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To verify H-carbons below surface, need 1) geological surveys, 2) drilling into surface to detect/extract.

Definitions

Hydrocarbon: C and H atoms, simplest is methane CH4, can be found with impurities like S or N

Oil and gas from decay of organisms (marine plants and small animals) buried in mud converted to shale

Oil and Gas Conservation Act – 1(1)(o), (tt) “crude oil “ and “raw gas”

Reservoir Conditions: conditions prior to being penetrated by drilling, determined by P and T

Oil is liquid in reservoir conditions, natural gas is gas

Solution gas: gas dissolved in liquid oil, in liquid form in reservoir, gas when penetrate

Condensate: reservoir can have natural gas but liquid produced at surface

Can have propanes and butanes produced at surface, but in reservoir condition, gas form

If have natural gas that contains these liquids, known as wet gas

Dry gas is basically methane, gas in reservoir, gas at surface

H-carbons tend to move towards areas of low P, if puncture reservoir, move towards well bore

Origins

Biogenic Theory: Organic matter, deposited on beds of ancient seas over millions of years, layers of sediment built up on top of organic matter. Deeper material went, greater P and T, also fermentation

1) Migration from source rock – find conventional gas in sediment

2) Migrate into porous/permeable reservoir rock

• Usually porous sandstones

• Limestones w/ solution cavities

• Fractured igneous or metamorphic rocks

3) “Resides” in pores/spaces – like a sponge

4) Trap required for reservoir to form – structure to prevent escape/dissipation

• Examples of structure/places found:

o Anticline – stops vertical displacement of gas and provides structure

o Fault – faulting of impermeable rock rather than bending/folding

o Stratigraphic “pinch” trap: pinched btw two non-permeable formations

o Reef – ancient coral reefs

• Need impermeable rock to act as seal – reservoir rocks must be surrounded (at least top), most commonly shales

• Structure also because if only have trap, material dissipate along bottom, just thin layer

• Water has higher specific gravity than oil, which has higher specific gravity than gas

Drive Mechanisms: include 1) water, 2) gas cap, and 3) solution gas drivers, force pushes oil out

Formations can be stacked ( strata/zones, there are multiple reservoirs, can be important w/ gov’t

Canadian Superior Oil Ltd v Crozet Exploration Ltd – steps taken towards carrying out of drilling commitment set out in detail

Shale

Source rock is the trap and reservoir; materials never migrated from source rock. Lack of porosity makes it too difficult for materials to migrate out of the rock.

Gas shales: source rocks that have not released all of the generated H-carbons

Shale gas refers to natural gas (mainly CH4) found in fine-grained, organic-rich rocks (gas shales)

Not refer to specific type of rock, describes those w/ more fine-grained particles than coarse like shale and mudstone, siltstone, fine-grained sandstone interlaminated with shale or mudstone, carbonate rocks

Source rocks tight or inefficient at expelling H-carbons may be best prospects for shale gas potential

Natural gas found in these rocks considered unconventional

Gas shales have extremely low permeability

Gas shales stored in 3 ways

• Adsorbed gas: gas attached to organic matter or to clays

• Free gas: gas held within tiny spaces in rocks or in spaces created by rock cracking

o Higher free gas content in unconventional shale gas wells generally result in higher initial rates of production because resides in fractures and pores, easier to get out than adsorbed

• Solution gas: gas held within other liquids such as bitumen and oil

Hydraulic fracking required to extract oil, artificial stimulation to increase permeability to well

• Water introduced at extremely high Ps that rock cracked

• Water introduced into cracks/fissures with “proppants” like sand so when water off, rock open

Concerns

• Carbon footprint

o Must introduce a lot of energy to crack rock

• Water use – volumes and waste water

o Where to put the water after you use it? Tends to resurface. If lots, disposal issue.

• Chemicals in fracking fluid

o Not pure water being introduced, lots of chemicals added for fracking purposes

o Industry may disclose but it’s secret mix

o AB requires disclosure to AB Energy Regulator

o Protection of aquifers: between metal casing of tube and earth is cement to prevent materials from seeping into ground. Must have good protection so that none of materials going up or done pollute aquifers

• Problems with induced seismicity: can create small earthquakes

o Fracking in one place can affect fracking close by, increase pressure on other place

o Can transmit physical effects on lands nearby

o Could have blowout at well 2 for what you did at well 1

Heavy Oil/Oil Sands

Heavy oil: Oil that is heavy, viscous. Large collections of C atoms in H-carbons

Recovery

• Drill down, bring sand/oil to surface

• At surface, put in big battery, heat up, oil separates from sand

Consequence is large production of sand, go into lakes, disposal problem

Oil sands: mix of naturally occurring bitumen, a thick, sticky oil, and abrasive sand. Each grain coated by layer of water and layer of heavy oil.

Formation:

• Speculate formed millions of years ago from remains of tiny creatures buried in seabed of ancient ocean that covered AB

• Warm temperature and slow accumulation of thick layers of silt and sand, pressure cooked remains and converted them to oil

• Oil migrated, saturating large areas of sand near the surface

• Theory is when Rocky Mountains formed, pushed out H-carbons into ancient sandy riverbeds, end up with material pushed eastward into ancient sandy riverbeds

• Bacteria feed on lighter H-carbon chains in oil, leaving behind only molasses-like bitumen

• Athabasca, Cold Lake and Peace River

• Deposits buried at varying depths beneath surface and mostly covered by muskeg, sandstone, and shale, together known as overburden

Oil Sands Conservation Act – 1(1)(c) “crude bitumen”, (l) “oil sands”

Bitumen content in oil sand deposit varies from 18% weight, affecting economic viability of an operation. A deposit containing in excess of 12% bitumen though to be rich, 90% of bitumen fed to plant

Nature of bitumen requires that large molecules split/cracked into smaller ones.

Adding H (hydro-cracking) or removing C (coking) creates smaller H-carbon molecules easier to process

Use in situ techniques if 75m+ under surface, otherwise surface techniques

Thermal stimulation

Steam Assisted Gravity Drainage (SAGD)

• Horizontal wells, one above the other, drilled into oil sands deposit

• Steam injected into upper wellbore, heating deposit and allowing bitumen to drain into lower well, then pumped to surface

• Steam melts bitumen, allowing to flow down into production casing

Cyclic Steam Stimulation (CSS)

• Aka huff and puff

• Steam injected down vertical wellbore

• Soaks and heats deposit, thinning bitumen and allowing to be pumped to surface

Vapour Extraction (VAPEX)

• Similar to SAGD but instead of steam, solvents like ethane or propane injected into oil sands to loosen bitumen

Toe-to-Heel Air Injection (THAI)

• Simpler than SAGD

• Combines vert air injection well w/ horiz prod well, so no need for horiz well to inject steam

Five Stages of Surface Mining for Oil Sands

1) Removal of overburden

2) Collection of oil sand

3) Processing of oil sand – one product of bitumen processing is tailings, waste water

o Shovels put materials in trucks

o Go to crushers

o Oil sands mixed with chemicals and water

o Add oil sands to water and detergents to scrub oil off bits of sand

4) Management of tailings

o Waste water storage units

o Mature fine tailings: tailings coalesce in water so consistency of yogurt

5) Reclamation of land

Ownership Possibilities

1) Central State ownership/rule-making

2) Federal countries: central + territorial State ownership/rule-making

o Canada is federal country, feds own some, provs own some

3) Private ownership

o Rare, should be held on behalf of everyone because very valuable

4) Collective ownership

o Typically with Aboriginal peoples

+ forms of consultation – statutory , constitutional

• Falls on continuum. No requirement to statutory on other, then further constitutional

History

Early 1600s: exploration/trapping, English/French

1670: Royal Charter to HBC, Rupert’s Land – gave HBC extensive rights to ownership/trading/gov’t

1867: Confederation. S 91 to Parliament, s 92 to provinces. S 109 AL lands, mines, minerals and royalties belonging to several provs of Canada, NS, and NB shall belong to ON, QC, NS and NB in which the same are situate or arise

1869/70: Canada purchases Rupert’s Land and North Western Territory from HBC, HBC retains title of 5% of lands, including mines and minerals in “Fertile Belt”

1869-early 20th Century: Canada grants lands to railways, including CPR, land granted/sold to settlers with mines and minerals

• By federal gov’t until Sept 17, 1889

• By HBC until 1908

• By CPR until 1912

AB Act s 21: All Crown lands, m&m vested in Crown by Gov of Can for purposes of Canada

1930: Natural Resources Transfer Agreement – put Prairie provs on same footing as older provs

Aboriginal History

1763: Royal Proclamation – recognizing rights of aboriginal peoples, Crown confirms its intermediary/protective role

Treaty 6: 16 AB FNs – Surrender land to Canada all rights, titles and privileges to land within limits

Treaty 7: 5 AB FNs

Treaty 8: 24 AB FNs

First Nations have right to pursue hunting and fishing throughout tracts surrendered

Also owned mines and minerals in reserve lands

Metis Settlements

Transfer of land (fs, surface only) – royalties payable solely to Queen in oil and gas development

Constitutional protection

Self-government

On natural resource development: Co-Management Agreement (CMA) with Alberta

• Metis have veto rights if oil company wishes to develop lands for oil and gas

• Metis can ask for overriding royalty, a second royalty can be negotiated

• Participation in development: settlement can take equity position in rights of oil company

o Formerly limited to 25%, but cap lifted this year

• Affected Metis settlement can create a wholly owned corporation which can make application for direct purchase of oil and gas rights

BC

Entered confederation 1871

Province took m&m rights, on same basis as original provinces

First Nations: 60FN comprising 110 Indian At bands currently in treaty process

Onshore, gov only m&m

Offshore, if water within boundaries prov before Confed, continues to own waters and seabed

North

Federal unless devolved or subject to Land Claims Agreement

Nunavut: federal administration

Yukon: administers its own rights 1998 as if were province, although feds constitutionally owners

NWT: June 25, 2013, NWT Lands and Resources Devolution Agreement signed by GoC, GoNWT – transfers decision-making and administration for land and resource management from GoC to GoNWT. Territorial gov will become responsible for management of onshore lands, issuance of rights and interests wrt onshore minerals and oil and gas, and will collect royalties. GoC retain responsibility for remediation of existing significant contaminated waste sites, admin of issuance of rights and interest to offshore, negotiation of land claims and environmental assessments. Just like Yukon.

Offshore

Territorial sea: historically, 3mi rule; now 12 nautical miles from low-water line, vested in provinces

Any area of sea not within province, the seabed and subsoil below belong to Queen.

Continental shelf: continental margin which includes the continental rise, slope and shelf. Max 200 nautical miles if it just drops off. If some prolongation, max is 350 nautical miles beyond territorial sea. Q

Special case of NFLD

• Prior to joining Canada, was a Dominion of UK like Canada

• Hybernia is NFLD

• BC was a colony, not dominion

• When NFLD joined, did not give up rights to Hybernia

• Argument failed because NFLD went bankrupt in 1934, so UK Governor took over responsibility for running NFLD, no longer any responsible gov’t in NFLD

• Also, in terms of union, had NFLD had rights, would have passed to Canada

• Finally, no retroactive rights in 1949, that was the state of international law, continental shelf rights not recognized in domestic or international law

Atlantic Accord: GoC and GoNFLD reached accord on joint management of offshore oil and gas resources and sharing of revenues from exploitation

Federal Grid System

Federal: Canada Lands Survey Act

Grid System

Degrees and Minutes

Every degree of latitude/longitude has 60’ (minutes). Each minute of latitude goes up by 10. Every minute has 60 seconds (ignore for our purposes).

FIRST

Find latitude, start at 60 (AB northern border)

SECOND

For longitude, while latitude goes up by 10s, longitude uses smaller fractions. South of 70N, go by 15 degrees, North of 70N, just divided in half, go by 30. Subdivide into your minutes.

THIRD

You identify your grid area by NE corner. For lands near 70N, grid area encompasses 100sections. Farther north, 80 sections, then more north, 60 sections.

FOURTH

Grid areas subdivided into sections. Start at 1 on SE corner, number upwards then move west

FIFTH

Sections subdivided into 16 units, A-P, lettered sinusoidally. A is bottom right hand unit

Alberta Township System

Meridians, lines of longitude run N/S, principal Meridian near Winnipeg

49 parallel at US, 60 at top

FIRST

4th Meridian - Alberta/Saskatchewan border (110°W)

5th Meridian - through Stony Plain and Calgary (114°W)

6th Meridian - through Debolt and Jasper (118°W)

All land in AB is West of each meridian

SECOND

Ranges run N/S at 6-mile intervals, basically true but converging lines of longitude so adjusted

Restart numbering at the next meridian, starts at 1, count west; ~7 ranges before BC

Ex: Edmonton fairly close to 5th Meridian, so start in 20s ish

THIRD

Townships: 6-mile wide horizontal rows beginning at US border (49th parallel, township 1) to NWT border (township 126), no restarting of numbers, area where township row intersects with a range ~6sqmi

Ex: Edmonton about halfway, so 50-54th township

FOURTH

Each township contains 36 sections, each about one mile (1.6km) square. Numbered in sinusoidal way from SE corner of township (north or west?)

FIFTH

Sections divided into quarter sections (NW, NE, SW, SE)

SIXTH

Legal subdivisions (LSDs) are particular quarter of quarter section. Sections into 16 LSDs, also numbered sinusoidally from SE corner.

Exploration

Types: Aircraft, Remote Sensing – from satellites, most useful when not a lot of overburden, Walk, Seismic

Seismic

• Dig shot holes to put explosives into

• Need source of vibration; dynamite or other explosive, could be vibrating pad on truck

• Need echo from vibrations that penetrate deep into ground

• Geo-phones (aka seismometer) to read echoes off vibrations from subsurface

• Need powerful computing power to interpret data

2D: hundreds of shots

3D: grid approach, closer shots, more shots (thousands), more accurate representation, 50% accuracy

4D: over time, keep checking. Can find out maximum oil recovery technique

Surface vs M&M: need consent of surface owner to go digging

Public land: no one can enter on and occupy public lands for any purpose unless direct has given authority for state period and purpose.

Exploration Regulation

This is for exploration only. If actual development, drilling of well, if own surface, no veto

If geophysical and seismic procedures, then surface owner has veto; no need to give good reasons

If farmer lessee and HMQ lessor, and HMQ no opposition to seismic, lessee farmer no veto

Surface – FN reserved lands

Indian Oil and Gas Regulations, 1995

S2: “exploratory work” includes mapping, surveying, geological, geophysical or geochemical examinations, test drilling and other investigations, conducted by air, land or water, that are related to the exploration for oil and gas

6(1): can’t do exploratory work w/o licence from band, (3)(v): submit information to band council to help band decide what it will do with the land

Metis: 8(1)(i) of Exploration Regulation

One difference between FN and Metis, FN, deal with band, Metis deal with Metis Settlement Council AND General Council (looks out for all well-being of Metis Settlements in AB)

“Land” means surface, according to Public Lands Act

Mines and Minerals

Public mines and minerals, no need to get special consent from AB Energy to do seismic, only surface

No AB authority conclusively deciding issue on whether m&m owner’s consent required for exploration

Phillips Petroleum v Cowden: Texas, right to explore for oil and minerals valuable property right that can be legally protected. Mineral owner consents, rather than surface owner, to seismic.

• D obtained consent of surface owner, wanted to explore own m&m under it

• P’s land was adjacent, D incidentally obtained information about it

• Cause of action was trespass, but would not work in AB, vibrations only

o But could not recover compensation for trespass to all property for mere obtaining of information by extrapolation of data

• Do not need actual damage for trespass at common law

• Nuisance based on unreasonable use

• Could have unjust enrichment: 1) enrichment, 2) corresponding deprivation, and 3) no juristic reason

• How to approach damages: P lost access/licence fee, lost money because not paid anything

• If reasonable seismic company had come to m&m owner, what would deal have been

Grynberg v City of Northglenn – Mineral owner rather than surface owner one who has right to conduct geological and geophysical operations

Regulatory Approval

Currently: Sustainable Resource Development (AB Environment and SRD)

But Alberta Energy Regulator will take over function of 1) licensing (Mines and Minerals Act, s 107), 2) approved exploration program, and 3) rules on conduct of operations

Just because you made a deal to explore, doesn’t mean you can just explore. State intervenes and says you must meet some conditions before you can actually conduct activates.

Seismic – Environmental Impact

Lines – wide, linear

• Adverse effects on biodiversity

o Predators and human hunters facilitated because of lines

o Roads increase human-bear interactions

• Damage to water systems

• Damage to soil

o Compacting soil, facilitating erosion

o Prevent plants from growing back

“Low Impact Seismic”: narrow lines that meander

Administrative Penalties for Failing to Obtain Necessary Approvals

Mines and Minerals Act s 112

Compliance model for ensuring regulations followed, not deterrence model, want voluntary compliance

If pay, can’t be prosecuted; if not pay, Minister can go to court and get money as a debt

Common for regulatory offences (prov and fed) strict liability offences, turns on defence: due diligence.

S 63(4) has words of intention, mens rea offence

STARTING POINT: strict liability, but not all are

Phillips v California Standard Oil

• D under licence for seismic, no violations of legislation or registration

• Blasts caused strata damage, P’s water well ruined

• No cause of action in trespass, no point of entry

• Different from Phillips Petroleum case, actual damage here

• Strict liability in crim (not tort, which is like absolute liability)

• Nuisance focus is on what happened, trespass focus is on what you did

• Nuisance protects people from unreasonable interference with their land

• Company non-negligent, but interference unreasonable

• Rylands and Fletcher not apply here because not doing something unnatural, it’s regulated activity all over province

Wasson v California Standard Oil

• D entered P’s land without permission, did seismic work, disregard of P’s rights intentional

• Pecuniary/exemplary damages

• Whiten v Pilot Insurance Co – four points

1. Punitive or exemplary damages are exceptional. They are the exception not the rule.

2. Imposed only when high-handed, malicious, arbitrary or highly reprehensible misconduct that departs to a marked degree from ordinary standards of decent behaviour

3. Punitive damages to retrieve retribution, deterrence and denunciation.

4. Damages awarded have to be proportional.

• 3-8 are really just criteria factors on proportionality like nature of conduct, injury, look at any profit or advantage was accumulated or acquired by D

Ownership

In situ or only when reduced to possession for ownership?

Rule of Capture

Borys v CPR: Assumption that in situ is appropriate, but no firm declaration that AB is in situ. Texas is

• If any of three substances withdrawn from a portion of property which did not belong to appellant but lay within same container, and any oil or gas situated in his property thereby filtered form it to surrounding lands, no remedy

• If any substance was withdrawn from his property, thereby causing any fugacious matter to enter his land, surrounding owners had no remedy against him

• Only safeguard was first to get to work

• Problem is optimum production rate for drive mechanisms

• Rule subsumed by regulatory environmental reserve and preservation provisions of legislation

Anderson v Amoco: Canada not an ownership in situ jurisdiction

• Appellants relied upon “rule of capture” to support their position

• Underground pools often extend beyond single tract of land, confirmed Borys

• Oil and Gas Conservation Act: abrogates common law rule, imposes layer of regulations

Elliff v Texon Drilling: Land owner regarded as having absolute title in severalty to soil and gas in place beneath land.

• Owner of a tract of land acquires title to oil or gas which he produces from wells on his land, though part of oil or gas may have migrated from adjoining lands

• Correlative rights: Each owner whose land overlies the basin has a like interest, and each must of necessity exercise his right with some regard to the rights of others

o Cannot be negligent

Landowners Mutual: SK seem sot be in situ jurisdiction as well, not settled if AB is

• Question is whether “petroleum and natural gas and all related H-carbons” are an interest in land and as such may be transferred under provision of Land Titles Act

• Minerals are an estate/interest in land, may be transferred

• While word “land” includes minerals, no definition of the word “minerals” in the act

• Use natural and ordinary sense of words unless will lead to some absurdity or inconsistency with the rest of the instrument

Limitation on rule of capture: it is a movement rule, not a phase rule

Phase Rule

Borys v CPR: because petroleum included liquid H-carbons, but not gaseous ones, ownership governed by phase of H-carbon in the ground

• CPR transferred lands to Borys, reserved “all coal, petroleum and valuable stone”

o CPR not always have reservations, can’t assume Borys will apply every time run into one of these reservations

• CPR granted petroleum lease to Imperial Oil, including “a right to work the petroleum” (reservation did not include these words)

• Free gas cap at top, then oil, then solution gas in oil.

• Material in container under high P and T with result that what would be gas at normal surface T and pressure becomes dissolve din petroleum and found in liquid form

• Vernacular approach of defining natural gas and petroleum

• Petroleum reservation did not include those H-carbons naturally in a gas phase

o Dissolved in petroleum was natural gas which, in reservoir conditions was in solution with petroleum (solution gas). At surface, in gas form

• Ruling

o Petroleum entitled to all liquid H-carbons in pool, non-petroleum owner entitled to all H-carbons in gas phase

o Determination of ownership made in ground (at time of contract)

o Petroleum reservation included implied right to work and produce product

o CPR keeps liquid and solution gas, Borys keeps free gas

• Not open to larger argument about in situ, etc. Decided to divide by contract. Full stop.

Substances called oil and gas actually similar H-carbons and general distinction is phase at STP

At Ts and Ps higher than STP, some gas actually found as liquids

“Gas” refers to both actual H-carbon substance (natural gas, not used to fuel engines) and phase

When drill into reservoir, pressure changes, causing phase changes, altering ratio of gas and liquid

Some liquids evolve into gas.

Uncertain ratios before drilling, but entire industry relies on estimates, so suffice for dividing ownership

Common Law Limitation of the Rule of Capture

Elliff v Texon Drilling: Correlative rights. Each owner whose land overlies basin has like interest, and each must of necessity exercise his right with some regard to rights of others. Rule of capture must be exercised reasonably wrt neighbor.

Jury found respondents negligent in failing to use drilling mud of sufficient weight in drilling their well, and such negligence was proximate cause of well blowing out. Certain amount of reasonable and necessary waste incident to production of oil and gas to which non-liability rule must apply, but immunity should not be extended to include negligent waste or destruction of oil and gas. Correlative rights means each owner of land in a common source of supply of oil and gas has legal privileges as against other owners of land therein to take oil or gas there from by lawful operations conducted on his own like. Each owner has duties to other owners not to exercise his privileges of taking so as to injure the common source of supply; and that each such owner has rights that other owners not exercise their privileges of taking so as to injure the common source of supply

• Rule of capture will not defeat your neighbour’s rights if your drilling unreasonable

• Don’t know if AB is correlative rights jurisdiction

Implied Term

If disposition not expressly confer a right to work, imply the term. Must use the gas cap for the first right to petroleum in Borys. Reservation necessarily implied the right to work, otherwise reservation useless. Give commercial significance to the deal.

AB alters (not reverses) common law approach in Borys. Oil company must compensate farmer for privilege of coming on land to drill well. No veto power, now Surface Rights Board gives compensation.

If company has lease from subsurface owner, once license to drill granted, surface rights board cannot completely block access, can only deal with compensation and conditions.

Production of Another’s Substance

If production of one substance by A inevitably entails production of another substance by B, not tortious if reasonable.

Who owns what was B’s at surface? Property of Borys not become property of Imperial Oil. IO has right to waste, not IO’s property but possibly get to destroy Borys’s property

Must A compensate B? Yes, but not settled in Borys.

Alberta Energy v Goodwell Petroleum: AEC bitumen lessee, Goodwell NG lessee. ERCB said shut wells because AEC not have right to produce the natural gas. AEC was producing a higher than normal gas-to-oil ratio. Board contends that Borys not apply to Crown oil sands leases. Scientifically, bitumen also requires gas cap like conventional oil to move out. If mining and recovering minerals results in known and inevitable consequences, implied term. Can reword deed to restrict implied terms. Statutes can affect. No need to get permission from G, needing it misinterprets H-carbon leases by assuming they are same as lease of tangible, identifiable, existing, physical property. H-carbon lease are not leases at all but profits a prendre, conferring a right to explore for and recover H-carbons. Not come with guarantees and are contingent. Requiring permission gives other lessee virtual veto, diminishing other’s lessee’s rights. Gas can be measured and compensation can be paid. Another interpretation is that oil sands and natural gas lease created overlapping but not inconsistent rights wrt initial gas cap gas produced incidental to bitumen recovery. Willing to compensate, but parties in this case not make out all issues. Discounted by a) production, b) collection, c) transportation and d) marketing. Right to work/waste, still must compensate.

Common law principles

1) Right to bitumen includes right to do all things reasonably necessary to recover bitumen

2) Lease containing express powers to win, work, recover and remove H-carbons should not be interpreted in a manner that nullifies these rights and

3) Because initial gas cap product known and inevitable consequence of bitumen recovery, right to produce initial gas cap is implied term and a natural gas lessee cannot stop recovery of bitumen by reason only of fact that some initial gas cap gas incidentally produced

Borys applies not only to reservations but to grants and leases

If Goodwell had actually purchased NG, then maybe nemo dat argument, but no better position than Borys in this case. And even if Goodwell actually purchased NG rights, would lose. What Goodwell got was right to make fruits. A profit a prendre.

Bribery/Corruption

Corruption of Foreign Public Officials Act: 3(1) Every person commits offence who, to obtain/retain advantage in course of business, directly or indirectly gives, offers or agrees to give or offer a loan, reward advantage or benefit to foreign public official as consideration for an act or omission by official in connection with performance of duties or induce official to use position to influence any acts or decisions of foreign state o public international organization for which official performs duties or functions.

Every person who contravenes (1) guilty of indictable offence and liable to imprisonment max 14 years.

(3) Not guilty if loan/etc permitted/required under laws of foreign state/public international org for which official performs duties/functions or made to pay reasonable expenses incurred in good faith by or on behalf of foregn public official directly related to promotion of person’s products/services or execution/performance of contract between person and state for which official performs duties/functions.

(4) Not bad if made to expedite/secure performance of act of routine nature part of official’s duties

(5) Act of routine nature not include decision to award new business/continue business with party

(3), (4), and (5) repealed, not yet in force. Those are facilitation payments, look like bribes. Repealed.

Can’t hide bribery by cooking your books.

Jurisdiction on national basis. If Canadian citizen committing bribery, Canada has jurisdiction.

Nature of Interests Obtained

Possibilities

• Sale

• (True) Lease – Rental

o Doesn’t really make sense, not capturing what you want to do

• Profit à prendre

o Come on land, explore, take

Pore space: Vested in and property of Crown

• Pores in reservoir rock where find oil and gas

• Important for Carbon Capture Sequestration (CCS)

o Can grab carbon from smoke stacks, compress, and put into liquid form, pipe it then inject back into ground into empty pore space

o Carbon can sit there for millions of years

Distinguish from storage space

• If you own title to petroleum or natural gas, have storage rights wrt reservoir

• Injecting back into depleted well cheaper than making surface storage

• If oil company produces oil, not mean have storage rights

• If you own mines and minerals, then have storage rights

• Don’t know how pore space in province integrate with storage space, for now, CCS vs storage

• If co-owners split title, co-own storage, not sure what dispute resolution is, probably negotiation

Berkheiser

• Testatrix devised quarter-section to appellant

• Then T granted “lease” of all p&ng “within, upon or under” quarter section for 10 years “and so long thereafter as leased substances or any of them are produced from the land, T dies

• Lease: terminated after death but before estate fully administered

• Ademption is a term used in the law of wills to determine what happens when property bequeathed under a will is no longer in the testator's estate at the time of the testator's death

• If lease transfer of m&m, then no gift to devise. If just creation of subordinate interest, gift ok

• Decision: lease is a profit a prendre, right allowing exploration and exploitation/production

• Licenses are to the acts (ex, hunting and cutting tress), granting is carrying away the deer/tree

• Doctrine of ademption not apply.

Provincial agreements have nature of profits a prendre: constituted by agreement, with some terms set by statute or regulation. Freehold vs provincial situation is many terms of agreement not in lease/license itself. Incorporate by reference terms set by statute and regulation

What lessee gets

1) Lands, substances, formations

• Rights to a defined area

• Substances, up for negotiation

• Formations: province breaks up strata, freeholds usually do not

• Annual rental more important in provincial side, longer you hold lease, higher rent gods, escalating rent

o Encourages to take up land, form of motivation, but not on freehold side.

2) Grant to Lessee

• Wants broadest rights

• Like exclusive right to explore/drill/operate/win/take/remove/store/treat/dispose, inject substances for obtaining/maintaining/increasing production, and store/recover any substances injected

What lessor gets

1) Up-front/bonus – really important on provincial side

2) Annual rental during primary term – on annual basis

3) Royalties: most important for lessor, not account for business costs. Percentage of value at surface. May be necessary costs to actually perform various learning operations, refining, transport, etc. Tend to be offset by percentage. Marketing and post-prod too. Also true in prov and fed side.

• In cash or in kind

• Percentage: current market value of lease substances

• Deductions?

Relationship – Duration

• Term and continuation – “habendum” and term

o Primary term: set period of years

▪ Could do nothing for the term

▪ If you do nothing at the end, lease ends.

▪ If start production in this term, term continues into second with production

▪ But production is a high hurdle sometimes, so oil companies try to lower

o Secondary term: generally, classically, so long as production continues OR as long as lease extended by its terms (may not require actual production)

▪ “Operations” defined very broadly to encompass things that lead to production, not necessarily need production

▪ Talking about interpretation of a contract, NOT COMMON LAW

▪ Provincially: don’t necessarily need production to get into second term. As long as establish that lands are capable of producing quantities, can make application to minister and may continue lease

▪ Capacity to produce may get you over, but that’s because of specific language of statutory interpretation, nothing in common law

Dower Act – Individual Freehold (vs Corporation)

Dower Act applies to married people, and m&m contained in homestead

Dower rights not apply to 100% of married persons’ lands

Only if ONE person registered owner of parcel or tract

Dower rights relate to person who is NOT the registered owner

If both registered owners or have third party, different situations; with third party, not a homestead (25(1))

25(1) not apply if joint tenants, it’s third party that takes it out of Dower Act, not tenancy in common

If married couple hold homestead in joint tenancy (25(2)), Dower Act apply, need consent of both, no acknowledgement required. Once both sign disposition to oil company, disposition constitutes consent (ex: oil and gas lease), no need for usual formalities of Dower Act

Dower rights do not attach to more than homestead.

As a potential purchaser of land, always check certificate of title first. Will tell you registered owner

24(1): no married person shall make disposition of m&m contained in/forming part of homestead without obtaining in accordance with this Act consent in writing of spouse of married person

4(1) Consent required for disp of inter vivos homestead, contained in instrument by which disposition effected, registered together

(2) Consent in writing of spouse in any disposition states that the spouse consents to disposition of homestead and has executed consent for purpose of giving up life estate to disposition

Looks like prescribed form

Make sure consent stays attached to the lease

5(1) Spouse must also acknowledge, apart from married person

(a) spouse aware of nature of disposition

(b) spouse aware that Dower act gives souse life estate in homestead and right to prevent disposition by withholding consent

(c) spouse consents to disposition for purpose of giving up life estate and other dower rights

(d) spouse executing document freely and voluntarily without any compulsion on part of married person

Could have undue influence if only consent

Acknowledgement done before someone capable under LTA, usually commissioner of oaths/lawyer

As purchaser, options to protect self:

• Affidavit on marital status to testify to fact person not married

• Affidavit that land you want not form part of homestead

• Release of dower rights, ex: in separation context.

Remedy

11(1) A married person who did not obtain consent and an order dispensing with consent of spouse that results in the registration of title in the name of any other person liable to unregistered spouse in an action for damages

• Backstopped by General Revenue Fund: if can’t pay, either spouse can apply to GRF

• But GRF covers only surface, so province expressly excludes

• Not apply to grant of o&g lease? Only applies to registration of title, which o&g lease not actually result in, only results in oil company having interest in oil. Title with owner. S11 not apply on its face where company wrongly gets a lease or gets one without a lease without consent of nonregistered spouse. Don’t know if transaction void or voidable in this case.

Tenancy in Common

Joint tenants: require four unities of title, interest, time and possession. Undivided interest in tract/parcel, right of survivorship

Co-Tenants: one or more of four unties missing. Proportional interest in tract/parcel. No survivorship. If one co-tenant leases mineral rights, does not get 100% of royalties. Co-tenancy entails that you not waste. Lease from one not trespassing on others because have 100% access of lands. Oil company could try to get all co-tenants to agree, but that’s business problem. Could partition if one party holding out.

LOPA:

15(1): co-owner may apply to Court for order to terminate co-ownership of land in which co-owner

17(1): in making an order, court may direct that an accounting, contribution and adjustment, take place

(2): consider whether one co-owner excluded another from land, a co-owner has received from third parties more than co-owner’s just share of rents from land or profits from reasonable removal of its natural resources, and co-owner committed waste by unreasonable use of land

Government Owned Rights – Alberta

Pre-Posting

1) Posting request, 2) considered by Crown Mineral Disposition Review Committee (CMDRC), which speaks to reps of environment, tourism, recreation, etc to do next thing, 3) interdepartmental review identifying major surface or environmental concerns, makes recommendation to Energy, 4) Energy determines whether lands posted for “sale,” actually a profit a prendre, 5) no consultation with aboriginal peoples at this stage, feds do, but not AB

Federally: put out a call for nominations, so not public auction, ask to have lands identified to be put up for public auction. Just submit online.

Selection of Lands – Direct Purchase: RARE

Alternative to usual public auction procedure but can only do so in limited situations:

• Freehold and Crown rights in a spacing unit; if freehold controls more than 50%

• Already have rights to single substance in zone (p or ng); want to purchase other rights

• Have rights to oil sands in a zone; purchase natural gas rights

Don’t have to go through public auction process, hence “direct”

Posting

Public auction held at regular intervals. Fair and transparent system so government not engaged in backroom dealings for oil and gas rights, everything open and public

a) Bid variables: the upfront/bonus. Will specify minimum bonus permissible

b) Types of agreements: license, lease, both are statutory forms of profits a prendre. There will be one kind of agreement based on exploratory basis, another when actually producing.

• Licence: for exploratory purposes

• LICENCE: Initial term and maximum area (conventional oil only)

i. 2 Years: Plains – 15 sections

ii. 4 Years: Northern – 32 sections

iii. 5 years: Foothills – 36 sections – most challenging, geologically

• “Validate”: Intermediate term (5 years) – reduced number of sections – validating means drilling exploratory well. Don’t have to produce or have capacity to produce, but obligated to go through expense of drilling an exploratory well

• If producing/productive, may continue indefinitely, like lease

Types of agreements: Lease

5-year primary term (MMA s 81(1))

On Crown side, if found oil and gas, but not yet producing, must apply to minister to continue into secondary term. Must show capable, in opinion of Minister, of producing petroleum or natural gas from well or zone in paying quantity.

c) Exclusions – limitations – Province can write limitations into the lease. Don’t care about Borys, get no solution gas, they are keeping it. Want to preserve reservoir driver pressure you get from solution gas.

d) Formations – don’t see this on freehold side, theoretically could, but not practically. MMA allows you to drill through someone else’s formation to get to your own. If necessarily incidental, fully authorized, and got information on someone else’s stuff, as long as didn’t’ profit, no damages.

e) Special surface issues – ex: caribou protection, historic resource, historic site. Might have to drill horizontally, worst case scenario. But, with caribou protection, if no caribou protection plan, not offence. Not have solid upfront offences like on seismic side

First Nations Reserved Lands

Procedures

Indian Act

Indian Oil and Gas Act

Indian Oil and Gas Regulations, 1995

• Public call for tenders (10(3)(b): cash bonus prize only competitive element) – like AB

• Call for proposals (10(5)(b): specify competitive elements considered in evaluating and accepting proposals) – proposals can be anything. Can ask for certain, ex, socio-economic conditions to meet.

• Direct Negotiation: AB accountable to public so must be fair, can allow direct purchase, but not direct negotiation; FN accountable to general band council. Small political unit

Types of Agreements

• Permits (IOGR ss 15-20)

o One year terms, extensions available

o Entitlement to drill within permit area

o If discovery oil or gas, may apply for one or more lease within permit area (generally, half area of permit), convert permit to lease to actually produce.

• Lease

o Primary term 5 years (IOGR s 24(1))

o Continuance of 5 more years on application to Executive Director (24(2))

▪ Capable of producing

▪ Continuance on application, not automatic

Special Procedure

Instead of dealing directly with band, go through Crown. Must be a designation by band which affects a partial surrender to HMQ and HM on behalf of band, enters agreement with industry.

First Nations Oil and Gas and Moneys Management Act: An act to provide FNs with option of managing and regulating oil and gas exploration and exploitation and of receiving moneys otherwise held for them by Canada – stalled, not yet in force but not dead

• Idea of devolution

• Instead of feds admin role in management of oil and gas for FN, they admin lands themselves

• IOGA would no longer apply to bands that opted into this management the way NWT looks after oil and gas itself

• Deal with band itself if brought under legislation

Metis Settlement Lands

1990 Metis Settlements Accord ( fee simple in surface to Metis Settlements

Crown maintains m&m

To obtain lease, co-management agreement with affected Metis Settlement AND Metis Settlement General Council (MSA Schedule 3)

Pre-Posting

Initial steps, like province: proponent posting request > CMDRC review and recommendation > Ministerial discretion not to post

BUT

Surface veto: Minister refer posting request to MSGC, consults with “Affected Settlement Council”, then MSGC recommend to Minister that minerals be posted or denied. If denied, Minister can issue rights but no surface access. – would have to do horizontal drilling

Bidding Process

a) Terms and Conditions: If settlement allows development, posting must include General Terms and Conditions. CMA requires bidders include a “Metis Settlement Benefit Proposal” with bids. Sets out bidder’s commitment respecting factors and additional benefits

• Environmental, socio-cultural and land-use impacts

• Employment and business opportunities

• Reservation to MSGC of overriding Royalty or Participation Option or both

b) Consultation: Minister provides to MSGC names and Benefits Proposals of bidder who made highest bonus payment AND bidders who made a bonus payment “That is at least 75% of highest bonus payment.” Then negotiation, notify Minister. Minister issues Resource Agreement to bidder who is a party to the Development Agreements.

c) Development Agreement: Sets out rights and obligations of parties wrt General Terms and Conditions, surface access, and exploration for and development of Minerals.

• Overriding Royalty: “A right to receive a share of the portion of production or value of portion of production that remains after payment of royalty to Minister in relation to such production”

i. Based on total production less percentage payable as royalty to minister (not calculated on 100% of production)

ii. MSGC is payee, not ASC

iii. Revenues shared between MSGC and ASC, pursuant to MSGC Oil and Gas Resource Sharing Policy

iv. Royalty: can take proportion of actual production, or proportion of value.

• Participation Option: Transfer of working interest to MSGC, “option reserved n Development Agreement to MSGC allows it to obtain from successful bidder a specified undivided interest in the Resource Agreement of up to 25% of option to negotiate greater interest if both parties agree – acquiring a portion of the working interest

i. Proportional sharing of development and marketing costs, but also profits

ii. Requires investment by MSGC

iii. Does not entail that MSC would have to become operator

iv. Reserved to MSGC, but pursuant to MSGC policy, interest shared with ASC

Contrast Metis w FN:

• Metis has two groups to consult, FN just the band

• FN owns m&m, Metis not

• Metis has surface veto, FN can completely reject

• Metis can become ASO corp and buy own lands w/o auction, FN already owns everything

Direct Purchase by ASO Corp

“Affected Settlement Owned Corp” incorporated and wholly owned by ASC – No outside investment.

ASOC may make application for direct purchase to HMQ, outside of bidding/auction route, can make application for direct purchase of ITS OWN land only.

Registries and Registration

Patented land: land that has not yet gone from public system to private system

Land titles system is private land system

LTA only applies to patented land that has been moved to private ownership

Nowadays, “notification”

Systems

Private – Deed System: Ownership proved by instrument kept by owner. Any person buying land will require seller to provide documents going back as many years as necessary to prove ownership of land

Public – Deed Registry System: Deeds at central registry office, but office not examine or guarantee legality. Any person dealing in land will have to search documents and determine the status of the land

Torrens System: Government office has custody of all original land titles and all original documents registered against them. Government staff examines and register documents and issue titles. Government guarantees accuracy of these titles.

Torrens System Principles

• Mirror Principle/Certainty of Title: Register or certificate of title accurately and completely reflects the current facts about a person’s title. Does not provide for facts or changes that could be registered but are not. A title free of adverse claims or burdens unless mentioned on title.

o In practice, not absolutely reliable because of certain public rights and burdens which do affect title even though not in title

• Curtain Principle/Facilitation of Proof of Interest: Current certificate of title contains all relevant information about the title, so no need to be concerned about dealings on any prior title. No need for historical search

• Priority by date of registration: knowledge of a person that any trust or interest that is not registered by instrument or caveat is in existence shall not itself be imputed as fraud

o For it to be fraud, must be something more than knowledge

o Fraud to the lessee, not farmer, it’s the lessee’s right that is invalidated

• Assurance fund/Compensation for Losses/Insurance Principle: provides compensation for loss of rights. Registry reflects absolutely correct status of land. If human error makes flaw, made right so far as money is able to compensate

LTA 1(b) “certificate of title” means record of title to land that is maintained by the registrar. Can be surface and m&m, or split title, if split, private surface + private/Crown m&m. If Crown kept m&m after started reserving in 1889, no certificate of title at LTO

Hayes v Mayhood

• Hayes devised all p and ng, ¼ to Mayhood, ¼ to eight named beneficiaries, ½ in Gertrude Mattern, now Crosby

• Mayhood’s wife became Mayhood’s executrix and sole beneficiary

• Admin of Hayes estate had been completed prior to Mr Mayhood’s death, except some land

• Widow wrote to oil companies requesting offers to lease mineral rights

• Executrix submitted offers to Mrs. Crosby, both approved

• Between them, had 75% interest in these mineral rights

• Lease not defined in Devolution of Real Property Act

• Crow’s Nest Pass Coal Co v R

Caveat – warning to anyone searching certificate of title that caveator claiming interest in that land

In LTA, register them

A person claiming to be interest in land for which a certificate of title has been issued pursuant to an unregistered instrument my cause to be filed with Registrar a caveat on person’s behalf in prescribed form against the registration of any person as transferee or owner of estate of interest.

• Affidavits are documents containing statements that are verified by the oath or affirmation of the person making those statements

Registration order of caveats, priority registration defeats everything else, ex, lease

Caveat must be in substantial- compliance with requirements of LTA to be valid

If determined that a caveat 9other than a Registrar’s caveat) filed or continued without reasonable cause and filing has caused damage to any person, court may award compensation

Lapse: Every caveat lodged against any land, mortgage or encumbrance shall be lapsed by the Registrar on application made after the expiration of 60 days after notice to take proceedings in court on caveat has either been a) served as process is usually served, b) sent by registered mail to caveator

S 62(1): every c/t conclusive proof that person entitled to all land in certificate, except fraud, wrong description of boundaries/parcels and except against any person claiming under prior certificate of title.

Distinguish between BFPV and volunteer. Protections in s 62, 63 and 183 are not for volunteers, but those who provide value/consideration for the land

Turta v CPR

• 1901: Dominion transferred land, m&m to CPR, under LTA, issued c/t

• 1908: CPR transfers to Pdgorney, CPR reserves coal AND petroleum

o Error in registration process, Registrar only reserved coal

• 1911, 1918: Podgorney transfers to Turta for value, only reserved coal to CPR

• 1943: registrar purports to correct earlier error, new c/t to Turta and CPR with both reservations

• 1946: CPR leases p & ng lease to Imperial Oil

• 1950: Turta leases p&ng. Caveats interest before Imperial

• Analysis:

o Turta BFPV, Podgorney not

o Turta bought everything, including petroleum, Podgorney was volunteer

o S 183 “wrong description of boundaries or parcels” has to do with surface misdescription

o Error for m&m not misdescription, so not exception

o Registrar entitled to fix problem if someone asks to fix it, ok with original parties

o Registrar not entitled to fix issue wrt Turta because BFPV

o Registrar entitled to make changes so far as is practicable without prejudicing rights conferred for value

o Registration system changes nemo dat quod non habet rule

o No “Exception to indefeasibility” referred to in s 62 applied to Turta

▪ Did not act fraudulently

▪ Did not just buy surface

▪ Relied on register

▪ No “exception or reservation” referred to in 61 engaged (those relating to gov’t interests in land, which attach to land, even without registration)

▪ No “wrong description of boundaries or parcels” (concerns erroneous legal or surveying descriptions, not inclusion/exclusion of mines and minerals interests)

▪ No “prior certificate of title” in requisite sense because CPR’s original c/t cancelled

o No 183(1) action of ejectment or other action for recovery of any land for which a certificate of title granted lies

o Imperial: in no better position than CPR

▪ Registrar did not have jurisdiction to make change so not valid and Imperial cannot rely on it. Change not authorized by statute so nullity.

o Insurance fund claim for m&m s 179(1)(c) max $2500/ha

o Mistakes made within or outside of jurisdiction.

o Three levels as to what you can get in assurance fund claim

▪ Money actually paid out, so get the money you paid out back

▪ Improvements on land, can be compensated.

▪ Appraised value for the land, not exceed in aggregate, $2500/ha

Prudential Trust v Humboldt LRD Registrar

• 1909: Surface to Burrows

• 1929: Lands to Schindler, makes mistake, talking about lands in HMQ, reserved m&m, granted to initial grantee, only surface went. Mistake from registrar, stamps certificate of title “mines and minerals included.”

• 1949: lands to Guber brothers, relied on stamp

• Sask LTA s 67 says, “land mentioned in any c/t granted under LTA shall by implication and without any special mention therein, UNLESS THE CONTRARY IS EXPRESSLY DECLARED, be subject to any subsisting reservations or exceptions contained in original grant of land from Crown.

o Subject to Crown rights UNLESS contrary expressly declared

• S 180/200: Every certificate of title conclusive evidence against HM.

• Sask Mineral Resources act, s 3: m&m property of crown and right of access leased or otherwise disposed of ONLY in accordance with provisions of this act and regulations made thereunder.

• In this case, given that said m&m included, result is defeats crown

• There was express language here as contemplated by statute which provided to contrary wrt Crown interest.

• But not dispose of in accordance to SK MMA. No effect on result. This isn’t dealing with disposition . Act talking about when HM grants lands. Not granting lands here. If just want to buy from HM, land must be granted to you. This case is one of statutory estoppel.

• C/t conclusive evidence against HM

• HM prevented from asserting rights

• LTA trumps MMA

• If “clear” c/t, no reference to m&m, NOT safe to rely on c/t alone, subject to reservation in original grant

• Certificate is conclusive evidence vs crown

• Endorsement/stamps express declaration that minerals are included

• So c/t defeats Crown

Compare to AB

• In AB, parallel section is s 61(1)

• Not have “unless the contrary is expressly declared”

• In AB, if had c/t that said “mines and minerals included” but Crown had originally reserved m&m, Crown probably win (there’s a case a while back that upholds this, but not clear)

• Does Crown win or interpret s 61 subject to Crown’s rights even if a c/t says something different.

Registries of Provincial Oil and Gas

If HM’s m&m, never subjected to letters patent, given to individuals, not in LTA system, HM inventory

AB Crown registration system constituted under Part 6 of MMA, don’t actually register agreement

Not technically registered, HM will keep track

Can register transfers, security notices and builders’ liens – pursuant to LTA

Transfers

• Joint venture agreements, can acquire all or part of interest in agreement issued by HM

• Helps with financing or if want to spread risk

• Minister not have to consent to transfer portion/whole of agreement

• S 91(1): can transfer whole, specified undivided interest in agreement, part of location contained in agreement. Transfer registered under this part valid against and prior to any unregistered transfer. Transfer deemed to take effect from time of registration.

• Transferee and transferor jointly responsible for any obligations or liabilities arising under agreement

• Original lessee remains on the hook

Security Notices

• Security interest, a charge on collateral

• S 95(4) A security interest in respect of which a security notice is registered has priority over

o Any other security interest acquired before registration of that security notice unless a security notice registered before

o Over any transfer acquired before registration of that security notice unless transfer registered before security notice

o Over any builder’s lien acquired before registration of that security notice unless registered before

o Over any interest, right or charge acquired after registration of that security notice

Security interest: lend someone money on security on property which may ultimately be sold if not repaid

Collateral is the agreement, the oil and gas lease. Your working interest.

Builders’ Lien Act

• A person who does any work wrt improvement or furnishes any material to be used in or wrt improvement for owner/contractor/subcontractor has lien on estate wrt improvement being made

• When work done or materials furnished a) preparatory to, b) in connection with or c) for an abandonment operation in connection with the recovery of a mineral then, notwithstanding that a person holding a particular restate or interest in mineral concerned has not requested work to be done or material to be furnished, lien attaches to all estates in interests in mineral concerned, other than the estate in fee simple in the mines and minerals. Unless person holding estate in fee simple in m&m expressly requested work or furnishings, then lien also attaches to estate in fee simple in mines and minerals but not to that person’s estate in the rest of the land.

• A lien attaching to an estate or interest in m&m also attaches to minerals when severed from land

• A person who rents equipment to an owner, contractor or subcontractor is, while equipment is on the contract site or in the immediate vicinity of contract site, deemed to have performed a service and has alien for reasonable and just rental of equipment while it is used or is reasonably required to be available for purpose of the work.

• Doesn’t matter if fs or Crown, lien attach to underlying m&m

• Don’t have to worry about privity of contract.

o If have operator and financier, operator in actual physical possession of lands, other not on site.

o Operator hires contractor

o Lien attaches to al estates or interest even though fancier did not personally contract with contractor, his estate caught too

o If HM directly asks contractor to come on land and work be done, then HM caught too, but usually assume not know.

• S34(1) lien may be registered at LTO by filing with Registrar statement of lien in prescribed form

• S 36 (1) when lien attaches to an estate or interest in minerals held directly from Crown in right of AB and the estate or interest a) less than fs estate, and b) not registered under LTA, statement of lien shall be registered with the Minister of Energy and not with Registrar and Act applies to all claims of lien so registered with Minister of Energy.

• MMA governing AB Crown interest

Metis Settlements

• Crown owns Metis’ lands so register with MMA

• There is Metis Land registry system, if you have surface interests you need for pipeline, reigsterd in surface Metis settlement Land Registry system

• Not include m&m because that’s with HM

First Nations

• FNs part of federal government, so not LTA because not provincial, not LTA because not private

• Land held for band, legal title to HM of Canada

3+1 Registries

• Indian Land Registry System: interests in reserve lands administered under the Indian Act. Still operates with deed, so no assurance

• First Nation Land Registry System: land records of FN operate under own Land Code pursuant to FN Land Management Act. That band has to adopt specific rules, own land title system

• Self-Governing FN Land Register: In accordance with terms of FN self-government agreements

• (+1) Allows a FN to opt into a provincial system like a land titles system

o First Nations Certainty of Land Title Act: expand regulation-making powers under FN Commercial and Industrial Development Act to establish a system of registration of reserve lands.

Duty to Consult

Constitution Act, 1982 s 35(1) recognizes aboriginal and treaty rights

(3) Treaty rights includes rights that now exist by way of land claims agreements or may be so acquired

Fundamental objective is reconciliation of aboriginal peoples and non-aboriginal peoples and respective claims, interests and ambitions (Binnie)

Honour of the Crown: includes duty to consult and accommodate

Implications: Crown’s duty (although asks industry to do it), Crown’s actions/decisions (not freehold)

S 35(2) 1982: duty owed to “aboriginal peoples of Canada” (Indian, Inuit, and Metis)

Indian Act s 6: (b) person is member of body of persons declared by Governor in Council on/after April 17, 1985 to be a band for purposes of this act.

Treaty Rights/Land Claims Agreement Rights

a) Rights re lands reserved to FN

b) Claims to land under Treaty (might be incipient)

Under treaties and land claims, can also be rights common to everyone. Lands are not set aside. Aboriginal interests extend beyond the particular pieces of the real estate.

c) Rights re non-reserve lands.

a. Ex: Treaty 8 – right to pursue their usual vocations of hunting, trapping, and fishing throughout the tract surrendered…saving and excepting such tracts as may be required or taken up from time to time for settlement, mining, lumbering, trading or other purposes.

i. Exception to these rights when need to take up for government purposes.

Treaties don’t freeze rights at a particular time, they anticipate change

ii. Starting point is have rights in the area, except when government needs for government purposes.

iii. BUT that right can only be exercised with honour of the crown, and only if duty to consult is respected.

b. Natural Resources Transfer Agreement

i. 9. …Province hereby assures right to hunt and fish on all unoccupied Crown lands administered by the province.

ii. Even broader than what Treaty 8 provided. Very broad scope.

Aboriginal Rights (No Treaty)

a) Aboriginal title to lands – Prior to Canadian expression of sovereignty over land, lands possessed by Aboriginal community, so as a matter of aboriginal title, land should be recognized as theirs even without a treaty in place.

a. Low threshold to finding an aboriginal right/duty to consult:

i. when Crown has knowledge, real or constructive of potential existence of aboriginal right or title

ii. And contemplates conduct that might adversely affect it.

b. Strong claims and higher probabilities of harm make it more likely to find a duty to consult and a stronger consultation process.

b) Uses of land

a. Ex: fishing, hunting, trapping

b. Traditional uses: spiritual, ceremonial, burial grounds

What does Honour of the Crown demand?

1) Consultation

2) Accommodation

1) Process (on a continuum/spectrum):

a. Varies with context

b. But Crown always in good faith

c. Information and response components (5Things, 4 I’s)

i. Information: the Aboriginal group(s) must be advised

ii. Implementation: allow the expression of concerns

iii. Integration: take concerns of the aboriginal people seriously, integrate/incorporate into a plan of action for the development of the area.

iv. Accommodation/mitigation: think about the minimum impairment test. Can have some adverse effects but try to mitigate those. Cannot be effects that are unreasonable to aboriginal rights

v. Timing: early as possible, start consulting in planning stages

Also onus on the FN to carry out their end of the consultation

d. Factors re “depth”

i. Nature of the asserted right

ii. Strength of the claim: stronger the claim, more integral to aboriginal group, deeper consultation required

iii. Degree of adverse impact: greater adverse impact, deeper consultation required

+ history of dealings: if have history of behaving in a certain way with a group, creates expectations on your actions

+ specificity of promise (say, in a treaty)

2) Substance

a. Substantially address concerns

SCC suggests, although no test, that in some cases, could require full consent of the aboriginal group. FN may have veto over a project if claim so important and degree of adversity so strong that can go no farther without consent. No such case at the moment.

Controlling question: What is required to maintain the honour of the Crown & to effect reconciliation between the Crown and aboriginal peoples with respect to the interests at stake?

It is not a legal duty, cannot be delegated. Remains with Crown although business is negotiating it. SCC says industry can carry out the procedural aspect of consultation and mitigation but ultimately on HM.

Accommodation/Mitigation Issues

• Environmental, land-use impacts

o Wildlife

o Fisheries

o Forest/vegetation

• Socio-cultural: ex, if infringe on hunting rights, harder to get younger generation to take up traditions. Ask for overriding royalty or participating option to include considerations for this.

• Employment and business opportunities: hire and buy locally. Work out a benefit plan.

• Overriding Royalty or Participation Option or both

Mikisew Cree First Nation v Canada (Minister of Canadian Heritage)

• 1899: Treaty 8 surrendered to government huge part of land to Canadian government – makes a reserve, retains hunting, fishing and trapping rights

• Fed government approved a winter road through new Mikisew FN Reserve at Peace Point

• Perfectly legitimate crown objective

• Gov did not think necessary to engage in consultation directly with Mikisew before decision

• Protest, road alignment changed to go around, still no consultation

• Duty to consult triggered

o Knowledge of potential existence of aboriginal rights and title

o Contemplated might adversely affect

o Duty to consult not merged/abrogated with treaty. Just because treaty in place doesn’t mean duty vanishes. Duty to consult remains even though written document

o Beyond mere consultation with general public, need effort to directly address FN

o Just because entitled to take up not mean no duty to consult

▪ Must act honourably in the exercise of rights

• In case of treaty 8, contemplated by all parties that from time to time, proportions of surrendered land would be taken up and transferred from inventory of lands over which FN had treaty rights to hunt, fish and trap and placed in inventory of lands where did not

• Treaty 8 demands a process by which lands may be transferred from one category (where Fn retain rights to hung, fish and trap) to other category (where do not)

• At low end, “the only duty of Crown may be to give notice, disclose info, and discuss any issues raised in response to the notice”

• Must attempt to deal with Mikisew “in good faith, and with the intention of substantially addressing” Mikisew concerns

• Treaty 8 gives rise to Mikisew procedural rights (ex: consultation) as well as substantive rights (ex: hunting, fishing and trapping rights)

• Treaty not spell out permissible other purposes but term should not be read restrictively

Alberta’s Policy on Consultation with First Nations on Land and Natural Resource Management, 2013 – we don’t need to memorize the consultation policy. On a test, he would reproduce the section and ask us what’s good and bad about it (comment).

When you make a posting request, provincial government says no need to consult at that point because granting of rights doesn’t mean anything. In many cases, not developed. However, often, economic momentum builds as soon as lease is awarded.

The Metis version still in process. CMA not cover everything because three limitations:

Metis Settlements (8) recognized under the act. Do 100% of metis people live on one of these 8 settlements? No. So right away, big limitation for CMA.

1) CMA applies to Metis Settlements but that doesn’t mean it applies to all Metis people in Province of AB

2) Suppose you have development right next to Metis settlement land. CMA applies only to actual settlements lands. If polluting land adjoining, limitation of CMA. Geographical limitation.

3) Suppose Metis Settlement Council says no, minister can still push through. Put a notice in that the Metis Settlement gives no surface access. Even under CMA, can still have the energy resources attached to/underlying surface, developed without need for consultation. Said no, horizontally drill anyway. Suppose drill under lake, then bitumen seeping to surface and killing fish.

Corporate Guidelines

Matrix with timelines (governs proponents of industry on consultation), consultation office (not est yet)

Metis Consultation

AB recognizes constitutionally protected rights where may be potential adverse impacts to credibly asserted (shift of burden?) aboriginal rights. Strength and probability. Case-by-case whether consultation necessary with Metis communities who may credibly assert constitutionally protected rights.

R v Powley

• Raises issue of whether members of Metis community in and around SS Marie enjoy constitutionally protected right to hunt for food under s35 of 1982

• Conclude that they do

• Moose hunting in ON subject to strict regulation

• Who is Metis?

o A) Self-identify as member of Metis community. Should not be of recent vintage. Claims in order to benefit from s 35 will not work

o B) Claimant must present evidence of an ancestral connection to a historic Metis community. No minimum blood quantum but require some proof that claimant’s ancestors belonged to historic Metis community by birth, adoption or other means

o C) Must show accepted by modern community whose continuity with historic community provides legal foundation for right being claimed

Basically looking for participation in a shared culture/traditions

• The term “Métis” in s. 35 does not encompass all individuals with mixed Indian and European heritage; rather, it refers to distinctive peoples who, in addition to their mixed ancestry, developed their own customs, way of life, and recognizable group identity separate from their Indian or Inuit and European forebears. Métis communities evolved and flourished prior to the entrenchment of European control, when the influence of European settlers and political institutions became pre-eminent.

Asserted rights are the same as those of FN: hunting, fishing, trapping

But not established pre-contact, rather PRE-CONTROL (before the Canadian state attached to the land).

Rights Analysis:

• Characterization of right: contextual/site-specific

• Identification of historical rights-bearing community: in an area

• Identify a contemporary rights-bearing community

• Verification of membership in contemporary community

• Activity in question: post-contact, pre-control

o Integral

o Continuity

o Not extinguished

Alberta Energy Regulator

Development regulation necessary because: effect on other persons (safety), toxic gas (sour gas, H2S, at high pressures), effects on biophysical environment, resource conservation/utilization/maximization, resource economics, and technical considerations (ex: blowout prevention)

Provincial Regulators

• Industry/project/development Regulator:

o Alberta Energy Regulator (formerly Energy Resources Conservation Board)

• Environmental and Water Regulator:

o (historically) Alberta Environment & Sustainable Resource Development

o Possibly for federal engagement too

Eventually, single regulator: Alberta Energy Regulator (AER) – Attempting to streamline approach

Responsible Energy Development Act (REDA)

Mandate (s 2(1)): (b) (i) the disposition and management of public lands,

(ii) the protection of the environment, and

(iii) the conservation and management of water, including the wise allocation and use of water,

All found in S 2(2) and below. Plus Oil and Gas Conservation Act.

AER has regulator-making authority. Has extensive rule-making authority. Regulations all made by administrative board, which is unusual. Usually have the lieutenant governor. Makes sense because it’s a very technical area.

S 21: Regulator has no jurisdiction wrt assessing adequacy of Crown consultation associated with rights of Aboriginal peoples.

With a regional planning approach rather than single development regulator, can take holistic evaluation of area. Wells can interact with each other. Regional planning gives you cumulative information on impact

Administrative Procedures and Jurisdiction Act: identifies which tribunals in AB are entitled to consider issues of constitutional law. The regulator has authority to consider other constitutional issues, but no answer about consultation. Old ERCB was listed as a tribunal that could consider questions of con law without limitation

S 78: Government can interfere with the new regulator. This section when gov thinks someone has too much influence over the tribunal

S 67(1) Minister of Energy can provide directions to Regulator to provide priorities guidelines and ensure work is consistent with programs/policies of Government.

AER Jurisdiction

CFB Suffield

• Federal surface; provincial mm

• Agreement with AB to access + develop NG resources, but Base Commander has surface control

• If AB retains mm, then AB mm regulator has authority to regulate development

• Law relating to development of mm in AB is provincial law of general application, and it is not inconsistent with any relevant federal law, unless the feds exercise some right to legislation in the area, the provincial law of general application is applied

• ERCB is entitled to grant authorizations to drill further natural gas wells in part of CFB Suffield

• Licencing is by the provincial authority

If you’re drilling in FN territory, ERCB has regulatory authority if the FN not have own. No instances where FN have created own energy regulator. Already have surface/environmental reg

Even in areas where extensive FN involvement in the regulation process, requires a lot of capacity and institutional momentum, so they use the federal regulator. On FN lands, IOGR s 11

Authority

OGCA s 16(1): Can only get a well licence if party is a working interest participant and entitled to the right to produce the oil/gas/bitumen ( legal question

ERCB can decide legal questions

Ex: with coal bed methane, coal often has methane associated with it. Gas adheres to coal and sometimes found in porespace of coal itself. Regulator entitled to make legal determination or who owns what.

ERCB also the one to sort out if lease still valid after the primary term; whether or not lease terminated.

OGCA s 94 and REDA s 14(1): Gives regulator power to do all things necessary to carrying out duties. BUT not determinative in all contexts (not in a court).

If regulator could not decide these issues, would have to adjourn proceedings to QB. Could appeal as a matter of law if thought board was wrong. Don’t go to QB first. Appeal at tribunal.

Issues and Procedure

Types of decisions made by the AER:

• Well licences

• Regulation of production

• Conservation/prevention of waste

• Shut-down and closure

• Compulsory pooling

Stages of process

• Pre-application

o Public consultation

• Application

o Notice

o Statements of concern

• Hearing

o Pre-hearing steps (“discovery”)

o Hearing procedures

• Decisions

• Costs appeal

CNRL Sugden Field

• Using CHOPS on heavy oil; not SAGD, no fracking; still producing sand at the same time, but just deal with it at the surface

• Not as associated with sand so only have to heat in tanks rather than creating tailings pond

• Pre-Application: Public consultation – Directive 056: Energy Development Applications and Schedules. Not legislation or regulation, lesser form of legal document.

o Industry required to develop effective participant involvement program that includes parties whose rights may be adversely affected by nature and extent of proposed application

o Must occur prior to filing of application

o Includes distributing applicant’s information package and required ERCB publications, responding to questions and concerns, discussing options, alternatives and mitigating measures, and seeking confirmation of non-objection through cooperative efforts.

o Industry expected to be sensitive to timing constraints of public

o Consult

▪ Parties within specified radius

▪ All parties with direct interest in land

▪ People who have concerns regardless of whether inside or outside radius that operator is aware of

o Time limit: Must allow participants minimum 14 calendar days to receive, consider and respond

o May determine information session or public open house required.

o Must give people sufficient detail so can make an informed decision

o Appropriate dispute resolution

▪ Meet with objectors and attempt to resolve issues through informal “kitchen table” discussions

▪ Engage ERCB Appropriate Dispute Resolution (ADR) program

▪ Pursue resolution through more formalized third-party mediation process

o Reciprocal duty on members of public; both sides must work together to identify concerns and reasonable issues

• Application

o If no objections, can get licence w/o a hearing, publish notice of application

o S 32: statements of concern filed (“objection letters”)

• Hearing

o If not get success in consultation with people, go through hearing, regulator will decide on the issue. (AER Rules s 7, notice of hearing)

o REDA s 34(2.1) someone directly and adversely affected entitled to be heard at hearing

o Regulator decides entitlement to participate as an intervener (AER Rules s 9(3)).

o Mode of hearing (18(2), (3)): can be in writing, electronically or orally, or by any combination of those methods. (3) says not hold electronic hearing if likely to cause the party significant prejudice.

o REDA s 47: Regulator not bound by rules of law concerning evidence applicable to judicial proceedings.

o AER Rules s 21: witnesses under oath

o Pre-hearing disclosure requirement: AER Rules 24(1) – unless Regulator otherwise directs, no documentary evidence may be presented at oral hearing or electronic hearing unless filed and served in accordance with s 53.

▪ S 53: Party shall file documentary evidence and serve copy on other parties before hearing and in accordance with any time limits. Must be accompanied with a statement setting out the qualifications of the person who prepared the documentary evidence or under whose direction or control evidence prepared

o Witnesses

▪ S 24(3) Unless otherwise directed, witness may be a) cross-examined by or on behalf of a party or b) examined by the Regulator or a member of the Regulator staff

▪ S 22: experts may be required to confer with each other in advance of hearing to narrow issues, identify points on which views differ or agree and prepare joint written statements to be admissible as evidence at the hearing.

▪ S 23: witnesses may sit alone or together, questions can be to one or all of them, may confer among themselves, can answer for each other, may ask each other questions, then may be cross- or re-examined by Regulator

o Participants

▪ AER Rules s 26: Panel itself can bring in the people they need, the Regulator itself can participate

▪ REDA s 49(1): Crown entitled to appear and may be represented by counsel at a hearing or inquiry to present evidence, cross-x witnesses and submit argument. This is how government can say have surface sensitivities specified in posting notice for these lands, and while plans have been filed, they are inadequate. However, Crown never really uses this, although could intervene if wanted to

▪ Would make most sense if Regulator managed proceedings by leaving caribou matters in Board counsel to answer questions.

▪ In this case, to facilitate full participation, changed order of examination of witnesses, so the Board counsel was examined first. Another Board counsel present throughout to answer questions.

o Taking a view (AER Rules s 40): Regulator may, with or without the parties, conduct an on-site visit. This case, panel and staff took a view

o Main argument for industry is that application makes economic sense.

o Counter argument is protect environment and safety

o OGCA s 4(c), OSCA s 10(3)(a): public interest – overriding consideration

▪ Think about like s 1 of Charter: 1) pressing and substantial objective (economic in this case), 2) Proportionality, part of rational connection between legislation and objective, 3) minimal impairment on general environment, bad effects cannot exceed the good effects.

Environment (CNRL)

• Groundwater and Surface Water Protection. Potential adverse impacts:

o Spills because near lakes (no inflow/outflow), streams, rivers

▪ Bottom holes are near the lake and the lake is fed by aquifers so how to avoid polluting lake?

▪ Toxic emissions from heated bitumen in barrels, what if one leaks/knocked over

▪ Noxious odours

▪ Traffic

o Contamination of aquifer by material moving through wellbore

▪ Set and cement surface casings. Cement sets fast, works at high T and P.

▪ When drilling, special drilling fluid stabilizes the borehole

• Emissions, Air Pollution, Safety of Persons

o Concerns about batteries; heating bitumen in these batteries to flow form tank so they can be piped to truck, some vapours vented, concerns about noxious odors.

▪ Higher the temperature, greater emissions, higher rates, more toxic emissions

▪ CNRL to manage burner temperatures, hot enough to flow but no hotter

o Adverse health risks, including elevated risks of cancer?

▪ Based on expert evidence, adverse health effect highly unlikely

▪ AHS statistical study shows no cause for immediate concern but monitor

o Odors and Recreational Use

▪ Possible detection but not in close proximity to most recreational areas

▪ Regional air monitoring, appropriate organization to address concerns

Socio-Cultural Impacts

• Traffic

o CNRL adjusted routes to direct oilfield traffic away from occupied + recreational areas

o Determined efficient route for vehicle emissions and transportation costs

o MGA s 18(1) Municipality has the direction, control and management of all roads within the municipality

Decision

• REDA s 42: The Regulator may, in sole discretion, reconsider a decision made by it and may confirm, vary, suspend or revoke the decision

• S 43: Regulator may conduct a reconsideration with or without conducting a hearing

Appeal

• REDA s 45(1) Decision of Regulator appealable to CA with leave of CA on question of jurisdiction or question of law

• (7)

• S 56: Every decision of Regulator final and shall not be questioned or reviewed in any court by application for judicial review or otherwise.

• What to do when want AER decision reviewed?

o Apply for appeal

o Under statute, right to appeal for court of appeal but must apply for leave to appeal and then permission before regular appeal

o Not an automatic appeal

o Sometimes when you get an appeal, it is de novo, pretty much re-trial. In this case when appeal an AER decision, not de novo.

Kelly v Energy Resources Conservation Board:

• Grizzly – application to drill 2 sour gas wells

• Sour gas = CH4 + H2S = poisonous

• Directive 71: Emergency Preparedness and Response Requirements for the Petroleum Industry

• EPZ: Emergency Planning Zone - A geographical area surrounding a well, pipeline, or facility containing hazardous product that requires specific emergency response planning by the licensee

o 2.11km surrounding well sites

• PAZ: Protective Action Zone - The estimated size of the protective action zone (PAZ) is calculated using ERCBH2S. Immediately following a release of H2S or HVP product, the approximate size and direction of the PAZ can be determined using actual conditions at the time

o 9.25km

• An area downwind of a hazardous release where outdoor pollutant concentrations may result in life-threatening or serious and possibly irreversible health effects on the public.

• Appellants reside outside EPZ, but inside PAZ (as then defined)

• Time, effort and costs incurred dealing with Kelly Interveners before any issue of standing was in excess of $125 000, compared to 20 hours with other persons who resided within EPZ

• Kelly’s filed concern but not “directly and adversely affected” because not in EPZ so rejected, appealed, rejected again

o Onus to prove directly and adversely affected, to greater degree than general public

o Kelly’s did not qualify to participate in hearing of application, but they were the only ones, so decision made without a hearing

• Appealed to CA, leave granted

o Whether the board took correct approach and applied correct standard to Kelly’s

o Correctness = court can substitute its own view; less deference because appellate body can decide whether the decision is right or wrong

o Reasonableness = range of conduct that is acceptable and so long as the lower court’s decision fell within the reasonable continuum and wasn’t defective or unreasonable, then the lower decision stands; more deference and leeway to the lower court; so even if appellate court doesn’t agree with the lower court’s decisions being correct, as long as it is within the scope of possible decisions that a reasonable tribunal could have made, cannot alter the decision

o Pure matter of law not within expertise of tribunal – correctness

▪ Dealing with factual determination or matter of law within expertise of tribunal or mixed fact and law – reasonableness

▪ Mistake of regulator = mischaracterize the “directly and adversely affected” test

▪ This was a pure matter of law not within their expertise

o Court of appeal said that the correct way to characterize the test is in 2 parts ( test re: standing as intervener =

▪ (a) legal test = claim, right or interest asserted that is known to law

▪ (b) factual test = information that shows that legally recognized interests may be directly and adversely affected by application

▪ *The def’n of PAZ itself indicates potential for direct and adverse effects

• Onus

o REDA s. 34(3): If the Regulator conducts a hearing on an application, a person who may be directly and adversely affected by the application is entitled to be heard at the hearing.

o But AER Rules, s. : 9(3) The Regulator may, on receiving and examining a person’s submission, decide that the person is not eligible to be an intervener in the proceedings if the Regulator is of the opinion that

▪ (a) the submission is frivolous, vexatious or without merit,

▪ (b) if the submission contains a statement under subsection (2)(a)(i)(A), the person has not demonstrated that the decision of the Regulator in the proceeding may directly and adversely affect the person ….

o Primary onus on party asserting a proposition ( Appellants discharged by showing that they lived in the PAZ

o Problem: Under AER Rules, slightly different concept of onus than under REDA

▪ Need to demonstrate that you are directly and adversely affected

▪ So a greater onus on the applicants than by the legislative provision?

• Ratio from the Kelly Case from the Court of Appeal

o Two part test for determining whether they qualify as an intervener for the hearing of an application

▪ The first part of the test about legal rights – even the directives of the regulator can give rise to legal rights of the intervener

• Can be constitutional, legal or equiptable interest (incl aboriginal)

▪ Second part of the test – onus is on the applicant at first and then shifts to the company to rebut direct and adverse effects

• something more than mere assertion– some degree of location or connection between the work proposed and the right asserted is reasonable. What degree is a question of fact for the board

o So if you are not within the EPZ or the PAZ – more than mere assertion that your legal right is directly and adversely affected by the project

o If you’re in the EPZ or PAZ – presumption that you are directly and adversely affected because in those areas there are serious health risks

• Health impacts

o AER Rules s 25(2): If necessary to prevent disclosure of sensitive personal, financial or commercial matters or other matters because the need to protect the confidentiality of those matters outweighs the desirability of an open hearing, the Regulator shall conduct all or part of the hearing in private.

• Costs

o Ordinary civil cases – costs are awarded to the winner of the trial

o This is not the basis in which costs are awarded in the regulator proceedings

o Winning and losing doesn’t determine costs being awarded

• The purpose of hearings is to allow people to be heard

• Economic strain on Albertans to attend regulatory hearings, so awarding of costs may be necessary to discharge duty of providing mandate where people can be heard.

• Not unreasonable for the costs of intervention to be borne by the resource companies who will reap rewards of resource development

• You should have a right to litigate and industry should support public right to speak in public hearings as to whether industry gets application to go ahead with their project

• Another cost for industry – industry has to pay for the application process and has to pay for public to intervene and express their views on it

• Claims for costs

o S 64(1): basis of awarding costs – Regulator may award costs only if reasonable and directly/necessarily related to the proceeding and participant acted reasonably in the proceedings.

• 3 factors for whether intervener acting responsibly =

o (i) were you duplicating what others were doing;

o (ii) burning up too many resources in course of your participation;

o (iii) acting contrary to rules

Cenovus Energy, Suffield Field:

• No evidence that drilling these wells would create any adverse effect

• Can sometimes need to drill infill wells to optimize recovery

• Minimization

o Effect on military activities: co-existing for decades

o Cumulative environmental effects

▪ Board satisfied that environmental risks are minimal and will be mitigated effectively when Cenovus fulfills the planning and operational commitments made in its Applications.

▪ To assess cumulative environmental effects, it would be more informative if potential environmental effects were monitored and evaluated relative to sustainability indicators or predetermined thresholds

EnCana Shallow Gas Infill Project:

• Proposal to drill up to 1275 shallow gas wells in the Canadian Forces Base National Wildlife Area (NWA) over a 3-year period

• Provincial and federal regulator because of NWA

• There must be an environmental assessment under the Federal Environment Act

• Could be a decision federally that could block the permit which blocks development on this site regardless of what ERCB says

• Joint review process and there were extensive investigations/hearings that took place.

• Significant adverse environmental effects not justified in the circumstances

• Order in Council, prevents drilling by Governor General

Issues and Procedures

Well Licences

OGCA S 4.010(1) Drilling spacing unit is vertical, must have separate rights to do slant or horizontal

Standard drilling spacing unit is: 1) for an oil well, one quarter section and 2) for a gas well, one section

Could apply for smaller spacing and get more wells per DSU; you could need additional wells.

Rationale for DSU: - think, gas takes up more space so gas well is bigger

• Conservation (vs wasteful production)

• Ensuring that pool owners get a fair share of production

Well licences identified by license number, wells must be named. Must include legal subdivision, section, township and range in which the bottom hole of the well is located, in that order, indicated by numbers separated by hyphens.

Target Areas

OGCA S 4.030(1): must drill towards the centre of spacing unit, penalty is reduction in production

Penalty for going off-target, should not be crowding your well towards edge of DSU

For gas DSU, must be at least 150m away from sides of DSU, for oil, at least 100m away

Very regular and intensive field checking, but approach of compliance rather than punitive deterrence

Just know regulation enforced and AB has, historically, a good reputation for checking.

Pooling

Combining separately owned tracts into drilling units (voluntary/compulsory)

Ensure that production for pooling means production for your lease, must have permission for pooling in original lease.

If negotiations to pool don’t work, can apply to Regulator to compel pooling

Begin with negotiations – work out how you will share total production

If not work, Regulator (OGCA 80(1), (3), (5) penalties) compel based on area basis, unless inequitable

Sawtooth International Resources Inc:

• Sawtooth: NW and E ½

• Caribou: SW

• Need whole section to drill

• Sawtooth said giving 25% to Caribou was inequitable because nearly all of the production is on Sawtooth land

• Starting point tract basis, but inequitable so renegotiate

• On evidence, equitable split was 85/15

Unitization

Joint, coordinated operation of a petroleum reservoir by all the owners of rights in the separate tracts overlying the reservoir

OGCA 78 (e) Defines unit operation

Alberta: voluntary only (no compulsory unitization)

79(1) Regulator can only encourage

79(4) When unitized, can have Regulator suspend/vary provisions regarding the pool’s development

Surface Rights

Public Lands Act for public lands, have Public Lands Administration Regulation

Common law: right to work includes right to surface access (works in UK because most people owning land in fee simple own surface and mm, doesn’t in Western Canada). So have SRA

Surface Rights Act (1972) ( Surface Rights Board; no authority to decide constitutional questions

s 2(1): Act Applies to all lands in AB except Metis settlements

Affects rights

• Give notice

• Permit response (full answer and defence)

• Written reasons

• Not subject to rules of evidence

Ways to Access the Surface

1. Through (eg) oil and gas lease itself (if surface owner owns surface)

• Must have a specific separate sum in consideration (s12(2))

2. By consent (s 12(1)), Surface rights lease

• Conditions that need to be in the agreement for a private surface lease

• Dower

• 63: can register private surface agreement

• 64(1): If have registered private surface agreement and holder not compliant, Regulator may issue order directing holder to comply.

3. By right of entry order (ROE Order)

• If no deal, apply for ROE Order: 12(1)

• 15(2) App for ROE order must be in right form

• 8: Application for ROE

• Need to show that tried to work things out privately before applying to courts

Surface Rights Board Procedure

Application (s 15(1) in prescribed form)

Notice

Appropriate dispute resolution

Hearings, in person, telephone, written submissions, other

Re Oral hearing: notice, rights of participants, authority of panel – “inquisitorial” authority – ask questions/cross, format of hearing

Application for costs

Same kind of procedure as with development of the mm

SRA s 8(3): not bound by laws of evidence, SRB may enter on/inspect any land/building/works/other

Inevitability of Right of Entry Order

SRA S 15(6) SRB shall ensure ROE not inconsistent with licence, permit or other approval

SRB cannot serve as another or alternate form of appeal from the regulator

If well licence has been granted by regulator – right of entry order by SRB must be granted

Otherwise it is overruling the regulator’s grant of licence because not allowing surface access when the licence has been granted would be inconsistent with the rights granted under the licence for oil and gas

Windrift Ranches Ltd v Alberta (Surface Rights Board): Right of entry proceedings before the Alberta Surface Rights Board are ancillary and in aid of the oil well activities authorized by the E.R.C.B

SRB is essentially a compensation tribunal

Difference between SRA and common law

• SRA says needs to compensate surface owner because it was part of your mineral rights

• Unlike common law where the right to the surface is implied as part of your right to work minerals and not need to compensate the surface owner because it was part of your mineral rights.

Balancing: you definitely get access from SRB but must pay surface access fee

Argument on seizing potatoes not being protected by Charter but if someone was growing pot, s 8 would kick in. My counterargument is that it has to kick in because the consequences are limiting one’s freedom. They still would not be able to keep their product.

SRA S 12(3): board can order ROE wrt surface of the actual land, adjoining lands as necessary

Rights Conferred by ROE Order

SRA S 16(1) ROE vests in operator

Exclusive right, title and interest in surface, except can’t get certificate of title because then would be expropriation. Industry given really powerful rights, although not unfettered access

Three Terms of Entry Order

1. Entry fee

• S 19(2)

• Operator cannot exercise right until paid

• Entry fee is in addition to any compensation payable wrt ROE

2. Conditions

• S 15(6) may make order subject to conditions

3. Compensation (industry to surface owner)

• S 23

• S 25(1): 1) fair market valuations, 2) loss of use and 3) adverse effect

• S 25(5), (7) Other reasons for compensation – (7) is may fix amounts payable

Two separate orders: ROE order and Compensation Order; compensation is separate from right of entry

CNRL v Bennett & Bennett

• If a pattern of dealings has been established, then compensation for compulsory imposition (or renewal) of a surface lease for an oil or gas well may be based on the negotiated amounts in those prior contracts between others. No such pattern in this case

• Expert evidence

o Identify CRITERIA by which comparisons made

o Identify comparables

o No other comparables exist – must attest that set of comparables doesn’t exclude any other relevant comparables

o Need an expert to come before the SRB to say looked at all of the transactions in the defined area, based on that, must say why picked that area and not another, determined relevant area and how determined, and these are the comparable settlements/awards in the area.

Rule 31. Costs Award

(1) The Board may award costs to a party if the Board is of the opinion that the costs are directly and necessarily related to the proceeding. A request for costs must include:

(a) reasons to support the request;

(b) a detailed description of the costs sought; and

(c) copies of any invoices or receipts for disbursements or expenses.

(2) In making an order for the payment of a party’s costs, the Board may consider:

(a) the reasons for incurring costs;

(b) the complexity of the proceeding;

(c) the contribution of the representatives and experts retained;

(d) the conduct of a party in the proceeding;

(e) whether a party has unreasonably delayed or lengthened a proceeding;

(f) the degree of success in the outcome of a proceeding;

(g) the reasonableness of any costs incurred;

(h) any other factor the Board considers relevant.

SRB – Post-Decision

S 29: board may rehear application to review, rescind, amend a decision or order

reconsideration: Rule 37, 38 (may be new hearing)

rehearing: Rule 39

Compensation order: s 26(1): operator may appeal compensation order to QB. Different from appeal to Regulator. The appeal to Regulator is to CA, appeal to compensation order is QB. For regulator, appeal is on leave. Appeal for compensation is as of right, not on leave, don’t need permission

ROE Order: no appeal for conditions (doesn’t mean no remedy), but judicial review possible

Appeals: always statutory; statute sets out which issues you can appeal

Could have a process-based allocation for judicial review

If a tribunal does not follow procedure, then do over, quashed.

Can also get judicial review when tribunal acts outside of its jurisdiction. Statutory tribunal, so if strays beyond mandate, makes a null and void decision. Can have procedural, jurisdictional, legal, application of law issues reviewed by superior courts by way of judicial review. It’s a common law procedure.

Mueller v Montana Tie

• Case is of judicial review of ROE order

• Despite repeated request, surface board did not grant oral hearing to ROE order

• No dispute resolution conference

• Denial of adjournments

• There was a lot of territory to be covered

• Because you’re dealing with ROE orders, already decided, SRB can’t say no

• Not much to decide in this case

• Expeditiousness does not mean unfair, process was fair in this case

SRB and Procedural Fairness

Level of Procedural Rights – Baker Factors (Baker v Canada (Minister of Citizenship and Immigration))

1. Closeness of administrative process to judicial process

• Not close to judicial process, just a rubber stamp

2. Statutory scheme – final decisions; availability of further proceedings – Finality

• Not final: may rehear/review; appeal compensation order; judicial review re ROE

3. Importance of decision to individuals affected

• Is important but the real decision was made earlier by the senior tribunal

4. Legitimate expectations of parties

• Generally, there are oral hearings re oil & gas applications; but no standard practice re international power line applications

5. Discretion of tribune re procedure

• SRB has authority, expertise; fairness can be achieved without an oral hearing (“efficient process by itself is not by itself unfair”)

Do not quash decisions on basis of procedural fairness. Fairness depends on what that issue is.

EnCana v Campbell

• ROE granted with conditions EnCana didn’t like so judicial review, wants conditions quashed

• Standard of review for the conditions: reasonableness – within expertise, entitled to deference

• Unreasonable condition: Condition 5 - The Operator shall prevent noxious, nuisance and restricted weeds from growing on the subject parcel.

o There were two candidate conditions relating to weed control and SRB chose more onerous one “without expressing any rationale for doing so”

• Their issue was SRB had higher standards than ERCB, saying inconsistent.

o An inconsistency means that compliance with one results in breach of the other. That was not the case here

• SRB shall ensure that ROE order not inconsistent with licence, permit or other approval

o ERCB says offsite, SRB says onsite, but ERCB says nothing about onsite, not inconsistent

o ERCB requires berming if well or facility within 100m of high water mark of body of water. SRB says berm within the 100m mark, not inconsistent.

• When calculating costs, just because you lose doesn’t mean you get no costs. Something to be taken into account.

SRB – Appeal of Compensation Order

S 26(1) (6) Appeal to court shall be in form of new hearing

S 27 (4) Parties negotiate compensation (with notice), and if that doesn’t work, appeal to Board onwards

SRB – Dispute Resolution

S 30(1) Board may hold proceedings and make an order with respect to a dispute between operator and owner or occupant who are parties to a surface lease or the operator and an owner or occupant under a right of entry order as to the amount of compensation payable by the operator for damage caused in ways stated in s 25(5).

Nothing on assessing fault, it’s a simple but for test.

(2) The Board has jurisdiction to determine a dispute under this section only if

(a) the application is made in writing to the Board by a party to the dispute within 2 years from the last date on which damage is alleged to have occurred, …

(c) in the case of an application made on or after July 1, 2001, notwithstanding that the damage in respect of which the application is made may have arisen before, on or after July 1, 2001, the amount claimed by the owner or occupant does not exceed $25 000.

This is a nice alternative to small claims. This is for the one-offs, the isolated incidents. Handy way of disputes that just arise between operator and farmer.

(3) This section does not apply to a claim for compensation the amount of which may be determined by the Board under section 25 [i.e., a compensation order]

(4) An order under this section may be appealed by the operator or the owner or occupant as though the order were a compensation order under section 23.

Perpetuities

Applies to freeholds only

Problems:

• Option to renew: option to exercise option on termination of first lease to the original lessee

• Top lease: another lessee in line, grant to lessee w/ condition precedent on 1st lease termination

• Both cases are contingent interests that vest in the future ( perpetuities rule engaged

Issue: property interests that will not attach until future

Common law rule

No interest is good unless it must vest, if at all, not later than twenty-one years after some life in being at the creation of the interest. If no life indicated, 21 years = full perpetuity period.

Rationale: free alienation and full use of property; balance freedom of disposition and stagnation

Elements

• 21 years

• From lives in being; none in commercial situation so 21 years from date of instrument

• Vesting: vested vs contingent

o A remainder is vested when person to take it are ascertained and size of estate ascertained and no condition precedent attached to remainder other than termination of the prior estates

o When rights are vested, have now, can even enjoy later.

o Must vest within 21 years. If it’s possible that it won’t vest in 21 years, then it is invalid.

o Don’t have renewals because perpetuities saw them as invalid/void under common law

Statute

S 25 Act applies after July 1, 1973

1. Modifies Common Law Rule: Common law rule still exist

2. Applies to Oil and Gas Leases: Common law perpetuities rule doesn’t apply to renewal of true leases

a. Common law perpetuities rule does not apply to true leases (s 17(4))

b. Oil and gas lease is not a true lease

S 18(1): for valuable consideration an interest in real or personal property may be acquired at a future time, perpetuity period is 80 years from date of contract.

Wait and See

S 3: not invalid if only possibility of vesting beyond perpetuity period

S 4: presumption of validity until actual events establish that interest incapable of vesting beyond the perpetuity period

Pre July 1, 1973

Common law exception to perpetuities rule for true leases

To argue for the exception as a profit a prendre, would have to show that you are not stagnating the lands

Common Law – Applications

PanCanadian Petroleum Ltd v Husky Oil Operations Ltd.: Option to renew is not a vested interest. If there are any contingencies to be satisfied, then it is not vested

Canadian Export Gas & Oil Ltd v Flegal: first two renewals of ten years are within the 21-year period. Argument that should strike the renewal clause after two renewals; however, judge says that would be severing a term of the agreement, which he cannot do. The clause is either void or valid. Even though first two renewals would fall inside the perpetuities period, eventually would be outside, so clause struck down. The point made is that it doesn’t fall within ambit of rule of perpetuities. Either void or valid. Law has consistently set face against perpetual renewals in the common law. Even though the first two renewals would fall within perp period, eventually will have interest that falls outside perpetuities period. Clause struck down.

Rule doesn’t apply if sufficiently short option term.

Pan American Petroleum Corp v Potapchuk: Only 5 years to renew, so within 21 years.

Top Leases

Exception to the rule under common law (Taylor v. Scurry-Rainbow Oil)

Top Lessee’s get involved to encourage development of land, not sterilize. SKCA allowed exception for top leases like true leases from perpetuity rule. But no ABCA decision

Lease Delay and Estoppel

Delay Rental – no longer exist in newer freehold leases

eg, CAPL 2009, 2013 (Crown leases, have annual rentals)

Outside of that, practice is not to have annual rentals. Just another thing to go wrong, put more money in upfront bonus.

Habendum gives you lease term of 10 years, subject to the early termination of the contract. If operations for drilling of a well not commenced on said lands within 1 year, lease shall terminate unless pay delay rental on or before said anniversary. Payment shall confer privilege of deferring the commencement of drilling operations for a period of one year.

Lease terminates with an audible click (East Crest v Stroschein) on anniversary.

Leases tend to have notice of default clause. If there is a violation of the lease that causes breach, then lessor must give lessee written notice requiring him to remedy the default.

S10 Judicature Act: gives courts ability to provide relief against forfeitures

However, if lease terminates after a year, it is not a breach of contact so these two don’t count.

OilCo has right to drill OR right to pay delay rental OR, if does neither, chooses for lease to terminate

Drilling or paying: privilege/choice, NOT obligation

To fix that, just say, “…Judicature Act will apply…” into the contract

Can deem payment of delay rentals obligatory (if no drilling occurs) to the lease

Factors relevant to discretionary exercise of remedy are:

1. Conduct of applicant – even if relief from forfeiture available, not grant it. Time is of the essence

2. Gravity of breaches

3. Disparity between property forfeited and damages cause by breach

Manner of payment: If payments mailed, contract can say shall be deemed to be received by lessor as of date of mailing. (CAPL 99, 2013) Can pay by cheque, electronically, and shall be deemed to have been paid on date of mailing. Canadian Association of Petroleum Landmen (CAPL) – standard agreement

If lessor claims mailed cheque not received:

• Prove mailing through: registered mail, time stamp, internal documents, invariable business practice (evidence of past practice)

• Burden of proof should be on lessee, oil company, but not the conclusion in Paddon Hughes

o General rule: lessee has burden of proof to establish lease continued (Lady Freyberg)

Consequence if cheque actually not received – payments deemed received by lessor at date of mailing

1) Timing of receipt

2) Deemed receipt – as in cashed or just in your hands

Estoppel

Ryan v Moore

1) Action/Manifest representation: The parties’ dealings must have been based on a shared assumption of fact or law: estoppel requires manifest representation by statement or conduct creating a mutual assumption. Nevertheless, estoppel can arise out of silence (impliedly).

2) Reaction: A party must have conducted itself, i.e. acted, in reliance on such shared assumption, its actions resulting in a change of its legal position

3) Detriment: It must also be unjust or unfair to allow one of the parties to resile or depart from the common assumption. The party seeking to establish estoppel therefore has to prove that detriment will be suffered if the other party is allowed to resile from the assumption since there has been a change from the presumed position.

Overall test: would it be manifestly unfair for person who caused detrimental reliance to go back on what they said

All estoppels may be regarded as requiring some manifest representation which crosses the line between representor and representee, either by statement or conduct

Trethewey-Edge Dyking District v. Coniagas Ranches Ltd.

The real test is said to be whether upon the facts of the particular case the situation has become such that it would be dishonest or unconscionable for the plaintiff, or the person having the right sought to be enforced, to continue to seek to enforce it. The belief on which the person seeking protection from equity relies need not relate to an existing right nor to a particular property…. [T]he true test is that the facts must be such that the owner of the legal right has done something beyond mere delay to encourage the wrongdoer to believe that he does not intend to rely on his strict rights, and the wrongdoer must have acted to his prejudice in that belief.

Willmott v Barber

Estoppel by acquiescence; Equitable fraud; Knew that A had mistaken belief and encouraged it

Canadian Superior Oil v. Hambly: Timing issue: If the act purporting estoppel occurs after the lease is already terminated, it’s too late. The act must have occurred during the primary term to be able to raise the argument of estoppel. Obiter, nothing from SCC on this.

Voyager Petroleums v Vanguard Petroleums

• Fee simple, Petrie was principal of Vanguard

o Vanguard was fee simple holder of land, therefore lessor by assignment of lease

• Prior to Vanguard’s acquisition, a royalty trust had been established respecting the lands (payments of a percentage of royalties on production were required to be paid to the royalty trustee, for distribution to the beneficial interest holders).

• Vanguard also held interests under the royalty trust.

• Canada Permanent was the trustee for the royalty trust.

• One of benefits of being a lessor, you receive a royalty if production from well

• Lessors would transfer all royalty rights to a trust

• 1972, unitization

• Unitization, continuation of lease clause: All operations conducted with respect to the Unitized Zone or production of Unitized Substances shall, except for the purpose of calculating payments to Royalty Owners, be deemed conclusively to be operations upon or production from all of the Unitized Zone in each Tract…

• Underlying lessor must also agree to this because of privity

• Western (representing Voyager) called Petrie to say sending two copies of unit agreement by mail

• Asked Petrie to sign both under both capacities as beneficiary and lessor

• Voyager sends two copies to Petrie, Petrie sends one to Canada Permanent. Two unitizations came, one returned by CP as requested

• Lessee (Voyager) only gets one unitization agreement and thinks it’s fine

• Voyager also needed to get Vanguard’s buy-in as a freeholder.

• Petri and Vanguard knew this

• Can infer that Voyager needed everyone to sign on to unitization agreement for purposes of underlying lease. Petrie fully knew both all of the facts and he’s not unsophisticated. He “knew” what the law is here

• Not actually fraudulent, but court found constructive fraud

• Based on silence of Petrie in this case, silence an act that crossed the line, but silence does not always mean cross line

• Vanguard is estopped from denying that Canada Permanent signed the Unit Agreement for Vanguard in both capacities. Thus, Vanguard is bound by terms of the unit agreement. It follows, therefore, that under the terms of the unit agreement the petroleum and natural gas lease dated May 27, 1966 did not terminate on May 27, 1973 by reason of the non-payment by Voyager of the delay rental.

Well Completion

Surviving beyond the primary term

Drilling Over

Starts drilling before end of primary term but brings into production after click date.

Looking at the well completion clause (not the delay rental clause)

Kininmonth Clause

• And Further Always Provided that if at any time after the expiration of the said 10 year term the said substances are not being produced on the said lands and the Lessee is then engaged in drilling or working operations thereon, this Lease shall remain in force so long as such operations are prosecuted, and if they result in the production of the said substances or any of them, so long thereafter as the said substances or any of them are produced from the said lands, provided that if drilling, working or production operations are interrupted or suspended as the result of any cause whatsoever beyond the Lessee's control, other than the Lessee's lack of funds, the time of such interruption or suspension shall not be counted against the Lessee, anything hereinbefore contained or implied to the contrary notwithstanding.

• Habendum says primary then production. How can you have lease not continued according to habendum, and one that allows? Habendum stands. This next clause only applies if there were production that started in primary term, production carried over after end of primary term, and then production stops for whatever reason (ex: problem with well, something breaks, etc). This clause allows you to fix it. But presupposition is you had production that started in the primary term. Only applies if there was production in the primary term.

• Oil production starts too late, start operations, primary term ends, no production, lease terminates

Weyburn Security Co. v. Sohio Petroleum Co.: Kininmonth clause + estoppel argument

• Same as Kininmonth but not know that this was effect of drilling over. No Martland decision yet.

• Lots of conversation between farmer and oil company than in Voyager and Vanguard

• Oil company been paying out of pocket for lots of expenses but not because of something farmer said, especially because have their own lawyers

• Farmer not at fault in equity, both operating on same mistake.

Republic Resources Ltd. v. Ballem

• Well Completion: PROVIDED FURTHER that if at any time after the expiration of the said primary term the leased substances or any of them are not being produced from the said lands and the Lessee is then engaged in drilling, working or reworking operations thereon or if at any time after the expiration of the primary term production of the leased substances has ceased and the Lessee shall have commenced further drilling, working or reworking operations on the said lands within Ninety (90) days after such cessation of production, then this Lease shall remain in force so long as such operations (whether on the same well or on different wells successively) are continuously prosecuted and, if they result in the production of the leased substances or any of them, so long thereafter as the leased substances or any of them are produced from the said lands. Such operations, after the expiration of the primary term, shall be deemed to be continuously prosecuted if not more than Ninety (90) days shall elapse between the completion of drilling, working or reworking operations on one well and the commencement of drilling, working or reworking operations on another well;

• Only adds a 90-day grace period

• Estoppel argument

o Option to renew clause, allowing renewal within 30 days following lease termination

o Lessor realized within the 30 days after termination that lease terminated

o Lessor did not tell lessee about the clause.

o Oil company suffered detriment. Failed to exercise option to renew. Ballum made no communication. Oil company also relying on advice of own counsel, who said the lease was good, no need to act. Ballum did not cross the line, no reliance, doesn’t matter that he knew more, did not do anything, so no estoppel.

• Perpetuities Act in July 1973; lease date August 1973, so now can use wait and see clause, not automatically void.

• Oil company thought could extend (Kininmonth decision hadn’t come out yet), so didn’t think to rely on the clause. Also why Ballum didn’t cross the line.

Kininmonth Fix #1 – Fix to well completion clause

Kissinger Petroleums Ltd v Keith McLean Oil Properties Ltd

• Kininmonth clause: And Further Always Provided that if at any time after the expiration of the said 10 year term the said substances are not being produced on the said lands and the Lessee is then engaged in drilling or working operations thereon, this Lease shall remain in force so long as such operations are prosecuted, and if they result in the production of the said substances or any of them, so long thereafter as the said substances or any of them are produced from the said lands

• Kissinger clause: And Further Always Provided that if at the end of the said Ten (10) year term the leased substances are not being produced from the said lands and the Lessee is then engaged in drilling or working operations thereon, or if at any time after the expiration of the said Ten (10) year term production of the leased substances has ceased and the Lessee shall have commenced further drilling or working operations within Ninety (90) days after the cessation of said production, then this Lease shall remain in force so long as any drilling or working operations are prosecuted with no cessation of more than Ninety (90) consecutive days and, if they result in the production of the leased substances or any of them, so long thereafter as the leased substances or any of them are produced from the said lands;

• If at end of primary term, the lease substances aren’t produced and lessee is engaged in operations, then lease continues. Kininmonth problem fixed

• To fix with farmers, give them peppercorn and amend the terms

• With a top lessee, stuck in the land titles system because registration order wins, bound by original deal wrt top lessee

Kininmonth Fix #2

CAPL 99 – Change the habendum

TO HAVE AND ENJOY the same for the term of *** ( ** ) years (the “Primary Term”) commencing on the effective date hereof and continuing to the end of the Primary Term and so long thereafter as Operations are conducted within or upon the Lands, the Pooled Lands, or the Unitized Lands, with no cessation, in the case of each cessation of Operations, of more than 90 consecutive days.

“Operations” means any of the following with respect to the Lands, the Pooled Lands, or the Unitized Lands:

(i) drilling, testing, completing, reworking, recompleting, deepening, plugging back or repairing a well or injecting substances, by means of a well, in search for or in an endeavour to obtain, maintain or increase production of any Leased Substances;

(ii) the production of any Leased Substances;

(iii) the recovery of any injected substance;

(iv) those deemed Operations pursuant to the Clause herein entitled “SHUT-IN WELLS”; or

(v) any acts for or incidental to any of the foregoing.

Or could actually say, “…thereafter as drilling, testing, etc are conducted within or upon the lands…”

COMPARE ORIGINAL

To Have and Enjoy the same for the term of 10 years from the date hereof, and so long thereafter as the said substances or any of them are being produced from the said lands, subject to the sooner termination of the said term as hereinafter provided.

Canadian Superior Oil Ltd v Hambly

• Habendum and well completion clause allow drilling over

• Just say it; clearly states that if start a well within term of lease, can drill to completion.

• If Lessee shall commence to drill a well within the term of this Lease or any extension thereof, Lessee shall have the right to drill such well to completion with reasonable diligence and dispatch, and if oil or gas be found in paying quantities, this lease shall continue and be in force with like effect as if such well had been completed within the term of years herein first mentioned.

Cull v Canadian Superior Oil

• Completion is more than a target depth, hit H2S

• Relatively unexplored area so not going to get all equipment ready for H2S unless actually there

• Not unreasonable not to have equipment on site

Canadian Superior Oil v Crozet Exploration

• Does “drilling” require “spudding in”? Had brought in all this equipment, click date, then started drilling. Answer is no.

• The general rule seems to be that actual drilling is unnecessary, but that the location of wells, hauling lumber on the premises, erection of derricks, providing a water supply, moving machinery on the premises and similar acts preliminary to the beginning of the actual work of drilling, when performed with a bona fide intention to proceed thereafter with diligence toward the completion of the well, constitute a commencement or beginning of a well or drilling operations within the meaning of this clause of the lease.

• If the lessee has performed such preliminary acts within the time limited, and has thereafter actually proceeded with the drilling to completion of a well, the intent with which he did the preliminary acts are unquestionable, and the court may rule as a matter of law that the well was commenced within the time specified by the lease….

• Infer intention from actual completion; if someone has actually completed, that’s retrospective circumstantial evidence to infer that had intention

• TEST

o 1. The preparatory steps or actions must be taken in good faith with the intention of completing the drilling of an oil and/or gas well.

o 2. The preparatory steps or actions must be taken with reasonable diligence and dispatch tested by the principles of good oil field practice.

o 3. The preparatory steps or actions must not simply be minimal

• Get expert evidence (relevant but not determinative, judge decides reasonableness)

• Even though started a week before click date, that’s industry practice

CAPL 2013 actually says must spud a well

P Burns Resources Ltd v Lock, Stock & Barrel Co 2013 ABQB

• If any time after expiration of term production of leased substances has ceased and lessee shall have commenced further drilling or working operations within 90 days after cessation of said production, then this lease shall remain in force so longa any drilling or working operations prosecuted with cessation of more than 90 consecutive days.

• On evidence – NO production

• Operations: require more than a bare minimum of effort (compare Crozet)

• On evidence: nothing more than minimal here – no operations, hence lease terminated (only shut down and started up pumping record or well servicing activity.) Just turned pump on and off

Bearspaw Petroleum Ltd v Encana Corp

• "so long thereafter as the leased substances or any of them are producible from the leased area“

• Means something less than capable of immediate production, with more to be done before than turning on a valve.

• Lessee wins, lease continues

Shut-In Royalties

Normally: require production to continue lease in secondary term

May make more economic sense for lessee NOT to produce than to produce; “shut-in” the well

Lease – may permit secondary term to continue during period that well is shut-in (shut-in royalty)

In effect: “deemed production”

Problem: ensuring that the Lease continues, even though there’s no production

Economic Circumstances

1) Chemistry: gas is less dense, less valuable and less chemically rich than oil. Tend to see more shut in with gas than with oil. Production of gas can also be more expensive than with conventional oil. Requires a lot of infrastructure to produce gas. Cost of production can exceed cost of shutting-in.

2) Technology: gas not sold at wellhead; infrastructure/capital investments required

3) Supply: relatively abundant, especially after shale revolution

Canadian Superior Oil Ltd v Murdoch

• Well completed in primary term, no production, shut-in royalty paid after click date

• Lease not preserved, pay too late, habendum allows lease continue if substances “are produced”

• Nothing happened after well completed, so termination because nothing for production

• After click date, both sides assumed lease still good, dispute validity of lease on grounds other than the expiration of the primary term before payment of the shut-in royalty

• Later, Kininmonth decided and would have invalidated the lease

• No estoppel

Canadian Superior Oil Ltd v Hambly

• Similar to Murdoch but gap comes later

• Operations start in primary, drilling completed after click date

• A week passes and then shut-in royalty paid

• Well does not continue into secondary term

• Look at habendum, nothing on operations or drilling

• Payment made too late

Kissinger Petroleums Ltd v Keith MacLean Oil Properties Ltd

• If any well on the said lands or on any spacing unit of which the said lands ... is shut-in ... as the result of a lack of or an intermittent market, or any cause whatsoever beyond the Lessee's reasonable control, the time of such interruption or suspension or non-production shall not be counted against the Lessee....

• Fixes lease, time you’re shut in doesn’t count against the lessee

• Problem because habendum says lease continues if deemed production

• Found, close enough, lease could survive – you’re looking for deemed production, but close

• Could say deemed deemed production

• Burden of proof on lessee that they fall within proviso clause to excuse the non-production of these wells

• It is for the defendants to show that there was a lack of market or transportation facilities in order to "save" the leases.

• Shut-in royalty should be paid on or before, but not grossly before the well is physically shut in

• as a result of a lack of or an intermittent or unecomonical [sic] or unprofitable market or any cause whatsoever beyond the Lessee's reasonable control, the Lessee may, on or before such anniversary date pay to the Lessor in the same manner provided for the payment of delay rental hereunder, as royalty, an amount equal to the annual delay rental payable hereunder, and if such sum is so paid, such well or wells shall be deemed to be a producing well or wells

• the shut-in gas royalty clause should be construed to permit the lessee to tender the shut-in gas royalty after he has reasonably made the decision that the well must be shut-in but before he has taken the final act of shutting-in the well. This would permit a lessee to anticipate the need for the payment during the process of testing and completing the well and make it possible for him to establish constructive production while the lease is still in effect.

• Makes no sense to wait until minute shut in at the exact time. If you wait until later too late, can have period too late, so makes commercial sense to make payment made while lease in good standing. Lease survives

Issues and Burden of Proof

Snell v Farrell

In a civil case, the two broad principles are:

1. That the onus is on the party who asserts a proposition, usually the plaintiff.

2. That where the subject matter of the allegation lies particularly within the knowledge of one party, that party may be required to prove it.

Durish v White Resource Management Ltd

• Well put in production, in primary term so no Kininmonth problem

• After end of primary term, well shut in

• Still within a year of the anniversary of the lease, so shut in didn’t cause any trouble as long as shut in royalty payment made before expiration of the year in which shut in occurred, no problem.

• Lessee [allegedly] credited Lessor’s account with the amount equal to delay rental before click

• Lessor was not advised of this credit.

• January 16, 1987: Lessee tendered payment by cheque to Lessor.

• “…shut-in, suspended or otherwise not produced during any year ending on an anniversary date, the Lessee shall pay to the Lessor at the expiration of each such year, a sum equal to the delay rental…”

• Failure to pay on time is termination as a matter of law, but other interpretations allowed

• At = on or before

• Obiter in the case that says it’s just close proximity but careful using this obiter.

• April 30 payment: need to inform lessor, had witness who made ledger entry but not called

• January 16 is not “at” May 27.

• Kissinger:

o the Lessee may, on or before such anniversary date pay to the Lessor in the same manner provided for the payment of delay rental hereunder, as royalty, an amount equal to the annual delay rental payable hereunder, and if such sum is so paid, such well or wells shall be deemed to be a producing well or wells on the said lands

• the Lessee shall pay to the Lessor at the expiration of each such year, a sum equal to the delay rental hereinbefore set forth and each such well shall be deemed to be a producing well hereunder, provided that this clause shall not impose an obligation upon the Lessee to make the payment of a sum equal to the delay rental unless all wells on the said lands are shut-in

• Kissinger is a choice, language of 50s, if don’t do anything, lease terminates

• Durish, if all shut in, then obligation

o Reasonable to argue that it imposes a legal requirement on the lessee

• But Courts disagree (Freyberg)

o What reported Canadian decisions disclose is that when a lessee does not perform — in the sense of drilling, paying or producing — and any term is dependent on such performance, the lease terminates

o But: Not fair to person drafting lease, trying to get obligation, creates a breach of contract rather than fails then terminates

o Courts taking more of a common law approach, but maybe should be taking a look at the exact words of contract

o If you’re the draft person must just make sure of what you mean

• Shut in in accordance with good oilfield practice

• Shut-in because lessee owed $151k to gas pipeline comp, and the amt of money was in agreement

• Price had gone up, lessee simply had to pay

• Dispute between lessee and third party not count as shutting in with good oilfield practice. Lease not saved through payment of shut-in royalty because first not made, second too late, and neither can lessee rely on sub-proviso because not in accordance with good oilfield practice.

Omers Energy Inc v Alberta (ERCB)

• ERCB is entitled to interpret lease between lessor and lessee on whether or not lease terminated because needs in order to, ex, issue well licences

• Regulator decision not binding in the same way superior court decisions are

• When CA looks at ERCB interpretation, standard of correctness, not deferential/reasonableness

• On test:

o Is what they did operations? (Crozet)

o If so, was there a gap for more than 90 days?

• In this case, May-Nov is more than 90 days, so no operations

• Go to suspended wells clause

• Must be “capable of producing the leased substances or any of them”

• Mere puffs here, 3 minutes is not a long time

• Not capable of production here

• Go to suspended well clause

• Capable of producing – interpret in a commercially reasonable manner

o Meaningful volume: reasonable expectation of profit

▪ factors – Clifton v. Koontz -

• depletion of the reservoir

• the price for which the lessee is able to sell his product,

• the relative profitableness of other wells in the area,

• the operating and marketing cost of the lease,

• his net profit,

• the lease provisions,

• a reasonable period of time under the circumstances, and

• whether or not the lessee is holding the lease merely for speculative purposes

• Basic idea is show enough produced so makes commercial sense to keep developing this

▪ Can’t read in “paying quantities”

▪ Commercial viability

▪ Not mere physical capacity to produce some de minimis bits

▪ To determine commercial viability, need some evidence, call in experts to talk about market conditions, cost to put in infrastructure

o In present configuration

▪ not capable – if at same time require an “operation”

▪ otherwise defeat 90 day provision – habendum & clause 3

• You didn’t have well that was properly shut-in

• You didn’t have well being saved under that interruption provision under habendum

• The lease terminated

• Because it terminated, well licenses had to be suspended because Omers no longer had legal title to the properties that were the subject of the well licenses

549767 Alberta Ltd. v. Teg Holdings Ltd

• Shut-in, suspended or otherwise not produced as a result of, a lack of, or an intermittent, market or lack of transportation facilities or any other cause whatsoever beyond the Lessee's reasonable control

• Not a lack of transportation facilities if there’s a disagreement like on where to locate compressor

• Business dispute not count as lack of transportation

Common Carrier Application

OGCA S 48(1)

55(3) If the Regulator has declared the proprietor of a pipeline to be a common carrier and agreement cannot be reached between the proprietor and a person desiring to have the person’s gas carried in the pipeline as to the tariff to be charged for the carriage, either party may apply to the Alberta Utilities Commission to fix the tariff.

Assuming dealing with largely the same stuff with common carrier applicant not having say polluted, so long as not dealing with different types of substances that are going to downgrade quality, can’t discriminate

Common carrier entitled to be paid for carrying the natural gas of the third party. Step 1 is negotiate a property tariff, if not, there’s a dispute resolution provision. You don’t go before regulator, go to Alberta Utilities Commission. In that tariff, there will be some compensation for investment of party that built the pipeline, some overhead, some return on investment; all built into the price.

If lessee claiming no transportation, then it’s open to lessee to make a common carrier order application

Lack of Market

Same case

From 1987 - 1990, volumes of gas treated at nearby Plant - less than its capacity. However, because of problems with the Plant, the Plant could guarantee processing of 80 % of third parties’ gas, although there was no evidence that, in fact, the Plant ever failed to process 100% of third parties’ gas.

If you can guarantee 80% of what you’re producing (that’s all you can guarantee the 80%), then take a discount on the remainder. Can sell 100%, have firm price on 80% and discount on 20% subject to contingencies, which might not be processed by the processing plant, may not be in a form usable by end user. Expert evidence could take a 10% discount. Point is you can sell 100% of your gas. You’re not 100% of price, but it’s a live market. It’s not unreasonable to trade or produce into this market.

Not necessarily best deal from lessee, can’t hold out and say lack of market because not getting firm price for 100%. Must approach from reasonable person perspective. Can’t say there’s no market if you have that available out there.

No lack of market in this case for NG to be traded into. Neither one of these two exempting conditions applied. Meaning that shut-in not justified. Meaning lease terminated back in 1987.

Freyberg v Fletcher Challenge Oil & Gas Inc

• Voyager holding all three pieces of land, one owned by Lady F

• Drilled on Lady F’s land, showed that it could be productive but shut in

• Instead of completing well on Lady F’s land and putting it on production, Voyager drilled a new well on s 33 (1988), this well was taken into production on 33, produced until 1991. Throughout period, Lady F’s well is shut in, producing nothing

• Also had to construct a spur line (pipe line) to s 34 pipeline to carry to processing plan in section 1 on township 37

• Would have been easier to do the spur line between Lady F and 34, but developed 33 instead

• Time passes, eventually, 1999, production form Lady F, excellent well.

• Apparently the geology was such that there was an upward tilt towards her land. So geologically, she was in a slightly better location than other two wells because likely upward slope of her land. She was able to catch extra NG that leaks from other two properties.

• Lady F sues, takes position that as of 1987, there was a market for this natural gas. Must have been because Voyageur was producing out of a couple of wells and went through trouble of drilling a new well, so there must have been

• Shut in royalty clause here provides that it’s justified only if there is a lack of economical or profitable market

• Then shut in well is deemed producing. But flip side is if you have an economical profitable market, the conditions for the application for this clause not met. If not met, then you don’t have a producing well in secondary term and if you don’t have production or deemed production, you have termination.

• Her claim was there was an economic market there, this clause could not be satisfied by lessee simply by paying shut in royalties. Then lease terminated as of commencement of economical market in 80s

• Oil company has burden of proof. If a lessee wants to rely on exemption from production, it will have to establish that conditions set out in the lease are satisfied. Even though Lady F is P, onus on OilCo

• Test to determine an economic and profitable market

o Reasonable lessee test: whether or not, based on information available at the time, a prudent lessee would have foreseen profitability.

o *Objective* standard influenced by

▪ Character and nature of lessee

▪ Reasonable expectations of the parties (hard to know what that means): evidence that lessee foresaw profitability at the relevant time - major component ; if lessee foresaw profitability, unless its foresight was based on error or oversight, will be practically conclusive (this is subjective)

o Experienced lessee has a higher standard than inexperienced lessee (but who is inexperienced)

• Economical or profitable market, from and after 1987?

o Evidence – overwhelming – that WAS an economical or profitable market

▪ Didn’t need expert evidence

• Implied obligation to produce? – engages default & remedy provisions?

o When a lessee does not perform, in the sense of drilling/paying or producing, and any term is depended on such performance, the lease terminates.

o No implied term in secondary term of lease that there is an obligation to pay shut-in if there’s a lack of economical or profitable market.

o Does not engage default and remedy provisions

• Clause 23 says no implied term, entire agreement clause

• Lady F not estopped from asserting lease termination because received shut-in royalty payments because no detrimental reliance. Must have made unequivocal election with knowledge of not only her right to elect but also of the facts underlying the election. Furthermore, the respondent must rely on this election to their detriment. The issue in this case can be resolved by reference to one factor: the lack of knowledge of the appellant. When Lady Freyberg received the payments, she did not make an informed and unequivocal choice.

Kensington Energy Ltd v B & G Energy Ltd

• Dry hole, not capable of producing

• Well completion: And further always provided that ... if drilling or working operations are interrupted or suspended as the result of any cause whatsoever beyond the Lessee's reasonable control or if any well on the said lands or on any spacing unit of which the said lands or any portion thereof form a part, is shut-in, suspended or otherwise not produced for any cause whatsoever which is in accordance with good oil field practice, the time of such interruption or suspension or non-production shall not be counted against the Lessee

o Kissinger had lack of economic or profitable market so deemed deemed production

o In this case, where do have a dry hole not capable of producing at all, do you have a shut in in accordance with good oil field practice? Morally no, you’re not shutting it in for good oil field practice. The appropriate next step is not to leave it shut in, should do reclamation.

• Oil company duly made shut in royalty payments in correct amounts to correct person

• Then drilled another well to another formation (can drill to any formation, need Reg approval)

• Shut in Royalty: Subject to the provisions hereinbefore set forth, if all wells on the said lands are shut-in... during any year ending on an anniversary date, the Lessee shall pay to the Lessor at the expiration of each such year, a sum equal to the delay rental ... and each such well shall be deemed to be a producing well hereunder, provided that this clause shall not impose an obligation upon the Lessee to make the payment of a sum equal to the delay rental unless all wells on the said lands are shut-in ... for a period of ninety (90) consecutive days in any such year.

o The mere payment of shut-in royalties continues the lease.

o Does this clause take subject to well completion clause?

▪ “subject to” doesn’t only refer to well completion

▪ “good oilfield practice” provision concerns suspending time to excuse lack of production; Clause 3 concerns deeming production by making payments - no reason for former to limit the latter – talking about two different things. Well completion clause is talking about a different activity

▪ habendum provides that the lease will stay in force "so long as the leased substances are produced", and Clause 3 states that if the delay rentals are paid, then the well is "deemed to be a producing well“; no reason for a very minor part of the well completion clause to define scope of another clause which has the purpose of continuing the Lease as a result of deemed production – issue of what counts as deemed production is essential from standpoint of lessee. The idea is: you’ve got all of these various provisions that shut-in provision is subject to. The well completion clause would be a proviso to a proviso. Why would this little parenthetical remark be a decisive factor in critical issue of lease production? Doesn’t make sense for little issue to govern really big issue of production in the secondary term.

▪ circumstances giving lessee the benefit of not having time count against it are specifically limited to good oil field practice; if parties meant to limit the right to obtain deemed production to the very same circumstances as in the well completion clause, make express (clauses in other leases do)

• In the Kensington case not a result of lack of economical market, result of not able to produce

• If you want to qualify shut-in, just ad din some language.

• You have a naked shut-in clause.

• Given that, by literally following the express terms of contract, have complied with terms of shut-in royalty clause. So lease continues, have deemed production.

Kininmonth

• One of reasons in this case why lessee failed to get production in primary term was because needed to do some fracking.

• Didn’t get the fracking equipment onto lands on time because there was a road ban in place. The municipality had a rule that vehicles over specified weight couldn’t be on roads in spring because damaged roads

• Everyone knows there’s a road ban in AB in spring time

• Could have asked for exemption and would have gotten it, didn’t ask

• Distinguish from Cull because area was still relatively unexplored and too expensive to bring H2S stuff

P. Burns Resources Ltd v Locke, Stock & Barrel Co

• Failures: not a result of any cause outside of lessee’s control

• on evidence – NO production (vs. reliance on Omers when there’s no Omers language)

• operations: require more than a “bare minimum of effort” (compare Crozet)

• need: more than minimal efforts – directed at production of oil

• on evidence: nothing more than minimal here – no operations, hence lease terminated (only shut down and started up pump occasionally; no record of well servicing activity)

Shell Oil Co v Gunderson

• Lease of SE quarter section only, not of the other three

• Before click date, lessee of SE provided pooling notice to lessor, to pool with NE

o Need full spacing unit for NG

• Interpretation: (c) "Said lands" shall mean all the lands herein before described or referred to, or such portion or portions thereof as shall not have been surrendered.

• Pooling clause: you want what you do on pooled lands to count for your lease, that’s where you want to end up. Problem: what counts as conduct deemed to be from leased lands? Drilling operations. Were drilling operations going on at time of pooling notice and shut-in royalties paid? No. The well was already drilled. It was done. Shut-in. Do we have production from pooled lands? No. This is a problem with the pooling clause. Doesn’t go on to say or shut-in royalties.

• When does a shut-in royalty give you deemed production? When you pay, as a royalty, sum of $50 for all wells on said lands. What counts as said lands? The lands described at the front of the lease. The SE. In the lease, the said lands are the lands that the lessor is leasing, the SE. The pooling clause, while it might give you deemed production, the pooling clause itself doesn’t give you deemed production for wells not on leased lands. When look at shut-in royalties clause, said lands only equals SE. Lease terminates. Shut-in royalty payments basically a legal nullity. Did not continue to lease. Paid in relation to the wrong bit of land.

Pan American Petroleum Corp v Potapchuk

• Lease 1 like Gunderson, so if you pool, lose because of Gunderson

• Lease 2, toplease

• Both registered at LTO

• A letter of agreement signed by lessor, amending pooling clause by way of separate agreement

o May 20, 1960: “Lessor” confirmed the following to the Lessee –

o “I have been advised that it is your intention to pool the lands comprised in [my] Petroleum and Natural Gas Lease ... with certain other lands to form a spacing unit ....

o “Please be advised that I consent, as Lessor, to such pooling and in the event that production is obtained in any well drilled on the lands comprised in the spacing unit, agree to accept royalty on the basis set forth in Clause 3 of the said lease, that is the proportion the acreage comprised therein so pooled bears to the total acreage in the spacing unit. In the event that production of natural gas is encountered in any well or wells drilled on the lands comprised in the spacing unit but not on the lands comprised in the said lease, and such production is not sold or used because of unavailability of a market therefor, I agree to accept as royalty the sum of Fifty ($50.00) Dollars or the annual acreage rental in the said lease reserved, (whichever is the greater amount), each year during the time such production is not sold or used and it shall be deemed that during the time in respect of which payment of such amount is made production is being taken from the lands comprised in the said lease and that such payment is received as royalty paid in respect of the said lease.”

• Fixed except for land titles problem

• Top lessee has no privity to this agreement, not bound by new agreement

• Meaning that when Gunderson style lease terminated, top lessee is now the lessee.

Remedies

Cause of action: Trespass, lessee leaves after lease terminates; conversion

When have tenancy in common, other tenants have right to give permission to enter (LF was not the only mm owner). Conversion could work on LF case because when OilCo producing NG at surface, converting personal property (assuming lease terminated) of NG owner.

Surface lease may not be dependent on the continuation of the OG lease. Possible to have surface lease continue with termination of mm lease.

Williston Wildcatters suggests can have trespass of mm only.

Xerex Petroleum says trespass available to protect profit a prendre. Can bring trespass at common law

Trespass

Osbourne – Law of Torts (Irwin Law)

Trespass to land provides a remedy for the direct, intentional (or negligent), and physical interference with land in the possession of the plaintiff. It is actionable without proof of damage. Trespass to land is committed in three ways. First, and most commonly, it is a trespass to enter personally onto land in possession of the plaintiff without permission ….Second, it is a trespass to place objects on the plaintiff’s property….Third, a trespass may arise when the possessor revokes a visitor’s permission or licence to be on the property. If the visitor does not leave the property within a reasonable time, he becomes a trespasser….

The intrusion onto the land must be direct.

The defendant’s interference with the land must be physical.

Conversion

Osbourne –

There are three central elements to the tort of conversion. First, it protects persons who are in possession of chattels or who have a right to the immediate possession of chattels. Second, it is restricted to the intentional interference and dealing with chattels….Third, an act of conversion is one that so seriously interferes with the plaintiff’s rights to the chattel that the defendant may, in fairness, be required to pay its full value….The payment of damages equivalent to the full value of the chattel is said to effect a forced judicial sale of the chattel to the defendant. This explains why orders for the return of the chattel are not made in a conversion action. The defendant is treated as if he had bought the chattel and he can keep it.

SCC – Boma Manufacturing, 1996 (quoted in Freyberg): “wrongful interference with the goods of another, such as taking, using, or destroying these goods in a manner inconsistent with the owner’s right of possession”

Freyberg, Kent J: D has wrongfully dealt with the chattel, in a manner inconsistent with or infringing upon the title of the owner – this is the Freyberg damages assessment. This is conversion.

defence & time period(s) for calculating damages

the problem of consent/ “leave and licence”: “The lease is terminated, but you may stay on the lands/you may continue producing.”

If estoppel applies, lease continues because lessor can’t terminate it. Estoppel preserves lessee’s entitlement to be on the land. You can be granted privilege of entering premises where your acts would otherwise be trespass to land. In situation where lease has terminated, the lessor can say, even though your lease is up, no longer binding, you can still stay on the land. Don’t have lease, but could still have permission to stay on the lands (lease and licence). Why? Maybe because no better offer out there, maybe royalties coming in…maybe status quo just fine.

effect of leave and licence: no tort (have permission)

re whether leave & licence established – factors:

knowledge of plaintiff (at least of issue)

conduct of plaintiff

conduct of defendant (lessee)

express agreement

conduct

acquiescence

combination

- Estoppel acts as a sort of property right because can’t be booted

- Leave and licence is a defence to a tort claim. You don’t have any right to the land, but neither are you doing anything wrong on the land because you’re allowed to be there.

Timeline

Initial period: parties don’t realize lease terminated. No leave and licence here because lessor hasn’t given lessee permission to stay on land because not know

Lessor realizes there’s a problem: not sure if leave and licence possible at this stage because lease termination has not been legally determined. LF suggests not possible until final resolution of lease termination issue. Wildcatters suggests maybe leave and licence before final resolution because you don’t know what your rights are. Most important: what did lessor do? Say? What behaviour crosses line between lessor and lessee? Is there behaviour that communicates can stay on land in spite of issue?

Lessor sues: same issue: is the Lessor allowing the Lessee to remain on the lands, allowing the Lessee to continue producing? Doesn’t suing mean telling lessee to get off land? Just because you’ve commenced litigation, that by itself not mean that leave and licence is terminated (Williston Wilcatters), but LF “unrelenting pursuit of that claim through the courts”.

Judicial determination(s): if FOR Lessor, could then permit (give leave and licence to) Lessee to remain on lands and produce – e.g. pending appeal. If initial decision(s) against Lessor, could NOT provide leave and licence, since court has (to that point) confirmed that Lease has not terminated

Measure of Damages

For the period of tortious action, no leave and licence

BUT, typically producing during this period, so P receives royalties and therefore not wholly disadvantaged

Usually compensatory damages in torts

BUT if D makes a profit, then need restitutionary measure (reverse/strip unjust enrichment) – no juristic reason because not have law on your side to get it

Overarching principle: just and equitable for all parties (Weyburn v Sohio)

Restitutionary Measure

1. “Very harsh”: for highly reprehensible conduct. Value of product taken, no deductions for transportation, processing, or production.

a. taking advantage of Lessor

b. bad faith

c. dishonesty, fraud

d. wilfully ignoring P’s rights

e. Measure: 100% value of production

2. “Harsh”: reprehensible conduct. Sufficiently bad, so that there is no concern about over-compensating P

a. value of product taken, deduction post-severance; getting to market

b. Ex: oilco keeps transportation costs only

3. “Mild”: non-reprehensible conduct; innocent

a. value of product taken, deductions post-severance AND pre-severance – production & processing (+ return on capital?)

b. The authorities make it difficult to draw much distinction between the “mild” form of restitutionary damages and the compensatory measure of damages. In general, it may be said that the courts will gravitate towards a restitutionary approach where there is something in the Defendant’s conduct making it proper not only to ensure compensation to the Plaintiff, but to strip away from the Defendant any possible reward of its wrongdoing

c. 100% of value of production – [transportation + processing + production costs + [it appears] (z% x production costs)]

4. “Mild”: on evidence – P NOT produce product itself; necessary to rely on production by third party best evidence of actual loss: bonus + royalty

a. LF will enter some lease with another oil company.

b. She’s just out difference from what she god and what she could have gotten if she had left immediately after lease terminated.

c. Suppose situation like in LF: lease terminating, royalties paid until the very end. So trespassing, but paying while trespassing because believe still in area. Best royalty/bonus.

d. When calculating LF’s damages, not gonna get 30% for trespasser. They’ve already paid her 15$, she can pick, doesn’t get paid twice. If ongoing payment by trespassers.

e. Use expert evidence to figure out the bonus should have gotten

Lac Minerals v. International Corona Resources

• Lac took information in confidence and takes interest in self

• Constructive trust imposed

• Corona gets mines back from Lac

• Lac spend multimillions to develop mine

• Must be a set off to amount owing to winner related to amount invested by bad guy

• Because corona would have had to spend it to develop the mine

Republic Resources v Ballem

• No production, well shut in

• Lien not available to lessee

• Surface and mm owners different

• Point here is that lessee wasn’t contractually obligated to dig the hole and put pipe in. It’s a choice, a privilege

• Not that farmer contractually entitled to have pipe in the ground

• Lessee chose to put pipe in the ground

• No opportunity for lessor to reject

• Up to lessee to decide what it would do

• Given that some money has been spent to put some pipe in ground?

• Lessor who gets quasi benefit to lessee who’s out of pocket

• The oil company had drilled hole with zero production, wouldn’t look for lessor for compensation

• Falls on oil company

• If you look at expectation of parties on business, and policy, makes more sense to put risk on lessee than lessor

• In this case, have deprivation, maybe have enrichment, there’s no reason to pull that enrichment back from lessor to lessee

• The enrichment is not unjust

• Isn’t that inconsistent with Weyburn v Sohio? In that case, lessee was getting a sort of unjust enrichment claim. Why not here. There was production, actual benefit going to lessor, there were royalties being paid

• After the termination of the lease, after the judicial determination of determination of the lease, possible to continue to compensate lessor from well

• Weyburn and Sohio case not just a hole in ground without oil

Montreal Trust v. Williston Wildcatters: (2004)

• lease – terminated for lack of production in secondary term – gap in excess of 90 days (no “operations”)

• Case on interruption clause

• Those clauses typically work: lease continues while operations (like production or just include drilling and reworking operations)

• Two problems: 1) de minimis operations, not counting as operations, insufficient, not conduct taken for actually getting well to produce. Like Lock stock and barrels 2) the interruption can only generally be 90 days max. Lease continues with no interruption of more than 90 days.

• If you do nothing for more than 90 days, then you’re not protected by that clause

• In this case, operations separated by days in excess of 90 days so lease terminated

• Insofar that anything that could count as acts of operations, in excess of 90 days

• No one realizes lease termination right away, still, trespasser so damages owed; but good faith trespasser, will be reflected in the damages amount

• Didn’t know terminated lease for a while, but when did, let the lessee sit on the land and produce, so had leave and licence, therefore there’s a defence, and no damages to be paid

• s/c not automatically mean end of leave and licence, so no damages once proceedings start

• Good faith trespasser therefore mild rule. Two approaches:

o 1) suppose you’re dealing with sophisticated lessor, could have taken over operation of this property. If that’s so, use a mild approach based on that diagram with the circle and arrows. Start with 100% of value. Must be some deduction for production, if you were paying for this work, you would have to pay for this production. 100% minus marketing, processing and production cost. What you get as damages, 100%-all costs, that’s what you’d get if you were doing it on your own. Applies for sophisticated lessor.

o 2) If evidence is that the lessor would have been unable to develop the lands for self, that second type kicks in. Best you could have done is what you could have gotten in market place if you had auctioned off property to highest bidder. Best bonus and royalty.

Lady Feyberg (Damages): (2007)

• First period: no leave or licence, didn’t know

• Second period: no leave or licence, did not acknowledge or allow oilco to continue production. Took royalty payments but not enough

o Had she tried injunction, wouldn’t have worked. Oilco thought they were in the right, and the injunction would only have been interim and must show irreparable harm

o Case different because she’s fighting, the case above they were lazy

• Third: Still fighting when go to CA, no leave or licence, trial decision had been against her, no ll

• Fourth: denied leave to appeal to SCC, so no leave or licence, Oilco finally leaves

• Finally, production of gas with her licence, then shut in by her demand.

• Ended up settling, so not sure how go. She couldn’t have produced on her own, though, but there was a proven resource.

Breach of Contract

If you are pursuing a lessee after the contract is terminated, must do so in tort or another non-contractual basis. If lease still alive, look for breach of contract. With breach of contract, can work with the notice of default clause (ex: you have x days to correct the default). If breach contract with forfeiture as possible outcome, relief from forfeiture may exist. Forfeiture may be penalty for breach of contract.

Albrecht v Imperial Oil: (1957)

• Offset well clause vs capture by third party – can contractually mitigate rule of capture

• Say have neighbor drills a well, and lessee in first of a five- or ten-year term

• If no contractual means of hurrying the lessee up, neighbour could drain the whole well, and if it went under your land, you would lose all of your oil

• Albrecht is lessor of land, Imperial Oil is lessee

• In the event of commercial production being obtained from any well drilled on any drilling unit laterally adjoining the said lands (NSWE, not diagonal, not far, must have one full side adjoining other) and not owned by the Lessor, the Lessee shall commence, within (6) months from the date of such a well being placed on production, the drilling of an offset well on the drilling unit of the said land laterally adjoining the said drilling unit on which production is being so obtained, and thereafter shall drill the same to the horizon in the formation from which production is being obtained from the said drilling unit; Provided that if such well drilled on lands adjoining the said lands has been proved to be productive primarily or only of natural gas, the Lessee shall not be obligated to drill an offset well unless an adequate and commercially profitable market for natural gas which might be produced from the offset well can be previously arranged and provided.

• Commercial production shall mean the output from a well of such quantity of the leased substances or any of them as, considering the cost of drilling and production operations and price and quality of the leased substances, after a production test of thirty (30) consecutive days would commercially and economically warrant the drilling of a like well in the vicinity thereof.

• Albrecht owned s 6, neighbor owned s 7, drilled on s 7

• At 30 days, looks great, but a month later, NG started producing with water and then by 6 months, watered out

• Argument was that at six months, there was no commercially profitable market for natural gas, so not obligated to produce. – INCORRECT

• The NG obligation relates to the 30 days, and once that occurs, must consider commercial production. Obligation attaches at the front end, you don’t wait the 6 months to elapse.

• Imperial failed to drill the well within 6 months, breached the contract

• Damages

o For drainage was $11.50 if by the end of the 6 months was to drain anything from the well, that would have been the value

o Cost of drilling the well: not measured – different authorities saying appropriate or not to value the cost of the well

o Position you would have been in: Damages are to put you into the position you would have been in if you had performed your obligations, which would have ended up being zero gain.

▪ BUT also value of the lost opportunity to sell. Albrecht also lost the opportunity to sell the land because Imperial Oil failed to drill

▪ Albrecht had received offers from third parties who would drill immediately

▪ Albrecht offered to buy the lease back for $10k could have sold the royalty interest, but in fact held on to interests (got greedy)

▪ Set at $6k, but no one knows why that number (maybe high enough for Albrecht would not appeal and low neough enough for Imperial Oil not to appeal)

CAPL 99 on Offset Wells

6. OFFSET WELLS

If Commercial Production is obtained after the effective date hereof from an Offset Well then, unless Operations are being conducted on the Spacing Unit of the Lands laterally or diagonally adjoining the Spacing Unit of the Offset Well with respect to the zone or formation from which Commercial Production is being obtained from the Offset Well, the Lessee shall, within the later of 6 months from the date of the Offset Well being placed on Commercial Production or, if such information with respect to the Offset Well is restricted pursuant to any Regulations and such information is unknown to the Lessee, within three months after such information is made public (the applicable date being the “Offset Obligation Date”) (fixes Albrecth, see next slide red text) either:

(a) commence or cause to be commenced Operations on the Spacing Unit of that portion of the Lands which comprises or is included in the Spacing Unit laterally or diagonally adjoining the Spacing Unit of the Offset Well;

(b) pool or unitize that portion of the Lands which comprises or is included in the Spacing Unit laterally or diagonally adjoining the Spacing Unit of the Offset Well, with such pooling or unitization having actual or allocated production from the same zone or formation from which the Offset Well is being produced;

(c) surrender all or any portion of the Lands pursuant to the provisions hereof, provided that the surrender shall include but may be limited to the zone or formation from which production is being obtained from the Offset Well underlying that portion of the Lands which comprises or is included in the Spacing Unit laterally or diagonally adjoining the Spacing Unit of the Offset Well; or

(d) elect, by notice in writing to the Lessor, to pay to the Lessor pursuant to the provisions of this agreement, a royalty which shall be equal to the Royalty that would be payable to the Lessor if the Leased Substances produced from the Offset Well were actually being produced from the Lands, with production deemed to have commenced on the Offset Obligation Date; provided however that, should any Spacing Unit of the Lands laterally or diagonally adjoin more than one Spacing Unit containing an Offset Well from which Commercial Production is being obtained from the same formation, the royalty which the Lessee may elect to pay to the Lessor pursuant to this Subclause shall be calculated on the average of the production from the Offset Wells ....

Notwithstanding anything herein contained, the obligations imposed by this Clause shall be deemed not to have arisen if the Offset Well ceases to be capable of Commercial Production prior to the Offset Obligation Date. (Offset Obligation Date is end of 6 months, so if at that point, if neighbour’s well runs out, then you are deemed not to be in breach of contract. Precisely fixes the Albrecth problem)

1. INTERPRETATION

(b) “Commercial Production” means the output from a well of such quantity of the Leased Substances or any of them as, considering the cost of drilling, completing, equipping and production operations and the price and quality of the Leased Substances, after a production test of suitable duration and nature in accordance with good oil field practice, would reasonably warrant the drilling of a like well in the vicinity thereof; ...

(h) “Offset Well” means any well drilled subsequent to the effective date hereof and producing Leased Substances from any Spacing Unit laterally or diagonally adjoining the Lands, which Spacing Unit does not include lands owned by the Lessor or, if owned by the Lessor is not under lease to the Lessee; ( robber

(i) “Operations” means any of the following with respect to the Lands ...

(i) drilling, testing, completing, reworking, recompleting, deepening, plugging back or repairing a well or injecting substances by means of a well, in search for or in an endeavour to obtain, maintain or increase production of Leased Substances;

(ii) the production of any Leased Substances;

(iii) the recovery of any injected substance; ...

(v) any acts for or incidental to any of the foregoing; ...

(m) “Spacing Unit” means the area allocated to a well from time to time on or in the vicinity of the Lands, for the purpose of drilling for or producing, as the case may be, the Leased Substances as defined by any Regulations ....

Advantage to lessor

Royalties: Nature of Interest

Schlumberger Glossary: “A percentage share of production, or the value derived from production, which is granted to the lessor in the oil and gas lease, and which is free of the costs of drilling and producing.”

type of “rent “: compensation for use of land

type of profit: Berkheiser v. Berkheiser, [1957] S.C.R. 387, Rand J.

“In such cases the title to the substances as part of the land remains in the owner and upon it is imposed the incorporeal right which the termination of the lease, as in this case, extinguishes …. The rents and royalties here are obviously profits and like rent from a leasehold ….”

“in situ” right: Scurry-Rainbow (Alta CA), quoting Denver Joint Stock Land Bank of Denver v. Dixon, 122 P. 2d 842 (Wyo. S.C., 1942):

The right to a royalty interest in oil does not merely attach after the oil has been severed from the ground and has become personal property. It is not merely rent issuing out of the annual produce of the land. It goes further than that. The right, extending as it does to oil which is to come from particular land, extends to and is necessarily connected with the corpus of the land, and is, accordingly, a right which exists in the oil which still is in place, inchoate though it may be, follows it as it comes from the ground and still is attached after it has become personal property. To call it personal property is but emphasizing a particular stage of the right on its way to fulfilment.

A right to royalty is interest in land, described by the ABCAas an in situ right; it’s a real property interest.

Lessor’s entitlement to rent is an in rem right, interest in land.

Royalties – Clauses

old Imperial Lease:

The Lessor does hereby reserve unto himself a gross royalty of Twelve and one-half percent (12 ½%) of the leased substances produced and marketed from the said lands.

CAPL 99:

... the Lessee shall pay to the Lessor a royalty (the “Royalty”) in an amount equal to the current market value at the wellhead of *** % of the Leased Substances sold from the Lands .... In computing the current market value at the wellhead, the Lessee may deduct any reasonable expense incurred by the Lessee (including a reasonable rate of return on investment) for water disposal and for separating, treating, processing, compressing and transporting leased substances beyond the wellhead ....

Royalty value is at the well head, once oil at ground level, but typically don’t sell at the wellhead. Stuff there has impurities so must process and then market. Deducted a percentage of royalty interest. So if you have 12.5% royalty, then you pay 12.5% of the total marketing cost, 12.5% of processing, etc.

Royalties – Deductions

Natural gas used a jumping pound formula – gas not saleable at wellhead, need to deduct downstream costs. Something used by HM for NG leases. Then crown approach started to be used for freehold interests. Originally applied only to Crown NG, but because of some big unitization schemes, you have both crown and freehold interest. The crown approach started to be used for freehold interests, then concept migrated into calculation into NG calculation for all freehold. So this jumping pound approach for all downstream costs became standard in 50s for freehold NG leases as well

deductible costs include:

- all costs to operate the gas gathering and processing facilities during the year (actual costs plus percentage in deemed overhead);

- capital cost allowance – [historically] depreciation at the rate of 1/20th of the cost of all equipment used to make the gas ‘market-ready’, including compressors, gathering pipelines, plant equipment, etc., chargeable annually over a period of 20 years;

- return on capital invested - an annual return of percentage (before tax) of the average capital invested in facilities during that year

+ reduction in volume as processed

Not sold at wellhead, rather, sold at Hardisty, largest place outside of US. Large storage capacity, good place to buy and sell. Delivery point here.

For purpose of NYMEX future market, point of delivery is Cushing, Oklahoma

Or end user –eg refinery – might sell directly to refinery.

Marketer – might sell to some third party. You produce oil, put in pipeline, some third party could just take it and flip it. Sales can occur anyplace, but conveniently at large storage places

Tailgate price: when exist processing plant

Storage facility might be some sort of above ground structure, in AB, storage can be done below ground.

All sorts of places at which value of your product is established at which point you can establish value

Acanthus Resources Ltd v Cunningham: (1998)

• Water had to be separated out after oil at wellhead

• Issue was whether lessor could deduct processing costs

• Oil actually trucked to where sold

• Jumping pound of NG approach used for oil context

Resman Holdings Ltd v Huntex Ltd: (1984)

• WRT NG

• In determining market value costs which are essential to make a commodity worth anything or worth more must be borne proportionately to those who benefit. To put it another way: in the analytical process of reconstructing a market value where none otherwise exists with sufficient definiteness, all increase in the ultimate sales value attributable to the expenses incurred in transporting and processing the commodity must be deducted.

• Downstream costs can be deducted in setting the amount of oil cost

CAPL 99

• If you use this, no problem; Lessee in control position, claiming to have all of these expenses

• Concern that they will inflate value, then keep more in proceeds, diminishing royalties to lessor

• Lessor not in a good informational position

• Doesn’t matter when you do the deduction and application of percentage, get the same answer, just make sure you do both

• Proportional language in Acanthus not matter, at the end of the day, same result if subtract first

• The actual values of the expenses cannot be derived from cases, must actually use the real values

Canpar Holdings Ltd v Petrobank Energy & Resources Ltd: (2011) – Google, not a reported case

• Lessee used some NG as fuel for compressors to aid production. Case suggests it’s industry practice to do so

• Issue

o Was lessee entitled to deduction from the value of the gas used for the compressor? Is the royalty payable net of fuel gas?

o If NOT entitled to deduct the fuel gas from royalties, lease terminates under Notice of Default procedure? Or is relief from forfeiture available? In this case, relief from forfeiture is available. Royalty provision is a contractual provision. This is not an option or privilege situation, actually exists a contractual obligation

3. ROYALTY

[t]he Lessee shall pay or cause to be paid to the Lessor a royalty in cash of Seventeen and one-half percent (17.5%) of the greater of the actual price received (including payments received from any source whatsoever in respect thereof) or the current market value at the time and place (not at the wellhead) of sale of all Leased Substances produced from the lands, all without any deductions ... (subject to d)

Strong clause from pov of lessor. Wellhead price is not what you’re using to calculate. Not acanthus. Has lessee who has used some gas to fuel compression, can fuel deduction/diversion of some product for compressor purposes within scope of royalty clause? Problem is start with strong lessor rights. Gets even worse from pov of lessee, (d). So you have royalty to calculate at place of sale, no deductions, and only one exception we can expressive provide, doesn’t provide for what we need.

b. The Lessor's royalty share of the Leased Substances shall be recovered, produced and delivered to the Point of Measurement by the Lessee, free and clear of charge to the Lessor, ...

c. The Lessee shall dispose of the Lessor's royalty share of the Leased Substances produced from the Lands ratably (proportionally) with its own share of the Leased Substances, but the Lessor may from time to time, upon thirty (30) days’ notice to the Lessee, elect to take the royalty share of the Leased Substances produced and saved from the Lands in kind ...

d. Notwithstanding anything herein contained, the Lessee shall be entitled to use, free from payment of the royalty payable under Clause 3 such part of the Leased Substances from the lands as may be required and used by the Lessee in the Operations on the Lands or lands pooled or unitized therewith – operations means, as defined in lease, drilling testing competing reworking recompleting deepening plugging back or repairing a well. Not on the list.

Expressio unius: if you express one thing, excluding another

If you have a lease that says no deductions except the specified one, that’s excluding other deductions because if you want to permit other deductions, would have said so

The language is not saying you calculate deductions at all; language says you calculate the price at a different point than the wellhead.

Ratably means if there is a sale, sale is proportional to interest, can’t exclude percentage of lessor

A contract speaks for itself. You don’t call in any witnesses to ask what the contract means.

Exception if ambiguity on face of the document. There, can call extrinsic evidence, some evidence

Argument is if ambiguity among deductions, but not the case

If there’s no ambiguity, maybe plaintiff wanted interpretation as this, really getting financial deductions.

When say no deductions, mean non-financial deductions.

That not mean expressly dealing with physical diversions of Ng

Held: lessee not entitled to deduct fuel gas, deductions means deductions, not taking amount of any sort.

d. Notwithstanding anything herein contained, (4) the Lessee shall be entitled to use, free from payment of the royalty payable under Clause 3 such part of the Leased Substances from the lands as may be required and used by the Lessee in the Operations on the Lands or lands pooled or unitized therewith

1. "Operations" shall mean any of drilling, testing, completing, reworking, recompleting, deepening, plugging back or repairing of a well in search for or in an endeavor to obtain or increase production of the Leased Substances or any of them. – easy fix, next time, change definition of operations

Lessor served notice of default

Lessee did not pay royalties on fuel gas, but did continue to pay royalties, net of fuel gas

Trial judge: lessee failed to rectify after notice. There was an underpayment of $147k so the lease terminated

Damages:

disgorge all profits (very harsh rule!) - $1.5 million

+ damage award – 17.5% of profits

total: $1.756 million in relation to the $147k

12x underpayment

Judge said want less intense law. Basically had business dispute and different interpretations, lease terminated, mild rule.

Judicature Act s 10: the Court has power to relieve against all penalties and forfeitures …

Saskatchewan River Bungalows (1994, SCC):

1. the conduct of the applicant

Applicant acted somewhat reasonably.

2. the gravity of the breaches and

Not a big deal, bulk of royalties paid. A

Shortfall is otherwise significant payment, not complete failure to pay. Most of what was owed paid.

3. the disparity between the value of the property forfeited and the damage caused by the breach.

$147k v s$1.8 million. Relieve from forfeiture (but pay what owe). But got to keep the lease.

Even with old clause (18), have breach of K, time to fix and then your penalty for failing to fix is essentially forfeiture, loss of your interest

Here, have true forfeiture that is a penalty for breach of contract

In this case, there is forfeiture. You have breach of contract, if you don’t pay, then will lose house. Forfeited property

Court can relieve against forfeiture if breach against

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