Complex oil case continues in the courts

UPDATE: Sarg Oils wins court hearing. EAB and Ministers decisions are quashed and case sent back to EAB for rehearing.

See July 22, 2005, Decision of Mr. Justice Langston


Lethbridge Herald

Tuesday, October 26, 2004

Page 1


A Milk River man who owns a small oil and gas company is having his livelihood threatened after 16 years of legal wrangling with provincial regulatory bodies.

Sarg Oils Ltd., owned by Serg Mankow , and the Environmental Appeal Board (EAB) appeared in front of Court of Queen's Bench Justice James Langston in Lethbridge Monday for another round, this time for a judicial review of a 1996 EAB decision.

Depending on the outcome, results could be devastating for small independent oil and gas companies, said Ted Gladysz , president of the Independent Oil and Gas Association.

Mankow's complicated ordeal started in 1988 when he sold 15 oil wells on 16 sites in the Camrose area. He originally bought them as part of another deal and found them impractical to operate. Mankow sought professional legal help in the sale and assumed the transaction was proceeding correctly.

"Even though Serg Mankow did everything right when he sold these wells - he sought the best advice and retained properly qualified professionals to ensure that the conveyance and well license transfer was handled correctly - the matter went awry through no fault of Mr. Mankow," said Vaughn Marshall, the Calgary lawyer representing the man.

The difficulty arose when the well licence transfers weren't registered with the Energy Resources Conservation Board (ERCB), which later became the Alberta Energy and Utilities Board. Still, Mankow had divested himself of the oil wells and received final payment in August, 1988 and the registration of the well licence transfers was expected in due course.

The following year, the ERCB notified Mankow that lease rights to extract minerals on the wells were expiring. The notification should have gone to the new owner, had the transfers been registered. Mankow kept in touch with the ERCB and took steps to correct the situation. The company that had purchased Mankow's wells wanted the ERCB to transfer the well licences to another company it was dealing with. When the ERCB wouldn't transfer to the third company, the company that bought Mankow's wells backed out of their request to register the wells in their names.

With the lease rights expired, the wells were technically abandoned. The ERCB stuck to its position and demanded that Sarg Oils do the abandonment work or they would do it and charge Sarg Oils. The latter occurred.

After the hole is plugged, reclamation work comes next. In Mankow's case, the reclamation department requested the site be cleaned up. Since Mankow had transferred the surface leases when he sold the wells, he couldn't legally enter the sites even if he wanted to.

When no reclamation was done, the environment department placed 16 environmental protection orders on the wells in 1994.

In addition to naming the company Sarg Oils in the orders, they named Mankow as the owner as well.

Mankow appealed the decision to the Environmental Appeals Board. In other legal action, the ERCB sued Sarg Oils for the cost of the abandonment.

Briefly Marshall said in court it was unfair that Mankow is being held personally liable.

"We ask on behalf of Mr. Mankow and Sarg Oils that some relief be given from this nightmare that has lasted 16 years," Marshall said.

Gladysz said Mankow's situation would be appropriate for the orphan well fund, the annual collection by the EUB from the industry, in proportion to their production, to cover any oil field abandonments or reclamations.

"That would take the onus off Serg Mankow to be personally liable for the abandonment and reclamation."

Representing the province's interest in the matter were three lawyers, Andrew Sims for the EAB, William McDonald for the director of land reclamation and Ronald Kruhlak, representing the Minister of Environment.

McDonald asked Langston to consider whether the board's decision was patently unreasonable.

The parties have 30 days to submit additional written comments to the court.

CAROLINE BOSCHMAN - The Lethbridge Herald