Executive Summary: Key Legal and Evidentiary Issues

• Blue Sky Resources Ltd. owed approximately $1.9 million in unpaid Crown royalties to Alberta Energy and filed a Notice of Intention to make a restructuring proposal under s 50.4(1) of the Bankruptcy and Insolvency Act, RSC 1985, c B-3, triggering a stay of proceedings.
   
• Central to the appeal was whether Alberta Energy's royalty recovery claims against co-lessees copied on a "Leaseholder Recourse Default Letter" were subject to the s 69 BIA stay imposed in Blue Sky's restructuring proceedings.
   
• Section 20(2.1) of the Mines and Minerals Act, RSA 2000, c M-17 establishes joint — not joint and several — liability among co-lessees under Crown petroleum and natural gas leases, meaning the stay of proceedings against Blue Sky also stayed claims against its co-lessees on those leases.
   
• Complicating the matter, Blue Sky was a registered lessee on some but not all of the leases referenced in the Default Letter; on other leases, it held only a working interest as a royalty client.
   
• Alberta Energy's first affidavit incorrectly asserted Blue Sky was a registered lessee on all leases subject to the Default Letter, a position it later corrected by supplemental affidavit.
   
• Given the mixed success on appeal, the Court of Appeal ordered that the parties bear their own costs.

Facts of the case

Blue Sky Resources Ltd., an oil and gas company, had been identified as a "royalty client" on multiple Crown petroleum and natural gas leases, making it responsible for making ongoing royalty payments to the Crown. By September 2025, Blue Sky's gas royalty account with Alberta Energy showed an arrears balance of just under $1.9 million. On September 23, 2025, Alberta Energy sent a demand letter to Blue Sky requiring payment by October 22, 2025. On September 24, 2025, Blue Sky filed a Notice of Intention to make a restructuring proposal under s 50.4(1) of the Bankruptcy and Insolvency Act, RSC 1985, c B-3 (BIA), initiating restructuring proceedings.

The following day, September 25, 2025, Alberta Energy issued a "Leaseholder Recourse Default Letter" to Blue Sky, copying 32 energy companies — including Canadian Natural Resources Limited (CNRL) — who were lessees on some of the leases in relation to which Blue Sky had received gas production but failed to pay associated royalties. The Default Letter demanded payment of all outstanding arrears by October 31, 2025, failing which Alberta Energy might pursue various remedies including cancelling the leases. By that date, CNRL and others had remitted, under protest, the amounts claimed by Alberta Energy in respect of Blue Sky's royalty arrears. A sale and investment solicitation process order was granted on November 21, 2025, and the Proposal Trustee's Fourth Report dated January 13, 2026 indicated that process was progressing favourably.

CNRL applied for a declaration that the Default Letter demands constituted a claim provable in bankruptcy against Blue Sky or the exercise of a remedy against Blue Sky's property, and that the stay under s 69 of the BIA precluded Alberta Energy from collecting any payments from Blue Sky's co-lessees.

Chambers decision

The chambers justice, Justice M.H. Bourque, held that the stay of proceedings precluded Alberta Energy from recovering outstanding royalties owing by Blue Sky from the lessees until the insolvency proceedings were complete. He found Blue Sky's $1.9 million debt for unpaid Crown royalties was a "claim provable in bankruptcy" because: it was an amount owed by Blue Sky to Alberta Energy, it was incurred before Blue Sky became bankrupt, and it was possible to attach a monetary value to it. The chambers justice relied on the "single proceeding model," which allows for the efficient adjudication of creditor remedies within a single proceeding. He reasoned that bypassing this model through recovery from co-lessees would upset the delicate balancing of creditor rights within the restructuring proceedings, particularly because of the special treatment afforded to "cure costs." He also noted that the 32 co-lessees who paid Blue Sky's royalty arrears might not recover those amounts in full through the statutory cure costs mechanism and would be required to participate as unsecured lenders, at high cost, to monitor the proceedings.

Statutory framework and provisions at issue

Under the Mines and Minerals Act, RSA 2000, c M-17 (MMA), the Crown does not develop its own mineral resources but reserves a royalty on any minerals recovered pursuant to a Crown petroleum and natural gas lease. Section 35(1) of the MMA confirms the Crown's ownership of its royalty share of the mineral at all times until that share is disposed of or transferred. All Crown petroleum and natural gas leases expressly incorporate the provisions of the MMA and applicable regulations, and all leases at issue required the lessees to pay all royalties accruing from production and to comply with the MMA and any other applicable statutes.

Section 20(2.1) of the MMA, added in 2003, provides that where two or more persons are recorded as lessees of an agreement, those lessees are jointly responsible for the obligations and liabilities that arise under the agreement, and a judgment in favour of the Crown against one or more lessees, or a release by the Crown of one or more lessees, does not preclude the Crown from obtaining judgment against the other lessees. The Natural Gas Royalty Regulation, 2009, AR 221/2008 (NGRR 2009) and the Natural Gas Royalty Regulation, 2017, AR 211/2016 (NGRR 2017) governed royalty calculations under the Crown leases at issue.

Reasoning and analysis

On appeal, the Court considered two main questions: the nature of Alberta Energy's claims against Blue Sky's co-lessees under s 20(2.1) of the MMA, and whether the chambers justice erred in finding those claims were subject to a stay.

On the first question, the Court held that s 20(2.1) establishes joint — not joint and several — liability. The Legislature's deliberate use of the phrase "jointly responsible" in s 20(2.1)(a), rather than "joint and several," signalled an intent to codify joint liability only. This reading was supported by the contrast with other Alberta statutes that explicitly use the phrase "joint and several" where that form of liability was intended, and by the Hansard record, which confirmed the 2003 amendments were designed to codify joint liability of Crown leases. Because joint liability is indivisible, staying the claim with respect to Blue Sky stays the claim with respect to all persons jointly liable — meaning the s 69 BIA stay was properly applied to claims against Blue Sky's co-lessees on leases where Blue Sky was itself a co-lessee.

On the second question, the Court found the chambers justice's reasoning did not support extending the stay to claims against lessees in relation to leases on which Blue Sky was not a co-lessee. Alberta Energy's first affidavit had asserted that Blue Sky was a registered lessee on all PNG leases subject to the Default Letter, but a supplemental affidavit later clarified that on some leases, Blue Sky was only a royalty client, not a registered lessee. There was no evidence before the chambers justice regarding the quantum of royalty arrears owing under any given lease. The Court noted that the chambers justice did not expressly address the court's jurisdiction under s 183 of the BIA, nor did he analyze claims on leases where Blue Sky was not a co-lessee. The Default Letter had asserted that all lessees were responsible for Blue Sky's royalty arrears even on leases in which those lessees had no interest — a position Alberta Energy later walked back at the hearing.

The Court also granted CNRL's request for disclosure, ordering that each co-lessee be provided information identifying the Crown lease with royalty arrears and the amount of the arrears claimed against each co-lessee, to enable the parties to advance their arguments before the chambers justice with more particularity.

Ruling and overall outcome

The Court of Appeal allowed the appeal in part. It concluded that the s 69 BIA stay was properly applied to claims against Blue Sky's co-lessees on leases where Blue Sky was itself a co-lessee, upholding that aspect of the chambers decision. However, the chambers justice's reasoning did not support a conclusion that the stay extended to claims against lessees in relation to leases on which Blue Sky was not a co-lessee. The matter was returned to the Court of King's Bench for a new hearing on whether a stay is warranted in the ongoing insolvency proceedings in relation to any remaining Crown claims for royalty arrears against parties listed in the Default Letter where Blue Sky and the party were not co-lessees on the relevant lease. Given the mixed success on appeal, the parties — Alberta Energy and CNRL — were ordered to bear their own costs.