Vesting Order Bars Claims for Unpaid Crown Royalties

On June 24, 2026, the Court of Appeal of Alberta confirmed limits on liability for co-lessees of oil and gas assets for unpaid Crown royalties.

In two companion decisions - Alberta (Energy and Minerals) v Spartan Delta Corp, 2026 ABCA 214 (the Spartan Decision) and Alberta (Energy and Minerals) v Canadian Natural Resources Limited, 2026 ABCA 213 (the CNRL Decision) -  the Court clarified that co-lessees are subject to joint liability for Crown royalties, not joint and several liability, under Alberta's Mines and Minerals Act, RSA 2000, c M-17.

This distinction is critical. Because the liability is joint and indivisible, the extinguishment or stay of a claim against one co-lessee extinguishes or stays the claim against all co-lessees, subject only to limited statutory exceptions. As a result, when an insolvency proceeding vests off unpaid royalties for one co-lessee, the other co-lessees cannot later be on the hook for the unpaid royalties.  Similarly, where a stay is in place preventing the Crown from taking collection actions against one co-lessee, the stay prevents collection efforts against others, however the same may not hold true where the insolvent party is a working interest participant as opposed to a co-lessee.

These decisions will be welcome news for the oil and gas industry. Many participants had been closely following the outcome of the appeals (see our blog post from July 16, 2025) amid concerns that a co-lessee or working interest participant could face exposure for a former party's royalty arrears years after an insolvency process had ended.

The Spartan Decision

This appeal arose from the completed Companies’ Creditors Arrangement Act, RSC 1985, c C-36 [CCAA] proceedings of Bellatrix Exploration Ltd. (Bellatrix).

In 2020, Spartan Delta Corporation (Spartan) purchased Bellatrix's assets, including interests in joint Crown leases, under a Vesting Order in May 2020. The Vesting Order included a holdback of $8.5 million to cover certain liabilities, including any royalty arrears. Alberta (Energy and Minerals) (Alberta) confirmed to Spartan that Bellatrix's existing deposit covered the royalty arrears, and that Spartan was not liable for the arrears. On that basis, the holdback was released and the proceeding was closed.

More than two years after CCAA termination, Alberta issued notices demanding payment of Bellatrix's royalty arrears from co-lessees, including Spartan.  Spartan applied to Court for relief, arguing that the royalty arrears were extinguished by the Vesting Order.

Both the chambers judge and the Court of Appeal agreed with Spartan, finding that the Vesting Order did, in fact, extinguish the pre-filing royalty arrears. For the post-filing arrears, the Court of Appeal found that Alberta had an opportunity to recover the unpaid royalties through the holdback process but chose not to. To allow Alberta to pursue co-lessees now would undermine the integrity and fairness of the insolvency process.

The Blue Sky Decision

In a related decision, the Court of Appeal considered whether in an insolvency case, a stay of proceedings would prevent the Crown from pursuing royalty arrears against all co-lessees, or if the stay is only limited to pursuing royalty arrears against the insolvent entity. Both the Chambers Judge and the Court of Appeal held that the stay applies to pursuing royalty arrears against all co-lessees.

Because co‑lessee liability is joint, a stay of proceedings against one lessee also applies to all co‑lessees in respect of the same underlying obligation. As a result, Alberta must first advance and pursue its royalty claims through the insolvency proceeding against the debtor before seeking recovery from the co-lessees.

The Court did, however, clarify that the stay applies only when the parties in question are co‑lessees on the relevant lease, and it remitted part of the matter back for further consideration in respect of whether the stay applies regarding working interest participants.

Takeaways

Despite the positive results for the oil and gas industry, the decisions spotlight the importance of co-lessees taking steps to mitigate their risk in the event of a co-lessee's insolvency and by buyers seeking to acquire assets from insolvent entities. The Court of Appeal reiterated the finality of the insolvency process and the single proceeding model. As such it is important that steps are taken early to mitigate risk.