Spartan Delta Appeal Raises Uncertainty for Co-Lessees After Insolvency

Written By Keely Cameron, Luke Morrison and Chyna Brown

Years after an insolvency proceeding is closed, can a solvent co-lessee/working interest participant (WIP) still be on the hook for their former partner’s share of unpaid Crown royalties? A recent Alberta Court of Appeal decision to allow an appeal in Spartan Delta Corp v Alberta (Energy and Minerals), 2025 ABCA 181 [Spartan Delta], raises concerns around whether the answer to such question can be 'yes'. The oil and gas industry is closely tracking the outcome of this appeal (anticipated to be heard in fall 2025) on the basis that if the appeal were to be granted it would create uncertainty for upstream oil and gas joint interest owners as to the impact of insolvency proceedings on existing liabilities (and would have implications for purchasers and WIPs alike in relation to oil and gas M&A out of insolvency proceedings).

The case arose in relation to the purchase by Spartan Delta Corporation (Spartan) of Crown mineral leases and other assets of Bellatrix Exploration. (Bellatrix) in 2020 pursuant to Bellatrix’s insolvency proceedings under the Companies’ Creditors Arrangement Act, RSC 1985, c C-36 [CCAA] and a court-approved Vesting Order. The Vesting Order provided Spartan with the purchased assets free and clear of prior claims and created a holdback of C$8.5 million to cover any post-closing liabilities, including any royalty arrears owed under the Crown leases. Alberta Energy later confirmed that Bellatrix’s existing deposit of C$710,392.13 covered the royalty arrears resulting in the holdback being released, and the CCAA proceeding was formally closed.

In late 2024, two years after the CCAA termination, Alberta Energy issued collection notices to Spartan and several other current (solvent) WIPs for the relevant properties, including Canadian Natural Resources Limited, seeking payment of alleged Bellatrix royalty arrears, citing joint liability under s. 20(2.1) of Alberta’s Mines and Minerals Act, RSA 2000, c M-17 [MMA]. Spartan applied to the Court of King’s Bench, arguing that the Bellatrix royalty arrears were extinguished, had never crystallized, and that Alberta Energy pursuing them undermined the finality of the CCAA process.

Alberta Energy argued that while the Vesting Order released any possible royalty claims against the assets purchased by Spartan from Bellatrix, its claims for royalty arrears against Bellatrix’s other third-party co-lessees/WIPs were not released under the Vesting Order or the CCAA and are otherwise enforceable under the MMA.

The Chambers Judge’s Decision

The chambers judge ruled in Spartan’s favour, barring Alberta Energy from pursuing the royalty arrears for three main reasons: (i) the Vesting Order extinguished claims against the purchased assets, including Bellatrix’s pre-filing royalty debts; (ii) the Crown’s actions undermined the finality and integrity of the CCAA’s single-procedure model; and (iii) joint liability under s. 20(2.1) of the MMA did not apply, as the royalty obligations were extinguished before they crystallized.

Further, the chambers judge noted that Alberta Energy’s active participation throughout the CCAA process, including consenting to the lease transfers and holdback release, amounted to estoppel or waiver of any further claims.

The Court of Appeal Decision

The Court of Appeal found that leave under s. 13 of the CCAA was required and accordingly granted it, holding that Alberta Energy raised serious and arguable issues–namely, whether the Vesting Order barred claims only against Spartan or also against Bellatrix’s former co-lessees/WIPs, and whether joint liability under the MMA survives the conclusion of insolvency proceedings.

Future Implications and Risks

While this decision of the Court of Appeal is procedural in nature (i.e., it turned on whether Alberta Energy met tests necessary to warrant a full appeal), it has significant implications for third party co-lessees/WIPs in respect of pre-filing arrears and oil & gas insolvencies.

As the outcome of the appeal is pending, the arguments made by Alberta Energy underscore several implications for WIPs and other stakeholders, including:

• the importance of thorough due diligence by buyers seeking to acquire assets from insolvent entities (whether out of a CCCA or receivership process). Buyers must not only assess the liabilities directly tied to the assets being acquired, but also consider whether residual obligations may attach through statutory joint liability schemes such as section 20(2.1) of the MMA. Where the seller was a co-lessee/WIP, buyers should closely evaluate the nature of those relationships and determine whether the obligations were truly severed by a Vesting Order or if liability could persist against the seller’s former partners. Clear and explicit language in Vesting Orders that extinguishes all claims tied to the assets, including any potential joint liabilities arising from past associations, is critical to minimizing liabilities. And existing/historical Vesting Orders should be reviewed for unique/bespoke terms or variances from the standard form that is used by Alberta Courts in relation to the CCCA or receivership process.
• WIPs that have financially distressed or insolvent co-lessees should also actively monitor CCAA/receivership proceedings and, where appropriate, participate in such proceedings to seek to appropriately allocate liabilities. Passive reliance on the insolvency process may leave partners exposed to renewed claims if joint obligations are left unresolved or are only partially addressed in the restructuring. As the CCAA/receivership process often focuses on debtor-specific relief, co-lessees who are not parties to the insolvency can find themselves excluded from critical determinations, such as whether their own obligations are impacted by the Vesting Order. If they do not intervene, they may be subject to Crown enforcement actions for unpaid liabilities tied to the insolvent party’s conduct, even where they had no role in the restructuring itself. Strategic engagement can help co-lessees shape the terms of asset transfers, raise objections to extinguishment of obligations that might otherwise shift to them, and protect their long-term interests.

This decision reinforces the need for comprehensive risk mitigation strategies in all partnership and joint operating agreements/WIPs involving Alberta Crown mineral leases.

Download PDF