Damages for Breach of an Express Drilling Covenant
Keywords:Energy Law, Petroleum Law
AbstractAlthough legal problems of oil and gas production are governed by general principles of the law of property, contracts, torts, etc., there are certain situations in the oil and gas industry where these rules do not quite fit, and if they do fit, their application is so strained that the rule becomes a special rule, and becomes a part of that separate body of law referred to as oil and gas law. Damages for breach of an express drilling covenant is such an area. This article distinguishes a covenant to drill a well from a covenant to protect against drainage and from a covenant of reasonable development, discusses the four rules that have been used by the courts in assessing damages for breach of a covenant to drill a well, analyzes the Canadian decisions on breach of a covenant to drill a well and concludes that, in a situation where the plaintiff and the defendant both have an interest in the property on which the well is to be drilled, the Canadian courts will grant damages for breach of a covenant to drill a well on the basis of the loss of royalty rule and on the basis of the loss of market value rule.
Author(s) retain original copyright in the substantive content of the titled work, subject to the following rights that are granted indefinitely:
- Author(s) grant the Alberta Law Review permission to produce, publish, disseminate, and distribute the titled work in electronic format to online database services, including, but not limited to: LexisNexis, QuickLaw, HeinOnline, and EBSCO;
- Author(s) grant the Alberta Law Review permission to post the titled work on the Alberta Law Review website and/or related websites.
- Author(s) agree that the titled work may be used for educational or instructional purposes and/or in educational or instructional materials. The author(s) acknowledge that the titled work is subject to other such "fair dealing" provisions and applicable legislation.
- Author(s) grant a limited license to those accessing the titled work from an electronic database or an Alberta Law Review website to download the titled work onto their computer and to print a copy for their own personal, non-commercial use, subject to proper attribution.
To use the journal's content elsewhere, permission must be obtained from the author(s) and the Alberta Law Review.