 11, 2005 and the re-entry operations began. Roll’n conducted re-entry operations from November 11 to December 17, 2005 when, after two unsuccessful attempts to re-entered the Nisku and during a third attempt but prior to completion, Blaze released Roll’n from the project. Roll’n then worked to tear down and load up its rig and left the site on December 20, 2005. [ 19 ] Horizon provided well supervisory services at the Well from October 27 to November 21, 2005. It was not involved in the operations after that date.

Allen supervised the well operations on behalf of Horizon from October 27 to November 1, 2005. Allen left while the abandonment operations were underway and did not return to the Wellsite or provide supervisory services after that time.

Cripps replaced Allen and supervised the well operations on behalf of Horizon from November 1 to 21, 2005. He supervised the remainder of the abandonment operations. Cripps then supervised the re-entry operations from November 11 to 21, 2005 when he requested to be released and was relieved by Mills. Cripps did not return to the wellsite or provide supervisory services at the Blaze Well after November 21, 2005. C. Claims [ 20 ] Roll’n commenced its action against Blaze under Action No. 0601-03673. Horizon commenced its action against Blaze under Action No. 0601-02899. [ 21 ] By order of Justice B.E.

Mahoney, filed December 2, 2009 Action No. 0601-02899 and Action No. 0601-03673 were consolidated and ordered to proceed as Action No. 06010-02899. 1. Roll ’n v. Blaze action [ 22 ] Roll’n invoiced Blaze for services rendered in November and December 2005. Blaze refused to pay.

On March 21, 2006, Roll’n filed a Statement of Claim seeking judgment in debt against Blaze for services rendered in the amount of $976,560.13, together with interest at the rate of 18 per cent per annum. [ 23 ] Roll’n also sued the Defendants, Canyon, Detector and Devon, due to their respective interests under either a working interest in, or a gross overriding royalty interest from, the Well production. [ 24 ] Roll’n also filed builders’ liens against all those with estates and interests in the minerals in the Alberta crown leases on which the Well is located and certificates of lis pendens with Alberta Energy and Natural Resources pursuant to s. 6 of the Builders ’ Lien Act R.S.A. 2000, c.

B -7. [ 25 ] Blaze filed a Statement of Defence and Counterclaim and a subsequent Amended Statement of Defence and Amended Amended Counterclaim, dated January 28, 2010, in which it denies owing any debt to Roll’n or, in the alternative, if any debt is owing, that the invoices submitted by Roll’n to Blaze include overcharges for downtime, double charges, and charges for equipment that was not needed for the re-entry totalling $233,956.44; and that the invoices improperly give no credit for expenditures incurred by Blaze to lease equipment because the Rig was not properly equipped and was not capable of commencing the re-entry, totalling $74,289.99. [ 26 ] Blaze further denies that Roll’n performed any work or completed any work, let alone the Blaze re-entry.

It alleges that to the contrary, Roll’n knowingly misrepresented its abilities, fundamentally breached its contract with Blaze, and with gross negligence, damaged the Well, needlessly causing Blaze to

a) lose $375,000 worth of tools;

b) incur $1,883,627 in additional charges for the re- entry;

c) lose $2,500,000 in revenue from the Well;

d) and suffer damages to its reputation with the AEUB and the industry of $100,000 as a result of the filing of Roll’n’s builders’ lien. [ 27 ] Blaze argues, in the alternative, that if Blaze is indebted to Roll’n as alleged, that Blaze be permitted to set-off any such indebtedness as against the loss and damages allegedly suffered by Blaze totalling $5,166,873.43. [ 28 ] Blaze claims costs against Roll’n, on a solicitor and its own client basis (full indemnity) for the costs Blaze incurred in defending this action, pursuant to s. 40 of the Builders ’ Lien Act . [ 29 ] Roll’n defended Blaze’s Counterclaim denying Blaze’s allegations and arguing further that Blaze’s claims are precluded under several exclusion clauses in their contract.

2. Horizon v. Blaze action [ 30 ] Horizon invoiced Blaze for services rendered in November 2005. Blaze refused to pay. On March 2, 2006, Horizon filed a Statement of Claim seeking judgment for services rendered in the amount of $39,081.35 together with service charges, or in the alternative, interest under the Judgment Interest Act , R.S.A. 2000, c.

J-1. [ 31 ] Horizon also sued the Defendants, Canyon, Detector and Devon, because of their respective interests from the Well production. [ 32 ] Horizon also filed builders’ liens against all those with estates and interests in the minerals in the Alberta crown leases on which the Well is located and certificates of lis pendens with Alberta Energy and Natural Resources pursuant to s. 6 of the Builders ’ Lien Act . [ 33 ] On March 24, 2006, Blaze filed a Statement of Defence and Counterclaim, claiming judgment against Horizon, Allen, 591696 Alberta Ltd. (Allen’s company), Cripps, and Bush Ape Supervision (Cripps’ company) for damages totalling $486,061.50 in respect of alleged breaches of contract and breaches of duty of care. [ 34 ] In Blaze’s Amended Statement of Defence and Amended Amended Counterclaim against Horizon, Allen, 591696 Alberta Ltd. (Allen’s company), Cripps, and Bush Ape Supervision (Cripps’ company) it also increased its claim for damages to $5,266,873.43.

It also alleged that the Defendants by Counterclaim were jointly and severally liable for the damages claimed and relied on the provisions of the Contributory Negligence Act , R.S.A. 2000, C. C-27. Alternatively, Blaze claimed a proportionate amount of damages as against each of the Defendants under the Tort-Feasors Act , R.S.A. 2000, c. T-5. [ 35 ] In late January 2010, Blaze discontinued its actions against Allen, 591696, Cripps and Bush Ape. 3. Defences of Devon, Canyon and Detector [ 36 ] Devon filed a Statement of Defence on June 4, 2008 denying, inter alia, the allegations made by Roll’n.

Devon pleaded in answer to the whole of Roll’n’s Statement of Claim that Roll’n has a valid lien only if Roll’n establishes that Blaze is indebted to Roll’n for work completed on the lands, and only if a portion of the price for the work completed by Roll’n under its contract with Blaze remains owing.

It alleged that otherwise, Roll’n had improperly and wrongfully filed a lien against Devon’s lands when Roll’n knew or ought to have known that Roll’n had no claim whatsoever, and that Roll’n is thereby liable to Devon for the costs Devon may incur in defending this action, on a solicitor and its own client basis pursuant to s. 40 of the Builders ’ Lien Act . [ 37 ] Devon’s counsel appeared on the first day of trial and advised the Court that Devon would not participate further in the trial and understood that it would be bound by this judgment.

Counsel advised that if Roll’n proves its claim, Devon will apply for an order granting Blaze as much time to pay as possible, to prevent the Plaintiffs from looking to the land for a remedy.

Alternatively, if Blaze successfully defends the claim, Devon will seek costs against the Plaintiffs, including costs under s. 40 of the Builders ’ Lien Act, for wrongful registration. [ 38 ] Canyon filed a Statement of Defence on May 29, 2008 denying the allegations made by Roll’n in its Statement of Claim and in particular, denying that Roll’n had improved Canyon’s interest in the lands and that Roll’n was entitled to a builders’ lien against Canyon’s interest in the lands or that Roll’n had any interest in priority to Canyon’s interest.

Counsel for Blaze also appeared on behalf of Canyon. [ 39 ] Detector filed a Statement of Defence on June 13, 2008 denying the allegations made by Roll’n in its Statement of Claim, stating that it had no knowledge of the allegations as to the main issues in dispute and stating that it would abide by the final order of this Court with respect to any determination regarding a lien interest on the subject lands, and demanding notice of proceedings and specific notice of any monetary claim against it in these proceedings. No one appeared at trial on behalf of Detector.

[ 40 ] Horizon only served its Claim on Blaze but not the other Defendants and as a result, its liens will not attach the interest of the parties who were not served. D. Drilling Program [ 41 ] Blaze retained N. L. Fisher Supervision Ltd to prepare the Drilling Program: see Ex. 001-007. 1.

AEUB regulations and industry recommended practices [ 42 ] The Drilling Program specified that operations comply or exceed the requirements of AEUB regulations and standard industry practices governing sour gas well operations including Interim Directive 97-6 ( ID 97-6 ) , Industry Recommended Practices , Volume 1(IRP Vol. 1) , and Directive/Guide 36. 2. Geological information [ 43 ] The existing well was shut-in.

The Blaze Drilling Program states that the existing well had a vertical depth of approximately 3,695 metres. [ 44 ] The Program stated that a new well was to be drilled to a measured depth of approximately 3,853 metres. The Program specified that at that depth, the bottom hole pressure (BHP) expected was 37,091kilopascals (KPA) and the maximum expected sour gas (H2S) content was 17.51 percent. [ 45 ] The percentage of H2S expected meant that the Well was classified as a critical sour gas well. 3.

Description of the equipment [ 46 ] Sour gas wells are equipped with a blowout preventer system (BOP) to contain the pressure of a possible well blowout and prevent the escape of sour gas. The BOP pressure needed to contain a blowout is measured in pounds per square inch (“psi”) and the size of the BOP required depends upon the force of the pressure coming from the fluids and gas in formation from which the gas is to be extracted (the target zone). [ 47 ] One of the issues in this litigation is whether a 5,000 psi BOP or a 10,000 psi BOP was required for the Blaze operations.

The Blaze Drilling Program specified that a 5,000 psi BOP be used during the re-entry/drilling operations at the Blaze Well. The Program specified how the Well BOP was to be configured during the drilling of the critical

section of the Well. The Drilling Program did not cover the abandonment operations. 4. Re-entry Operations [ 48 ] The re-entry operations were to commence once the abandonment phase had been completed. The Blaze Drilling Program specified the steps involved in the re-entry operations. [ 49 ] The re-entry was to be conducted in two stages.

[ 50 ] The first phase involved drilling to a point just above the Nisku. First, a hole (window) was to be drilled from the inside to the outside of the existing 177 mm. well casing at a depth of approximately 3,500 metres. Second, a new hole would be drilled starting from the window at 3,500 metres in a horizontal downward direction to 3,672 metres to a point approximately 10 metres above the Nisku formation.

Third, a 114 mm. intermediate drill pipe casing (or liner) would be set in the new hole that had been drilled, cemented shut and plugged with at 10,000 psi bridge plug. [ 51 ] The second phase involved drilling with a smaller 95.25 mm. bit through the cement in the 114 mm casing and out its lower end into the critical sour zone of the Nisku to a depth of approximately 3,695 metres. The estimated length of the hole in the Nisku was approximately 29 metres.

The distance from the window in the existing well casing at 3,500 metres to the bottom of the new well in the Nisku at a depth of 3,853 metres, was 353 metres. [ 52 ] The drilling of the new well bore from the hole outside the existing casing at approximately 3,500 metres down to the Nisku was referred to as “open hole” because it would not be drilled inside any well casing.

Mills explained that after the 114 mm. intermediate casing or liner was set, it would be tied back into the 177 mm. casing and thus that Blaze would have “...complete integrity from the casing that’s in the well bore now to the top of the Nisku formation.” [ 53 ] The re-entry operation is summarized at p. 4 of the Program (the words in square brackets explain the meaning of the acronyms used; the underlined sections are my emphasis): Operational

Summary - Prepare location. Notify local authorities. Move in rotary tools. - Remove wellhead and install Class V BOP. Pressure test BOP’s and related equipment. - Pick up drill pipe and RIH [run in hole] with drill pipe and gauge ring and tag [means touch] top of bridge plug. POOH [pull out of hole] with gauge ring and pick up and RIH with one top trip whipstock. Orient whipstock with gyro and set. Mill window in casing and drill approximately two metres into competent formation with water. POOH with mills. Pick up directional tools and RIH to window.

Displace well over to invert mud system as per attached program. - From KOP directionally drill to an inclination of 47.25 degrees on a 225.60 degrees azimuth heading. - Complete directionally drilling intermediate hole #3 into the non porous base rock of the Winterburn formation at ±3673mKB TVD ±10m above the Nisku formation. Trip out. - Log intermediate hole #3. Run 114.3 mm L-80 casing to ±3673mKB TVD and cement casing as per EUB G-9. Land casing with liner hanger and lap packer. Unset from hanger and circulate well. POOH with drill string.

Run and set retrievable 177.8 mm 10K bridge plug at ±2000mKB. - Circulate well over to fresh water. Pressure test bridge plug. Pull out of hole and lay down drill pipe. Remove BOPs. Install wellhead. Tear out and release rig . Critical Sour Level 4 Classification Begins . - Move coil tubing rig. Move in safety equipment. Hold pre-penetration meeting with local authorities (ID 97-6). Provide for a minimum of 48 hours notification.

- The well will be on critical status from 24 hours prior to entering the Nisku to total depth until the well is incapable of flow . [Emphasis added] 5. Qualifications and experience of wellsite personnel [ 54 ] The Drilling Program sets out the following qualifications and experience required by wellsite personnel involved in the Blaze Well at p. 14-15.

The acronym “PITS” stands for “Petroleum Industry Training Service” which at the time of trial had been replaced by “Enform”: Wellsite Personnel: Responsibilities: The wellsite personnel will fulfill the roles, qualifications and responsibilities as outlined in the IRP Volume 1 and as outlined in the Site Specific Emergency Response Plan. The company’s representative(

s) and all contract personnel will be experienced in drilling sour wells, and will meet or exceed the certification requirements of the IRP Volume 1. Supervision: Wellsite supervisor will have a current PITS Second-Line Supervisor BOP Well Control certificate , H2S Alive certification and experience in drill sour wells. During the critical period of the drilling operation, sufficient supervision will be on site and available so that no individual supervisor is required to work a shift longer than 12 hours.

Rig Crew On-site rig managers will have a current PITS Second-Line Supervisor BOP Well Control certificate and H2S Alive certification and experience in drilling sour wells, and drillers will have a current PITS First-Line Supervisor BOP Well Control certificate H2S Alive certification and experience in drilling sour wells. ....A minimum of five (5)-man drilling crew shall be maintained and crew members shall have H2S Alive certification.

Service Personnel Key on-site service personnel including mud-men, loggers, geologists, etc. will have previous experience in sour well drilling operations and shall be trained in H2S safety. Safety Specialists and Equipment During the critical period of the drilling operation, safety personnel and adequate safety equipment for all workers will be on site as specified by the Occupational Health & Safety (OH&

S) Act and Regulations. [Emphasis added] 6. Well licence granted on basis of Blaze Drilling Program [ 55 ] The AEUB granted Blaze the well licence on October 24, 2005: see Ex. 002-014. The well licence stipulated that Blaze follow the Drilling Program.

E. Applicable AEUB Guides/Directives and Industry Recommended Practices 1.

Directive 36 : Drilling Blowout Prevention Requirements and Procedures ( Directive/Guide 36 ) (Ex. 002-011) [ 56 ] The Drilling Program stipulated that Guide 36 applied to the Blaze drilling operations. [ 57 ] On December 9, 2005, the Blaze well operations were shut-down for failure to comply with Guide 36 , in part, because the Roll’n rig manager and driller did not possess the blowout prevention certificates required. [ 58 ] Guide 36 details the minimum equipment and procedure requirements that a licensee must follow when drilling wells in the Province of Alberta.

It also serves as a reference for AEUB drilling rig inspection staff to assist them in completing an, AEUB Drilling Inspection /Investigation Report: Guide 36, s. 1 (Ex. 002-011). [ 59 ]

Section 23.1 of Guide 36 states: 23.1 Drilling with a Service Rig 23.1.1 Drilling More Than 50 m or More Than One Hydrocarbon-Bearing Formation When the licensee is conducting drilling operations with a service rig, the operation is classified as a drilling operation if - more than 50 m measured depth of new hole will be drilled , or - more than one potential hydrocarbon-bearing formation will be penetrated. All requirements set out in Directive 36: Drilling Blowout Prevention Requirements and Procedures must be complied with.

Any modifications to these requirements by the licensee requires formal approval from the EUB Well Operations Group in Calgary. [Emphasis added] [ 60 ] Clause 10.2 of Guide 36 states that the licensee ’ s representative, rig manager and driller must be trained and certified by PITS in the operation of blowout prevention equipment and well control.

Section 10.2.1.1 states that the driller must possess either a valid, PITS-issued, first-line supervisor ’ s BOP certificate (first-line BOP ticket) or valid PITS-issued, second-line supervisor ’ s well control certificate.

Section 10.2.2.2 states that the licensee ’ s well-site representative and rig manager must possess valid, PITS-issued, second- line supervisor ’ s well control certificates (second-line BOP ticket). 2. Interim Directive 97-6 , Sour Well Licensing and Drilling Requirements (ID-97-6) (Ex. 001-009) [ 61 ] The Drilling Program stipulated that ID 97-6 applied to the Blaze operations.

[ 62 ] Interim Directive 97-6 is an AEUB interim directive governing sour gas wells including licencing applications, classifications of the level of sour gas, minimum distance requirements from residential and other developments, emergency response plans, drilling requirements for critical sour wells and enforcement provisions. [ 63 ]

Section 1.2.5 of ID 97-6, entitled Change from Critical to Non-Critical Status , states that once the AEUB or the applicant for a well licence “has determined a well to be critical, the well is subject to all critical well requirements at the drilling, completion, workover, and production phases of the well.

In order to change the classification of the well, the licencee must notify the Board’s Operations Group of the change in writing....The licencee is responsible to prove at any stage of the well (completion, workover, production) that the classification has been changed to non-critical and that critical well requirements are no longer applicable.” [ 64 ] Blaze was the applicant licensee in this case.

Roll’n and Horizon argue that the Well was a critical sour well at all times, that Blaze did not notify the Board that its classification had changed, and that it was therefore required to meet the requirements of ID 97-6 during the abandonment operations. [ 65 ]

Section 4 of ID 97-6, entitled Drilling Requirements at Critical Sour Wells , states that the AEUB requires “the licensee to meet or exceed the Alberta Recommended Practices (ARPs) when drilling critical sour wells. Volume 1 (Drilling) and Volume 2 (Completing and Servicing)...” [ 66 ]

Section 4.5 of ID 97-6, entitled Personnel , stipulates the level of experience and the certifications required by personnel working on a critical sour gas well. [ 67 ]

Section 4.5.1 of ID-97-6 requires that on-site supervisors “...must have a current PITS Second-Line Supervisor BOP Well Control certificate, H2S Alive certification and experience in drilling sour wells.” It states that during the critical period of drilling operations, “...sufficient supervision must be on site and available so that no individual supervisor is required to work a shift longer than 12 hours”: see also ID 90-1, s. 7.3.6. [ 68 ] Roll’n and Horizon allege that Blaze contravened this requirement by having Allen and Cripps work 24-hour shifts. Mills responded that this was not a requirement until the operations reached the critical zone of the operations. [ 69 ]

Section 4.5.2 of ID-97-6 requires rig managers, drillers and crew to have specific certifications and experience. It states that “[o]n-site rig managers must have a current [second- line BOP ticket], and drillers must have a current [first-line BOP ticket]. It also states that they must have a H2S Alive certification and experience in drilling sour wells. It states that there must be a five-man crew and that all members shall have a H2S Alive certification. [ 70 ] Blaze alleges that Roll’n contravened this provision because none of Roll’n’s personnel had a second-line BOP ticket. [ 71 ]

Section 4.5.3 of ID-97-6 requires that “[k]ey on-site service personnel including mud-men, loggers, geologists, etc. shall have previous experience in sour well drilling operations” and that all well-site personnel be trained in H2S safety. Blaze alleges that the Roll’n crews conducting the Blaze operations did not have sufficient experience in sour well drilling operations. [ 72 ]

Section 4.5.4 of ID-97-6 states that “[d]uring the critical period of the drilling operation, safety personnel and adequate safety equipment for all workers must be on site (minimum requirements are specified by the Occupational Health & Safety Act (OH&

S) and Regulations.” Roll’n and Horizon allege that Blaze contravened these requirements during the Blaze operations, including during the abandonment operations, by refusing to hire and by dismissing safety personnel. Mills disagreed that safety personnel were required from the onset of the Well operations. He said that they were not required until the operations reached the critical, just prior to the time when the drilling reached the Nisku. 3. IRP Vol. 1 - Critical Sour Drilling - Industry Recommended Practices , 2004

(IRP Vol 1) (Ex. 001-019) [ 73 ] The Blaze Drilling Program stipulates that the Well operations are to be conducted in accordance with IRP, Volume 1.

Blaze argues that although these practices are only recommended practices, they became part of the Master Well Service Contract (MWS Contract) by their inclusion as a requirement of the Program. [ 74 ] Enform (formerly PITS) and the Canadian Association of Oilwell Drilling Contractors (CAODC) Drilling Completion Committee, both listed on the first page of IRP, Vol. 1, were industry players and they, the AEUB and other government agencies were involved in the preparation of IRP Vol. 1. [ 75 ] This document contains a set of recommended practices developed for the oil and gas industry by various bodies involved in the industry, to provide a set of best practices that will prevent a blowout while drilling a critical sour well.

It covers hazard assessment, planning, casing design and metallurgy, and BOP stack requirements including their configuration and components, choke manifolds, mud gas separators, drill string design and metallurgy, welding, drilling fluids, kick detection, wellsite safety, wellsite personnel. It also specifies the responsibilities of the crew involved in drilling critical sour gas wells and the qualifications that the crew requires. [ 76 ]

Section 1.3.1.1 1 of IRP Vol. 1, at p. 39, states that the “overall project plan [which means the Drilling Plan] and application to the appropriate regulator to undertake the drilling of a critical sour well will be developed and signed by a qualified technical expert authorized by the operator”. The Blaze Drilling Program (Ex. 001-007) is not signed by Blaze or N. L. Fisher. Mills agreed but said the Drilling Program sent to the AEUB was signed. [ 77 ]

Section 1.3.1.1 1 of IRP Vol. 1, p. 40 states that it allows “flexibility in several instances provided a qualified technical expert relative to the practice/technology has approved the options in question”. Mills agreed that Kevin Meyers of N. L. Fisher prepared the Drilling Program and that Mills did not make inquiries as to Meyers’ qualifications. [ 78 ]

Section 1.10.5.5 of IRP Vol. 1, p. 207 states that a “qualified drilling fluid specialist shall be on location prior to drilling into, while drilling through, and at least 100 m below the critical sour formation or at any time there are soluble sulphides in the mud filtrate.” Roll’n and Horizon allege that there was no such specialist at the Well location during the time that Roll’n was performing operations. Mills agreed but again stated that this was not required until the drilling reached the critical sour phase of the operations. [ 79 ]

Section 1.12.1.2 of IRP Vol. 1, p. 215 1 states that “site access control personnel will deny access to anyone without certification ...”

Section l.12.1.3 states that “[p]rior to drilling into the critical sour zone, a minimum of two H2S Safety Supervisors are required on 24-hour basis, each working no more than 12-hour shift while on location.” Mills agreed this applied but not when Roll’n was at the wellsite since they were not working during the critical sour phase of the operations. [ 80 ]

Section 1.12.1.4 of IRP Vol 1, p. 216 states that “[p]rior to drilling into the critical sour zone, site access control must be in place. Only authorized personnel will be allowed on the wellsite....A record of all personnel on the wellsite must be maintained current at all times.” Roll’n argues that this provision applied during the setup and abandonment operations as the people working at the wellsite were exposed to the critical sour gas in the Nisku formation through the existing well bore. [ 81 ]

Section 1.13 of IRP Vol. 1, p. 218 deals with the qualifications and experience required of wellsite personnel.

Section 1.13.1.1 states: The Operator will delegate a primary wellsite supervisor as having overall control in the chain of command. The Primary Wellsite Supervisor has the overall responsibility to his company for the well and for compliance with all regulations relating to the operation of the well.

He must establish a chain of command and a line of communication at the wellsite. The primary wellsite supervisor must be onsite (or readily available (can get to location with 2 hours) at all times. [ 82 ] Blaze argues that Horizon was the primary well supervisor when Allen and Cripps were onsite. Roll’n and Horizon argue that the primary well supervisor was Blaze. [ 83 ]

Section 13.1.1.2 of IRP Vol. 1 deals with the rig contractor’s responsibilities and states: 1.13.1.2. IRP Rig Contractor’s Responsibilities The Rig Contractor’s representative has the responsibility to the Operator’s representative for the operation of the rig during the drilling of the well which provides for a single chain of command for the well operations.

He is responsible to his company for the rig equipment and crew, and for compliance with all regulations relating to the operation of the rig. 1.13.1.3 IRP Shared Responsibility The day-to-day operations on a lease are a shared responsibility between the contractor’s and operator’s representatives, but the ultimate responsibility for supervision of the well operation is assigned by the Operator to the Operator’s representative. [ 84 ]

Section 1.13.3.1 deals with the competency required of a primary wellsite supervisor: 1.13.3.1 IRP Primary Wellsite Supervisor The primary wellsite supervisor must be competent in the application of existing ARPs/IRPs and Emergency Response Planning. The Primary Wellsite Supervisor must have the following minimum experience levels: - 5 years Operator’s wellsite supervisory experience (or 3 years drilling engineering + 2 years wellsite supervisory experience) - must have supervised a minimum of 5 sour drilling operations while operations were being conducted in the sour zone.

Since the complexity of a well generally increases with depth, the primary wellsite supervisory’s previous sour well experience must have been on wells of similar complexity and depth when compared to the critical sour drilling operation he/she will be supervising. [ 85 ]

Section 1.13.3.3 deals with the minimum experience for the rig manager on a sour well: 1.13.3.3 IRP Rig Manager The Rig Manager must have the following minimum experience levels - 5 years experience as a Rig Manager or driller. - must have been involved (as rig manager or driller) in 5 drilling operations while these wells in the sour zone.

Training/certification requirements: - Second-Line BOP - H2S alive - First Aid - WHMIS - TDG - Confined Space Entry - Fall Protection [ 86 ]

Section 1.13.3.4 of IRP Vol. 1 specifies the qualifications and experience of the drilling crew on a critical sour well: 1.13.3.4 IRP Drilling Crew Each member must be competent to fully handle his/her individual responsibilities and to fully understand his/her responsibilities for the critical well control operation. Drillers: must have a minimum of 3 years as a driller and/or derrick man, with experience in sour well operations. Must have First-Line BOP certification. Derrickman/motorman: must have a minimum of 3 years rig experience, with experience in sour well operations.

Motorman/Floorhands: must demonstrate crew competency requirements re BOP and man-down drills as per IRP 1.13.3.3 BOP Drills.... [ 87 ] Ward said that the requirements of IRP Vol. 1 were applicable during the 2005 operations on the Blaze Well. [ 88 ] Mills disagreed with Roll’n’s suggestion that IRP, Vol. 1 only requires wellsite personnel to have sour gas experience and not experience in critical sour gas wells. 4.

Industry Recommended Practice, “Standards for Wellsite Supervision of Drilling, Completion and Workovers, An Industry Recommended Practice (IRP) for the Canadian Oil and Gas Industry, IRP Volume 7 - 2008 (IRP 7) (Ex. 006-131) [ 89 ] Industry Recommended Practice Vol. 7, Appendix A, entitled “Levels of Control and Responsibility for Safety Management”, states that the chain of command flows from the operator who is the owner and licensee of the well, in this case Blaze, to the prime contractor who is the operator unless assigned in writing, in this case Blaze, to the wellsite supervisor, the entity representing the prime contractor who directs all employers at the wellsite, in this case Horizon, through its subcontractors Allen and Cripps and their respective companies. [ 90 ] Blaze argues that IRP Vol. 7 was not relevant as the MWS Contract stipulated that IRP Vol. 1 governed.

Cripps testified that he was aware of IRP Vol. 7 and considered himself bound by it. Ward said that IRP Vol. 7 was an industry recommended practice developed by members of the oil and gas industry setting out the standards required of operators and rig contractors conducting drilling, completion and workovers in the industry. [ 91 ] I find that IRP Vol. 7 is relevant although its weight is limited.

5. Industry Directive 90-1 (ID 90-1) (Ex. 006-146) [ 92 ] Industry Directive 90-1 deals with the completion and servicing of sour wells, s. 7.3.5 (3) of which provides: 7.3.5

(3) For new critical sour wells, the tubing head spool (above secondary seal) tubing hanger and Christmas tree assembly working pressure ratings as defined by API 6A shall be equal to or greater than the BHP of the producing formation.

(4) For new critical sour wells, the wellhead and Christmas tree assembly and other wellhead service equipment should not be exposed to operating pressures greater than their API maximum working pressures rating (MWPR). Callicott the AEUB inspector who shut down the Well operations on December 9, 2005, said that ID 90-1 would have been in force in October and November 2005. F.

Well Operations Reports [ 93 ] Three types of reports were created to report on the Blaze Well operations over the period that Roll’n and Horizon were providing services at the Blaze Well: the Tower Reports, the computer generated Pason Reports, and the Daily Operations Reports created by Horizon, and following Horizon’s departure, by Blaze. These reports were referred to in evidence provided throughout the trial and a brief description is helpful at this preliminary stage. [ 94 ] The first type of reports generated were the Tower Reports: Ex. 8.

They were prepared by Roll’n on Roll’n’s standard form Daily Work Report to record and report to Roll’n and Blaze on Roll’n’s daily operations. The entries are short-form, handwritten notes that were made by the Roll’n’s rig manager or drillers on duty each day. They were reviewed and executed by the Roll’n rig manager and by the onsite well supervisor in charge each day. They were also used by Roll’n’s payroll department to track the charges payable by Blaze for the services and equipment supplied by Roll’n. [ 95 ] The second type of reports generated were the Pason Reports: Ex. 7.

They were prepared by Roll’n on computer generated, CAODC approved, standard forms, to record and report to Roll’n and Blaze on the daily operations in more detail. Pason is an electronic drilling recording system. Sensors were put on various outlets on the Rig to monitor various functions with a computer. Functions were monitored and recorded in real time. The Pason data was transmitted from the Rig to a computer in the well supervisor’s shack, the rig manager’s shack, and the driller’s shack. [ 96 ] It was possible for the Pason data to be transmitted from the Wellsite to Blaze’s office in Calgary.

It was also transmitted and stored in a data hub in Calgary to which Blaze had access during the Well operations. [ 97 ] The Pason data recorded some parametres and other parametres could be keyed in by Roll’n. Only Roll’n could email the Pason Reports from the computer in the rig manager’s shack to the Blaze offices and to the data hub in Calgary. [ 98 ] The third type of reports generated were the Daily Operations Reports (DORs): see Ex. 002-021 for the Horizon DORs from October 28 to November 20, 2005; see Ex. 003-022 for Blaze’s DORs for November 21 to December 28, 2005.

They were prepared by the onsite well supervisor on the well supervisor’s standard form Daily Operations Report to record and report to the well supervisor and Blaze on the daily operations. The entries are also short-form, hand written notes made by the well supervisor on duty each day. They were also used by Horizon to track the hours during which Allen and Cripps provided wellsite supervisory services for the purposes of invoicing Blaze for those services.

[ 99 ] The wellsite supervisor DORs were prepared by Allen and Cripps on Horizon’s Daily Operations Report form during the time that they were at the Wellsite. Allen created the Horizon DORs for October 28 to November 1, 2005. Cripps arrived onsite on November 1, 2005 and he and Allen created the November 1, 2005 Horizon DOR.

Cripps created the Horizon DORs from November 2 until November 20, 2005. [ 100 ] After Cripps left the Wellsite, the well supervisor’s DORs were prepared on Blaze DORs by either Mills or other wellsite supervisors Blaze had hired. [ 101 ] There was a computer-generated error in the Horizon DORs showing Mills as the wellsite supervisor from November 16 to 20, 2005. Cripps was the wellsite supervisor on those dates. Mills did not take over as wellsite supervisor until November 21, 2005. G. Witnesses [ 102 ] A number of witnesses were called to give evidence in support of the parties’ various claims.

Given the complexity and multiplicity of actions and the number of witnesses it is helpful to summarize as a preliminary matter, on whose behalf they testified, their roles in relation to the parties and their experience. Their evidence bearing directly on the matters in issue is discussed in more detail under each issue as required. 1. Roll ’n ’s witnesses [ 103 ] In support of its debt claim, Roll’n called Rolly Buan and Darla Briem. Both were employees of Roll’n. [ 104 ] Buan was Roll’n’s marketing representative from approximately November 1999 to March 2006 when he retired.

Buan negotiated the contract between Roll’n and Blaze and testified primarily regarding the circumstances around the formation of the contract. Prior to working for Roll’n, Buan had worked for another rig service company for nine years. In total he had approximately 42 years’ experience in the oil and gas industry. [ 105 ] Briem was Roll’n’s Certified General Accountant and its controller at all material times.

Briem testified as to Roll’n’s billing procedure and how invoices were issued. [ 106 ] In defence of Blaze’s counterclaim, Roll’n called a number of witnesses. [ 107 ] It called two of its rig managers, Rob Anderson and James Yearwood. [ 108 ] Anderson was the Roll’n rig manager who was onsite during the Blaze operations from October 27 to November 5, 2005 and from November 15 to December 5, 2005 and provided evidence related to his first-hand knowledge of what occurred during that time. [ 109 ] James Yearwood was the Roll’n rig manager onsite during the Blaze operations from November 5 to November 15, 2005.

He also testified as to his first-hand knowledge of what occurred during that time. [ 110 ] Dan Vickers was Roll’n’s safety and human resources manager. He had worked for Roll’n in that position for 13 years at the time of trial and testified as to safety and human resources processes and his first-hand knowledge of such matters in regard to the matters in issue. [ 111 ] Brad Rowbotham was Roll’n’s general manager from 1996 to the date of trial. He communicated with Buan and Mills both

before and after Roll’n and Blaze entered into the MWS. Although Rowbotham was never at the Blaze Well, he was in contact with the Roll’n crew at the site, as well as with Mills and other witnesses. He reviewed and was well familiar with the Tower Reports. He was an active member of the CAODC, a trade association representing the interests of contract drilling and service rig contractors across Canada. He was on the CAODC Safety and Technical Committee from the mid-1990s and the Chairman of the Committee in 2005 and 2006.

In 2008, Rowbotham was also the Chairman of the CAODC Service Rig Executive Committee and was a Director of CAODC at the time of trial. He was the CAODC’s representative on the Drilling and Completions Committee, which oversees all industry recommended practices. [ 112 ] Roll’n called John Jacobsen who was qualified as an expert in oil and gas drilling and re

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