Form 27 COURT FILE NUMBER 1901-14615 Clerk’s Stamp COURT COURT OF QUEEN’S BENCH OF ALBERTA JUDICIAL CENTRE CALGARY APPLICANTS ORPHAN WELL ASSOCIATION RESPONDENTS HOUSTON OIL & GAS LTD. DOCUMENT APPLICATION BY RECEIVER, re: LIMITED DISCHARGE ORDER and APPROVAL OF RECEIVER’S ACTIVITIES AND ACCOUNTS ADDRESS FOR SERVICE AND Jack R. Maslen CONTACT INFORMATION OF Borden Ladner Gervais LLP PARTY FILING THIS 1900, 520 3rd Ave. S.W. DOCUMENT Calgary, AB T2P 0R3 Telephone: (403) 232-9790 Facsimile: (403) 266-1395 Email: [email protected] File No. 436743.24 NOTICE TO THE ATTACHED SERVICE LIST (SCHEDULE “A”) This application is made against you. You are a respondent. You have the right to state your side of this matter before the master/judge. To do so, you must be in Court when the application is heard as shown below: Date December 11, 2020 Time 10:00 AM Where Calgary Courts Centre (Via WebEx Video Conference) Before Whom The Honourable Mr. Justice D.B. Nixon Go to the end of this document to see what else you can do and when you must do it. REMEDY CLAIMED OR SOUGHT: 1. BDO Canada Limited (“BDO”) is the court-appointed receiver and manager (the “Receiver”) over all of the current and future assets, undertakings and properties of every nature and kind whatsoever, and wherever situate, including all proceeds thereof (the “Property), of Houston Oil & Gas Ltd. (the “Debtor” or “Houston”), pursuant to a receivership order (the “Receivership Order”) of the Court of Queen’s Bench of Alberta (the “Court”) pronounced on October 29, 2019, 2 as amended by an Order of the Court in Action Number 2001-07870 pronounced on June 30, 2020 (the “Receivership Order”). 2. In the Application, the Receiver seeks from this Honourable Court the following Orders: (a) an Order substantially in the form attached hereto as Schedule “B”: (i) declaring service of this Application (and all supporting materials) to be good and sufficient, and abridging the time for notice of this Application to the time actually given, if necessary; and (ii) approving the limited discharge of the Receiver over (i) the approximately 1,114 well licenses, 1,157 pipeline licenses and 249 facilities licenses remaining with the estate and in the name of the Debtor, and (ii) the non-operating working interest of the Debtor in approximately 474 well licenses (collectively, the “Remaining Properties”); (b) an Order substantially in the form attached hereto as Schedule “C”: (i) approving the Receiver’s actions, conduct and activities, from September 3, 2020 up to and including December 11, 2020, as more particularly described in: (1) the Supplement to Second Report of the Receiver dated and filed on September 30, 2020 (the “Supplement to the Second Report”); (2) the Second Supplement to the Second Report of the Receiver dated and filed on November 2, 2020 (the “Second Supplement to the Second Report”); and (3) the Third Report of the Receiver dated November 27, 2020 and filed on November 30, 2020 (the “Third Report”); and (ii) approving and ratifying the fees and disbursements of the Receiver (for the period of March 1, 2020 to October 31, 2020) and those of its legal counsel (for the period of August 1, 2020 to October 31, 2020), as more particularly described in the Third Report. 3. Such further and other relief as counsel may advise and this Honourable Court may permit. GROUNDS FOR MAKING THIS APPLICATION: Background 4. On October 29, 2019, the Orphan Well Association (“OWA”) applied to the Court for the appointment of an interim receiver and receiver and manager in respect of the Debtor’s Property. Among other things, the OWA commenced these proceedings after the Debtor advised the Alberta 3 Energy Regulator (the “AER”) that, due to its financial situation, it intended to or had shut-in all of its operations. The Debtor also owed substantial abandonment and reclamation liabilities. 5. This Court granted the relief sought by the OWA and appointed Hardie & Kelly Inc. (“H&K”) as Receiver. On June 30, 2020, pursuant to a merger of H&K with BDO, this Court granted an Order substituting H&K with BDO as Receiver. 6. Upon being appointed, the Receiver and its operational consultant, Veracity Energy Services Inc. (“Veracity”), undertook significant efforts to ensure that all of the wells, pipelines and facilities operated by the Debtor were properly shut-in or preserved in a safe condition. The Receiver also reinstated appropriate insurance in respect of the Debtor’s wells, pipelines and facilities, which had been cancelled by the Debtor before the Receivership. Sale Solicitation Process and Sale Approval Orders 7. On December 12, 2019, the Receiver applied to the Court for approval of a sale solicitation process in respect of the Property (the “SSP”), which the Court granted (the “SSP Order”). A key objective of the SSP was to transfer as many of the Debtor’s assets as possible to responsible third parties. 8. The Receiver launched the SSP in January 2020, and conducted a broad pre-marketing and marketing campaign. The Receiver received significant interest in the SSP, but did not receive any en bloc or “white-mapped” offers for the Debtor’s Property. 9. Between August and November 2020, the Receiver then entered into twelve sale transactions in respect of specific assets of the Debtor, and obtained this Court’s approval of the same. 10. Specifically, this Court granted nine Sale Approval and Vesting Orders on September 3, 2020, two Sale Approval and Vesting Orders on October 8, 2020 and one Sale Approval and Vesting Order on November 10, 2020 (collectively, the “Sale Approval Orders” or “Transactions”). One of the Transactions, however, was subsequently terminated in light of unforeseen circumstances. 11. The Transactions generated cash consideration for the Houston estate, and enabled the Receiver to transfer substantial deemed liabilities as derived by the AER to responsible third party purchasers. 12. The Receiver does not consider that any further transactions will be generated by the SSP, and considers the SSP effectively concluded. 4 Limited Discharge Order 13. Despite having conducted an eleven-month SSP, the Receiver did not receive any material interest in the Remaining Properties. 14. Further, the Receiver lacks the financial resources to continue to monitor and preserve the Remaining Properties on a go-forward basis. 15. Consequently, the Receiver has, after receiving input from the AER and OWA, determined that the most orderly and efficient way to transfer and transition the Remaining Properties to the AER is pursuant to a limited discharge order providing that: (a) the Receiver may transfer over the Remaining Properties in tranches to the AER; and (b) upon filing a certificate for such tranches, the Receiver will be discharged in respect of the properties in each tranche. 16. A limited discharge order, in the manner sought, will enable the Receiver to transfer care and custody of the Remaining Properties in an orderly fashion, while allowing it flexibility in the event any third parties wish to acquire any of the Remaining Properties, among other things. 17. The Receiver also continues to administer several other aspects of the Houston estate, as detailed in the Third Report, making a limited discharge order appropriate and necessary. Approval of Receiver’s Activities and Professional Fees 18. The Receiver’s activities, as detailed in the Supplement to the Second Report, the Second Supplement to the Second Report and in the Third Report, have been carried out fairly, efficiently and in a commercially reasonable manner, and should be approved. 19. Similarly, the professional fees and disbursements of the Receiver (for the period of March 1, 2020 to October 31, 2020) and those of its legal counsel (for the period of August 1, 2020 to October 31, 2020), as more particularly described in the Third Report, are fair and reasonable in the circumstances and commensurate with the work performed to date. 20. Such further and other grounds as counsel may advise and this Honourable Court may permit. MATERIAL OR EVIDENCE TO BE RELIED ON: 21. The Receiver’s Third Report, filed. 5 22. The pleadings, affidavits, reports or other materials previously filed in these proceedings. 23. Such further and other material or evidence as Counsel may advise and this Honourable Court may permit. APPLICABLE RULES: 24. Alberta Rules of Court, AR 124/2010. 25. Such further and other rules as Counsel may advise and this Honourable Court permits. APPLICABLE ACTS AND REGULATIONS: 26. Judicature Act, R.S.A. 2000, c. J-2. 27. Such further and other Acts and regulations as Counsel may advise and this Honourable Court permit. ANY IRREGULARITY COMPLAINED OF OR OBJECTION RELIED ON: 28. None. HOW THE APPLICATION IS PROPOSED TO BE HEARD OR CONSIDERED: 29. Via Webex Video Conference, before the Honourable Mr. Justice D.B. Nixon, with some or all of the parties present. WARNING Subject to the Court’s procedures having regard for the COVID-19 pandemic, if you do not come to Court either in person or by your lawyer, the Court may give the applicant(s) what they want in your absence. You will be bound by any order that the Court makes. If you want to take part in this application, you or your lawyer must attend in Court on the date and at the time shown at the beginning of the form. If you intend to give evidence in response to the application, you must reply by filing an affidavit or other evidence with the Court and serving a copy of that affidavit or other evidence on the applicant(s) a reasonable time before the application is to be heard or considered.