Registering Builders' Liens on Oil Sands Worksites26-Oct-10
To optimally protect their financial interests, suppliers of services and materials to oil sands worksites (referred to in this article as “Suppliers”) should be familiar with the requirements of the Builders’ Lien Act (Alberta) (the “BLA”).
Temporal Requirements for Registering a Builders’ Lien
In addition to substantive requirements (i.e. whether a particular service or material is supplied or used “on or in respect of an improvement”), the BLA imposes strict temporal requirements for the registration of a valid and enforceable builders’ lien. Pursuant to section 42 of the BLA, failure to register a lien within the timeframe specified in section 41 results in the eradication of the Supplier’s lien rights. Thus, registration of a Supplier’s lien within the specified timeframe is of critical importance.
Section 41 of the BLA provides two distinct sets of temporal requirements for registering a builders’ lien: a 45 day lien period for “general sites”, and a 90 day lien period for “oil or gas well sites”. The question, then, is whether an oil sands worksite constitutes an “oil or gas well site” within the meaning of the BLA?
Surface Mining Worksites
In most cases at present day, oil sands resource extraction is best described as a “surface mining” operation. The producer removes overburden and exposes the bitumen resource for extraction and subsequent processing. Surface mining is distinct from the conventional oil and gas extraction technique in which a well is drilled in order to access a resource that is not visible from the surface.
On a common sense reading, it does not appear that a surface mining worksite constitutes an “oil or gas well” or “oil or gas well site” within the meaning of the BLA. Although the Court has not written on this issue in the context of the BLA1, the terms “gas well” and “oil well” have been judicially considered in other contexts. Case law suggests that the actual drilling of a hole or well is integral to the definition of “oil or gas well”. Because “mining” is a distinct process from “drilling”, the better view is that oil sands surface mining worksites do not constitute “oil or gas well sites” within the meaning of the BLA.
Conversely, an oil sands worksite that extracts the natural resource using Steam Assisted Gravity Drainage (SAGD) or other similar technology may constitute an “oil or gas well” or an “oil or gas well site” within the meaning of the BLA. The Construction Owners Association of Alberta reports that many operators in the SAGD industry have adopted the 90 day lien period.2 However, this issue has not yet been definitively decided by the Court.
Based on the foregoing, Suppliers to oil sands worksites should ensure:
- that liens for services are registered within 45 days from the date the performance of the services is completed or the contract to provide the services is abandoned; and
- that liens for materials are registered within 45 days from the date that the last of the materials is furnished or the contract to furnish the materials is abandoned.
Pursuant to section 42 of the BLA, failure to register within the required timeframe will eliminate a Supplier’s ability to claim against the oil sands worksite on account of its outstanding receivables. As such, oil sands Suppliers should be vigilant in monitoring their unpaid accounts and registering builders’ liens, if necessary, within the appropriate registration period.3 Builders’ liens should be registered, in the prescribed form, with the Land Titles Office, and also with the Minister of Energy where the mineral estate or interest is held via Crown lease.
1 In the recent Companies’ Creditors Arrangement Act proceedings of Cow Harbour Construction Ltd. (Action No. 1003 05560, Bankruptcy Action No. 24-115359), Yamauchi J. of the Court of Queen’s Bench of Alberta agreed with the Court appointed Monitor’s view that the 45 day builders’ lien period applied to an oil sands worksite. Although he did not issue an explicit written judgment to this effect, Yamauchi J. endorsed the Monitor’s analysis of the critical supplier charge (which was determined with reference to the 45 day builders’ lien period).
2 The Construction Owners Association of Alberta website reports as follows: “Currently, many operators in the SAGD industry apply the 90 day release of holdback to all of the construction on their sites, including all above grade facilities as a result of the ambiguity within the Act.” It therefore appears that Owners are similarly taking a cautious approach to interpreting the BLA as a result of the uncertainty arising from the definitions of “oil or gas well” and “oil or gas well site”.
3 Suppliers should be especially vigilant in observing the 45 day lien period in respect of supplies to oil sands surface mining worksites.