Alberta appeal court limits automatic stay over Blue Sky royalty arrears

The Court of Appeal of Alberta has drawn a distinction between companies that shared Crown mineral leases with an insolvent producer and companies whose leases the producer did not hold, requiring a fresh hearing over part of a royalty-collection dispute.

In Alberta (Energy and Minerals) v Canadian Natural Resources Limited, 2026 ABCA 213, released June 24, the court upheld the application of an insolvency stay to claims against Blue Sky Resources Ltd.’s co-lessees. But it concluded that the reasoning below did not justify extending that automatic stay to royalty claims associated with leases on which Blue Sky was not a co-lessee.

The result was a partial victory for Alberta’s energy minister, not an immediate order directing the other companies to pay. A new hearing was required to decide whether a stay was warranted for the remaining category of claims.

A demand affecting 32 energy companies

The dispute began with royalty arrears arising from natural gas production received by Blue Sky. A September 2025 demand from Alberta Energy identified a balance of just under $1.9 million. Blue Sky then began restructuring proceedings under the Bankruptcy and Insolvency Act.

The province sent a further default letter, copied to 32 energy companies, demanding payment and warning of possible remedies that included cancellation of Crown leases. Canadian Natural Resources Limited and other companies paid the amounts claimed against them under protest by October 31, 2025.

CNRL sought a ruling that Alberta Energy had to pursue Blue Sky’s arrears through the restructuring before recovering from the other leaseholders. The Court of King’s Bench stayed collection from the lessees until the insolvency proceedings were complete.

The judge emphasized the advantages of resolving claims through a single insolvency proceeding. He also considered Alberta Energy’s ability to require payment of outstanding amounts when Crown leases were transferred through a restructuring transaction. Companies that paid Blue Sky’s royalties, by contrast, could be left seeking recovery as unsecured creditors.

Joint liability mattered

The appeal turned partly on the meaning of section 20(2.1) of Alberta’s Mines and Minerals Act. The province argued that co-lessees had independent, joint-and-several obligations, allowing it to pursue them separately for the outstanding royalties.

The appeal court rejected that interpretation. The legislation made co-lessees jointly responsible, rather than jointly and severally liable. Another part of the provision preserved the Crown’s ability to obtain judgment against other lessees after a judgment against, or release of, one lessee. That specific protection did not convert the entire obligation into joint-and-several liability.

The court also upheld the finding that Blue Sky owed the royalty debt. Blue Sky had received the production that triggered the payment obligation; the arrears predated its insolvency and had a monetary value. They therefore constituted a claim provable in bankruptcy.

Because the liability of Blue Sky and its co-lessees was joint and indivisible, the statutory stay protecting Blue Sky also stayed the royalty claims against those co-lessees. That conclusion did not erase the underlying royalty obligations.

Not every lease belonged to Blue Sky

The difficulty was that Blue Sky was not a registered lessee on every affected lease. On some, it had only a working interest. The appeal court found that the lower court had not adequately addressed that distinction.

The reasoning below relied substantially on the prospect that outstanding royalties would be paid when Blue Sky’s leases were transferred. But a lease Blue Sky did not own could not be sold as its property in the insolvency proceeding. The lower court had not determined whether other contractual arrangements could produce a comparable recovery.

The appeal judges recognized that insolvency courts can temporarily restrain creditor remedies to protect a restructuring. However, the judge below had not stated or applied the necessary analysis for claims relating to leases on which Blue Sky was not a co-lessee. Referring generally to the single-proceeding approach was not enough to resolve that issue.

The evidentiary record also did not identify the amount of arrears associated with each lease. A disclosure order required information linking Crown leases, unpaid royalties and the amounts claimed against individual co-lessees. The appeal court said that information could help the parties present more precise arguments at the new hearing.

The case was returned to King’s Bench to consider whether a stay should protect the remaining claims where Blue Sky and the party associated with the particular arrears were not co-lessees. Given their mixed success, the parties were ordered to bear their own appeal costs.

The June ruling established the reach of the automatic stay in this dispute while leaving the separate, discretionary-stay question for another hearing. It did not determine the eventual recovery of every royalty claim.