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  1. FROM MOOSEs TO MOLASSES Oil and Gas Rights in Canada: Dealing with the Crown and Freeholders Paul Negenman, Lawyer Lawson Lundell LLP

  2. OIL & GAS RIGHTS IN CANADA • Canada is a bit of an odd place • About 35 million people (less than California) • Most of our landmass is north of the 49th parallel • However over 60% of the population lives south of the 49th parallel (most of the population of Ontario and Quebec) • Contrast this to oil & gas, which is almost exclusively located north of the 49th parallel and far outside most populated Provinces and cities


  4. CANADA - Crude Oil

  5. CANADA - Crude Oil Pipeline

  6. CANADA – Natural Gas

  7. CANADA – Natural Gas Pipeline

  8. CONSTITUTIONAL MONARCHY • Monarchy Part: • Crown is the root authority for all law (laws and statutes) • All tenure ownership originates and ultimately vests in the Crown • Constitutional Part: • The Crown is bound to act in accordance with Constitutional documents • Bound by Rule of Law (not men) • One government cannot bind a subsequent government

  9. CONSTITUTIONAL MONARCHY • The Crown is bound by the Constitutional documents (the “Supreme Law”) • For individuals, the most important document is the Constitution Act (1982)which includes the Charter of Rights and Freedoms • For oil & gas, the most important is the British North American Act of 1867 (now called the Constitution Act, 1867) which divided powers among provincial and federal governments • Very similar in overall structure to the United States Constitution, but some important practical differences

  10. FEDERAL STRUCTURE • Federal Structure • Division of Powers between • Federal Crown • Provincial Crowns (10 Provinces) • We also have 3 Northern Territories (think Puerto Rico) – the “North” • Yukon, NWT and Nunavut • Until recently, Northern Territorial powers were federal and delegated • Very recent changed for the NWT – devolution of powers to Territory • Beginning of Province like status (but not yet a Province)

  11. DIVISION OF POWERS • Sections 91 & 92 of the Constitution Act, 1867, divide the power to govern Canada between the federal and provincial governments • By virtue of the doctrine of “ultra vires” (cannot do something beyond your power) • Courts will step in and find legislation invalid if it impedes upon the powers of the proper level of government (Federal or Provincial)

  12. PROVINCIAL JURISDICTION • Province Governments have primary jurisdiction over oil & gas by virtue of: • “Property and Civil Rights in the Province” (92.13) • “Local works and undertakings…” (92.10) • “Exploration for non-renewable natural resources in the Province” (92A.1) – added by Constitutional amendment in 1982

  13. PROVINCIAL JURISDICTION • These Constitutional powers result in Provinces being the primary owner and regulator of oil & gas activities in Canada. The Provinces are responsible for: • Mineral land tenure (Crown and Freehold) • Surface land tenure (Crown and Freehold) • Land Titles and Land Registry legislation for privately held fee simple lands • General regulation and licensing of oil & gas companies and activities

  14. FEDERAL JURISDICTION • The Federal Crown (Parliament of Canada) has exclusive jurisdiction over certain important matters that impact oil & gas: • “Trade and Commerce” (91.2) – interprovincial and international commerce • “Navigation and shipping” (91.10) • “Sea Coast and Inland Fisheries” (91.12) • “Indians, and Lands reserved for the Indians” (91.24) • Federal Crown also has jurisdiction over the Territories • Subject to recent devolution of powers in NWT

  15. FEDERAL JURISDICTION • With respect to tenure, the Federal Crown retains direct jurisdiction over: • Federal lands (limited impact in Canada) • Administration of Indian Lands (IOGC) • Larger impact • Applies to Treaty Lands • Some devolution of Treaty land administration • Of more direct impact is the Federal power to regulate activities with respect to: • Interprovincial or International pipelines • International treaties (think Kyoto) • Railways • the Territories

  16. POGG - FEDERAL • Matters not coming within the class of subjects described within the Constitution Act, 1867 (new matters) fall within the general Federal Crown power to legislate with respect to “..the Peace, Order and good Government of Canada” • [Aside - Funny how the US Declaration of Independence speaks to “life, liberty and the pursuit of happiness” and we odd Canadians speech to Peace, Order and good Government] • Anyway, POGG exists as a very limited Constitutional doctrine in Canada

  17. NEW MATTERS NOT CONTEMPLATED • More generally, new matters not enumerated under the Constitution Act, 1867 are subject to common law rules of interpretation: • Federal Paramountcy; with • Concurrent Jurisdiction allowed for Provinces • In oil & gas matters we care because many significant aspects of our business are not enumerated in the Constitution Act, 1867. • Especially significant in environmental legislation and regulation. • Creates a large Federal role in environmental regulation • With overlapping Provincial regulation

  18. TENURE • All land tenure and title ultimately vests in the Crown • The Crown holds “absolute title” to land • All Crown grants of a title or estate are subject to the absolute title of the Crown (think right of eminent domain on steroids) • Huge amount of Crown Land in oil & gas areas due to our sparse population • The Crown grants various degrees of title ownership: • Crown lease or license – statutorily granted and subject to changes in legislation • Sale of Fee Simple Title – greatest estate known to man • Historically, a certain amount of fee mineral rights were sold • Today, only surface rights can be acquired in fee simple from the Crown

  19. FIRST NATIONS • The legal concept of absolute title being vested in the Crown provides us with a clear and stable framework for Crown and Freehold tenure • With respect to First Nation Treaty Lands (reservation lands), the system remains somewhat predictable as the rules are generally known and followed and are based upon written treaties between the Crown and the First Nation • The Crown administers Treaty Lands for and on behalf of the Band through Indian Oil and Gas Canada (IOGC)

  20. FIRST NATIONS • Federal Crown has a • “duty to consult”, and • “duty to accommodate” with First Nations inherent in the honour of the Crown • Applies to Treaty Bands and Non-Treaty First Nations • Additional claims to use of broader areas outside Treaty Lands or settled lands - “Traditional Lands” • Not full rights, but some rights • Less certain whom represents the First Nations • Generally don’t buy into the basic idea of the Crown holding absolute title

  21. FIRST NATIONS • Unfortunately, many First Nations are not parties to Treaties (especially in BC) • Less certain rights and obligations • Less certain whom represents the First Nations

  22. THE COURTS • Canadian Courts mirror the Federal division of government • Provincial Courts • Courts of Queen’s Bench • Provincial Court of Appeal • Federal Courts • Trial and appeal • Supreme Court of Canada (SCC)

  23. THE COURTS • General oil and gas matters are almost always Provincial Court of Queen’s Bench issues • Contract Law • Property Law • Issues with respect to Provincial regulators • Federal Courts deal with limited but important matters • First Nations issues • Issues with respect to Federal regulations • Most general oil & gas matters end at Provincial Courts of Appeal • Many First Nation and other Federal Matters end at the SCC

  24. THE PROVINCES • Let’s now take a quick look at the major (and minor) oil & gas producing • Provinces • The North



  27. BC tenure history • Large and sophisticated First Nations throughout BC • Captain James Cook arrives in the late 1770s • British colonies established on Vancouver Island and grow inland • Very little Treaty activity with First Nations • Different approach than in WSB

  28. BC tenure • Almost all oil & gas activity is in the far NE of the Province • Mineral Tenure is almost entirely Crown • Surface is largely Crown, but there is Fee Simple surface title • Very close to Alberta and away from the main population centers of BC • Until recently largely ignored in BC and mostly operated out of Calgary

  29. BC tenure Almost all Crown oil and gas rights.

  30. BC tenure • Land Survey system – and odd mix of two survey systems • Most of Province is subject to the National Topographical System (NTS) • However, a significant portion of the NE producing area was surveyed under the Dominion Land Survey and uses the Township System • Balance of Western Sedimentary Basin (WSB) uses the Township System • Mostly nice tight square spacing units

  31. BC Tenure • Leasing of Crown mineral and surface rights regulated by the BC Oil and Gas Commission (BCOGC) • Fee Simple lands governed under the Land Titles Act and administered by the Land Title & Survey Authority of BC (LTSA) • Mixed Torrens and Registry system

  32. BC Regulator • Licensing and development of oil and gas matters regulated by the British Columbia Oil and Gas Commission (BCOGC) • Single desk regulator • Normal well spacing • ¼ section (1 unit) oil • 1 section (4 units) gas • Normal spacing does not apply to “Unconventional” zones • See BC Drilling & Production Regulation • Set back and inter-well spacing only • Recognition of Horizontal Wells

  33. BC – LNG • The recent dramatic increase in discovered NG in NE BC has lead to possible LNG export from terminals on the west coast via pipelines through the interior of the Province. • Many issues arise • Are pipelines Provincially or Federally regulated • Pipelines and First Nations • Terminals • Kitamat and/or Prince Rupert • Shipping • Environmental Issues

  34. BC – lng Average Reserves per Square Mile (Bcf) *


  36. BC – OIL PIPELINES • The growth of Alberta Oil Sands and Conventional production has resulted in applications for new or expanded pipeline access to the west coast • Enbridge Northern Gateway (to Kitimat) • Expansion of Trans-Mountain Pipeline (to Vancouver) • Please ask President Obama to approve the Keystone Pipeline

  37. BC – Current Issues • Now people in Vancouver (largest city) and Victoria (capital) care • No real history of working with the oil & gas industry • Environmental concerns • Industrial expansion at terminal sites • Possible pipeline spills • Possible tanker spills • “Social License” – whatever that means • What it is in it for BC? • The lack of Treaties for many of the interior First Nations on the pipeline routes are causes of material delays and issues




  41. WSB – Tenure History • Alberta and Saskatchewan are late comers to Provincial status • Part of the NWT until 1905 • Mineral Tenure not transferred to AB and SK until 1930’s • More defined process of settlement • Dominion Land Survey and Township System in place • Focus on Treaties with First Nations • Not complete, but much more complete than BC

  42. WSB – Tenure History • Largest area of Fee Simple Mineral Title ownership outside of the USA • Three main categories of Fee Simple Title: • First - Hudson’s Bay legacy lands • 1670 King Charles II granted all rights within the Hudson’s Bay drainage basin to “The Govenors and Company of Adventures of England Trading into Hudson’s Bay • Oldest stock company in the world • 1869 rights traded back to Crown, reserving 1/20 of surveyed lands • Becomes the Section 8 and 26 fee simple mineral lands • Now widely held by oil & gas companies

  43. WSB – Tenure History • Second - Individuals granted Fee Simple Title • prior to Crown figuring out that “all mines and minerals ought to be reserved” • Into late 1880s • More Freehold Land the farther East you go, due to Canadian settlement patterns • Ergo, Manitoba oil & gas producing areas are almost all Freehold Land

  44. WSB – Tenure History • Third – Railway Land Grants – 1880s • Dominion of Canada broke • Needed to build a nation wide railway • Granted Canadian Pacific Railway (CPR) lands grants (mineral and surface) rather than cash to build (a portion of the payment was in land) • 25 million acres (lots with mineral rights) • Odd numbered Sections within 24 miles on each side of the railway main line (full mineral and surface rights) • Every other section (Checker board) • Some exchanges of land occurred creating massive Freehold blocks of mineral rights • Other railways granted similar rights resulting in more railway mineral fee simple

  45. WSB – Tenure History • Third – Railway Land Grants – 1880s, cont’d. • CPR maintained ownership of these fee simple mineral rights • CPR creates Canadian Pacific Oil and Gas Company to administer these rights • CPOGC becomes PanCanadian Petroleum Limited • Fee simple administration and active oil & gas produces • PCP becomes Encana Corporation • 2014 – Encana Corporation spins off the fee simple mineral rights into a new company – Prairie Sky Royalty Ltd. • Encana received $1.46 billion for 46% of the new company • One of the largest fee simple mineral companies in the world

  46. ALBERTA – Tenure History

  47. ALBERTA – Tenure • Crown mineral and surface rights granted and administered by Alberta Energy • Fee simple lands governed by the Land Titles Act and administered by Alberta Registries (Land Titles office) • Full Torrens system and rights for fee simple lands in Alberta and Saskatchewan • Common law principles on Freehold Lease validity and continuation

  48. ALBERTA – Regulator • Licensing and development of oil and gas matter regulated by the Alberta Energy Regulator (AER) • Single desk regulator • Newly reformed in 2014, some growing pains • Responsible Energy Development Act • Oil and Gas Conservation Act • Oil Sands areas are Crown mineral and are governed by separate legislation (Oil Sands Conservation Act) but are still regulated by the AER

  49. ALBERTA – fun tenure facts • The Alberta Crown has no qualms about taking or revising Crown land ownership, even with respect to existing Crown leases • Deep rights reversion • Shallow rights reversion (in force but enforcement pending) • Oil Sands areas stripped out of existing Crown PNG Leases • Gas over Bitumen production restrictions • Crown expropriation of “pore spaces” within privately held fee simple mineral tenure • Fort McMurray town site vs. existing Oil Sands leases • And we, in Alberta, are the redneck property rights lovers

  50. ALBERTA – NG and Liquids • Conventional NG in crisis due to annoying American gas production • A significant percentage of conventional NG is on freehold lands, which creates tenure certainty issues • Newish play is for liquids rich gas in NW Alberta (Montney) • More likely to be on Crown lands • Capacity issues for processing and transportation out of this area