Energy Bulletin: Operator Liability for Administrative “Gross Negligence”

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In the balancing of interests between operators and non-operators in co-owned Canadian oil and gas properties, the allocation of risk that has evolved under common industry agreements purports to hold an operator liable to its non-operators only in respect of those acts or omissions that rise to the level of “gross negligence or wilful misconduct”. This narrow basis for operator liability is consistent with the underlying premise that a co-owner consents to undertake the role of operator on a mere cost-recovery basis, and not as a third party “for profit” asset manager or service provider. In the ordinary course, any one of several competent joint-owners could potentially fill the role of operator, and once appointed the operator is always subject to removal and replacement by the other non-operators.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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