Oil & Gas, Mines & Minerals - Security under the Alberta Builders' Lien Act

June 24, 2014

Written By Brian P. Reid and Tari M. Hiebert

While builders' liens are commonly registered against surface title at the Land Titles Office (ALTO), the Alberta Land Titles Act prohibits the registration of a lien against mineral titles at the ALTO when the Crown is the owner of that mineral. Furthermore, the BLA provides that a lien on a mineral lease is to be registered with the Minister of Energy. Accordingly, with the Crown owning approximately 81 percent of all mineral rights in Alberta, most mineral liens will be registered with the Minister of Energy. Unfortunately, for those providing services or materials on oil and gas well sites, a lien registered with the Minister of Energy may not provide the same level of security as a lien registered with the ALTO.

Mineral Liens under the BLA “ Key Provisions

General

As a creature of statute, a builders' lien must strictly comply with the BLA and there are specific provisions in the BLA that deal with liens on oil and gas wells and well sites. In particular, section 6(2) of the BLA allows a lien to be registered for the value of the work actually done and materials actually furnished if a party has worked or furnished materials:

• in preparation for the recovery of a mineral;
• in connection with the recovery of a mineral; or
• for an abandonment operation in connection with the recovery of a mineral.

As mineral rights are often shared between different owners, identifying the various interests and estates can be a complicated task. However, the BLA allows lien-holders to avoid some of these issues. In particular, section 6(2) confirms that a lien in this section attaches to all "estates and interests" in the "mineral", other than the estate in fee simple in the "mines and minerals". This applies even if a person who holds a particular estate or interest in the mineral has not requested the work or materials. However, if the person holding the estate in fee simple in the mines and minerals expressly requested the work or materials, the lien also attaches to the estate in fee simple in the mines and minerals.

Section 6(3) of the BLA confirms that a lien attaches to an estate or interest in mines and minerals when they are in situ (i.e., while still "in the ground"), as well as attaching to the minerals once they have been severed from the land.

Registration Deadlines

Generally speaking, a party has 45 days to register a lien on a "conventional" construction site and 90 days to register a lien against a mineral interest on an oil and gas well or well site. This clock starts to run either from the date that the last materials or services are provided or from the date the contract was abandoned.

It is important to note that the terms "oil and gas well" or "oil and gas well site" are not defined in the BLA. Accordingly, it may be prudent to apply a 45-day deadline when dealing with operations that may not be considered "traditional" oil and gas wells (e.g., SAGD wells).

Enforcement of a Lien Against Oil and Gas Production

While the BLA expressly provides that a lien attaches to oil and gas interests both in the ground and once severed, a purchaser of oil and gas production may be unaware that the production is subject to a lien. Furthermore, in the 1988 Alberta Court of Queen's Bench decision in Halliburton Services Ltd v Snowhawk Energy Inc, Justice Forsyth confirmed that a builders' lien does not attach to the sale proceeds from the sale of a mineral, describing this as "an unwarranted extension of the law" (1988 CanLII 3433 (ABQB)). Accordingly, a lien on oil and gas interests may do little to discourage an owner from selling its oil and gas prior to the lien-holder obtaining a judgment at trial. This also creates the risk that a well could be "drained" before the lien-holder has obtained a judgment, leaving the lien-holder with no security whatsoever.

However, section 54 of the BLA provides a lien-holder with two options to protect its lien. First, a lien-holder can apply to the Court for the appointment of a receiver of the rents and profits from sale. Second, a lien-holder can apply for the appointment of a trustee who has the power to manage or sell the property under the Court's supervision. The net proceeds of any receivership, or of any sale made by a trustee, are then paid into Court and become subject to the claims of all lien-holders, mortgagees and other parties interested in the property. The factors a court are likely to consider when determining whether to appoint a receiver or trustee include the lien-holder's risk of loss if no order is made, the cost, the length of time that a receiver or trustee may be in place and the balance of convenience to the parties.

Conclusion

It is important for anyone with a lien registered against mineral interests to recognize that registration of a lien may do little to prevent the loss of security. Accordingly, legal counsel should be consulted to ensure that proactive steps are taken to protect that security.

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