Oil and Gas – Exam CAN

1) Modern Energy Issuesa) Low oil price

i) Due to the recent American fracking revolution and SA’s refusal to reduce their production rates (they are the lowest price producers, $5-$7 per barrel). (1) SA has been losing market share to Canada over past decades, wants it back(2) Additionally, SA reluctant to let oil prices rise to high –fuels alternative

research/behavior – ex. July 2007 @$140 per barrel decrease in rec driving(3) Low oil price stymies higher-cost competition: fracking, oil sands, etc

ii) BUT, long term market for oil is quite bullish – demand expected to increase over next 20 years along with earth’s population, but not many new reservoirs.(1) Alberta has many long term projects, 30-40 years, so is not drastically

b) Key Canadian Energy Policy assumptions – developing the perfect storm: i) Ass#1 - US would be a ready market for our O&G – supply collapses

(1) Reduced incentive to diversify our trading partners – note, Japan pays $15 pcm gas, UK is $10 pcm, whereas NA market is $4pcm

(2) Canada has higher cost to refine & upgrade bitumen – whereas keystone XL would have allowed access to higher quality upgraders in the US

(3) There is now a huge transportation bottleneck in Cushing. Significant discount on Western Canada Select.

(4) Consequences:(a) Reduction in national wealth(b) Absurd environment consequences: sending oil by trains – less sage

ii) Ass#2 – Pipelines would remain uncontroversial – huge opposition(1) Both an oil and gas problem(2) Pipelines became a target of enviro groups at the same time as bitumen bubble

(a) Spurred partially by Canada’s underperformance n Kyoto and Copenhagen(3) Opposition from aboriginal groups

iii) Ass#3 – Natural gas pricing would remain high - NG price has tanked in last decade(1) In prior decade, NG was main source of gov’t revenue(2) Canada is behind global competitors (Australia, US) in getting first LNG export

termination – investors in Canada concerned that market will be saturated by time Canada gets terminals online

iv) Ass#4 – Bitumen bubble – oversupply in US has crashed price(1) Drop in price has led to overall drop in gov’t revenue, stemming from oil leases ($3.5B

rev in 2011, under $0.5B in 2014)c) Oil price

i) Brent crude – world price for light, sweet North Sea oil. Accessible to world markets. Traded in London.

ii) WTI – Traded in Chicago. Landlocked, therefore significantly lower than Brent.(1) NA generally equipped to import, not export oil

iii) Edmonton Light – conventional oil, priced at entry to Edmonton refinery(1) More expensive than WTI or Brent, more distant from energy markets(2) Transportation differential – the cost to get from source to market

iv) Western Canada Select (Oil sands) – trades at significant discount to WTI(1) Lesser access to world markets(2) Current access to US refineries is reduced by bottleneck in Cushing

(a) Currently no upgrader in Alberta to support refining… therefore, must go through bottleneck in Cushing

v) History of Oil Price(1) 1946-1973 – price very low, $2-$3 per barrel(2) 1973, OPEC cartel formed in response to Yom Kippur war, oil price rises to $40

(a) Results in Stagflation = Economic Stagnation (high oil input price) + High Inflation (cost of goods went up due to high oil)

(b) In response, people became less oil dependent. US also diversified supplyd) Fracking Revolution:

i) Horizontal drilling + Hydro fracturing took off in US in 2012, almost doubling domestic production. Allows access to multiple vertical wells via horizontal drilling, PLUS access to shale formations which contain small pockets of oil.(1) Fracture rock (small exlosions) inject propent (sand) inject backflow water to suck

out oil(2) Also, increased production in Alberta & Saskatchewn from fracking(3) Resulting in decrease in US oil imports: 2009 imports = 10-11M bpd, 2014 imports = 7-

8Mbpd.(4) Note, Canada’s market share has increased to be about 30% of US supply in this time –

pissed off the Saudisii) WEO expects 2035 consumption to be ~103M bpd. Unclear where additional consumption

will come from. Only additional reservoirs are expensive/dangers (ex. Brazil’s Ultra Deep Water Recovery wells). Given that there is no similar fuel to oil, long term outlook is quite bullish.

e) GHG Emissions i) Canada responsible for 2% of global GHG emissions (China 26%, US 18%)

(1) Oil sands account for 7.8% of Canada’s GHG emissions(2) In situ SAGD = 80% of oil sands recovery; Ex situ mining = 20%(3) In situ emits more GHG, but looks better than mining

f) Geopolitics i) Treaty of Versaille resulted in major powers rewriting borders of Ottoman Empire

(1) Made “straight line” borders which put Sunni & Shia groups together.(2) Following WW2 major oil companies also gained favorable concessions from leaders of

countries. i.e. BP in Iran, Standard Oil in SA.(3) OPEC formed out of discontent with these agreements in conjunction with Yom Kippur

war (Western forces supported Isreal). Also, OPEC states began nationalizing/renegotiating concessions in their favor (“changed circumstances” argument to leverage renegotations).

(4) Alberta (a) 1946-73: Ottawa Valley Rule, prohibited importation of oil east of Ottawa Valley.

Forced Eastern Canada to buy Alberta oil to foster Alberta oil development.(b) Note: Alberta used same “changed circumstances” argument to renegotiate its own

concessions in 1973(i) 50% royalty on pre-1974 discovers, 36% royalty on post 1974 discoveries

(c) Canada also nationalized a Belgian oil company and formed Petro Canada(5) NEP: to spread out post-OPEC oil price gains, to secure domestic oil supply, and skim

profits from international oil companies(a) Gross federal tax (8%) on gross oil revenue – a punitive tax on top of tax

(i) Refineries provided subsidies to cover difference between Alberta and international oil price

(ii) Fed gov imposed export tax on NG, to cream off any profits(iii)Fed gov took 25% interest in any international oil company interest(iv)Export restrictions: no oil can be exported unless 15 yr domestic supply secured

(b) Ultimate consequence of NEP: (i) Brought energy investment in Canada to standstill, as significant taxes brought

down incentive to produce1. 1983 - Complete bust of energy industry in Alberta

(ii) Subsidizing international oil import became way to costly(iii)OPEC began to crack, as member countries would exceed cartel export limits

(c) 1984 – Mulroney elected and abolished NEP, dismantled by 1986(i) 1986 – export restrictions lifted and Canadian producers could sell at highest

export price (either domestically or internationally)

(6) 1996 – Fed/prov gov create incentives for re-investment in oil sands(a) Through 2000’s, significant increase in global growth, in conjunction with middle

east disruptions, spike in oil in 2008 ($147 per barrel).(b) High oil prices brought about new, expensive, recovery technology

2) Historical Underpinnings of Energy Law in Canadaa) Fundamental principle: all land belongs to Crown unless expressly granted to settlers

i) In Canada, could not claim land just by settling on itb) 1763 – Royal Proclamation (RP)

i) Until aboriginal lands ceded to Crown, they could not be obtained by settlorsii) Motivated by previous hostilities between settlors and Indiansiii) Also, Crown wanted support from Indian groups in ongoing wars with France

c) Calder 1973 - RP applies to all of Canada. Still aboriginal land unless ceded to the Crown (i.e. via treaty)i) F: BC gov’t claimed RP did not apply to BC, since province not contemplated at time of RP.

BC claimed aboriginal title abolished impliedly by other BC legislation.ii) The origin of aboriginal land rights in Canda

d) Development of Canada land ownership i) 1837 – Colony of NB received beneficial ownership of resources from Crownii) 1867 - Confederation: Provinces retained all public lands and natural resources, except

minor items given to fed gov (i.e. piers, lighthouses, ports etc)iii) 1870 – Canada gov’t purchased Western Canada from HBC for $300K and grant of 1/20 of

land in “fertile belt”iv) 1871 – BC joins confederation. A Macdonald promises transnational railway.v) Sources of non-government held freehold land:

(1) In Alberta, 10% of lands with mines & minerals are freehold. 81% owned by prov gov. 9% owned by fed gov (mostly Indian reserves)

(2)Gov’t grant to HBC (1/20 of fertile belt)(a) 1 ¾ sections in every township

(i) sections 8 and ¾ of section 26 of each township EXCEPT in townships divisible by 5 in which case they got the whole section 26

(3)Railway grants = 25 miles on either side of colonial railways(a) CP received all odd # sections on each side of railway (they got to choose sections

that were “fit for settlement”. Chose large portion of land West of Calgary instead of non-irrigated lots in Saskatchewan

(b) Before 1904- People buying title from CN had full title to mines & minerals(c) 1904-1908: CP reserved coal(d) 1908-1912: CP reserved coal, petroleum, valuable stone

(i) Didn’t include gas(e) After 1912: CP reserves all mines and minerals

(4)Settlers granted land from gov’t prior to 1887(a) Dominions Land Act, 1887 – gov’t began reserving mines & minerals

(i) Took some time to implement – by 1891, no homesteaders received M&M rights(5) Soldier settlement grants – land grants to returning veretanrs (Boar, WW1/2)

vi) Surveying principles (1) Township – a 6x6 mile block (6 miles N from 49th parallel, 6 miles W 1st Mer.)(2) All measurements taken from most proximate meridian

(a) First TWN W of 4th Meridian is “Range 1 West of the 4th”(b) Third TWN W of 4th Meridian is “Range 3 West of the 4th"

(i) Ex. TWP begins 60 miles north of 39th parallel, Range 16, begins 90 miles west of the Fourth Meridian

(ii) Steve’s Land: N ½, Sec 33, Tp. 18, R13, W2m

vii) Natural Resources Transfer Agreement (NRTA) (1) 1930: Federal government transferred natural resources interests to prairie provinces

(to put them in same position as other provinces)(a) Condition:

(i) #1: Provinces needed to respect past federal transfers1. Ex. At one point prov gov could not restrict flaring in Turner value because

they were the recipients of a federal lease2. Now, most federal licenses have expired… except some federal water

licenses, which are granted without a term.(ii)#2: Obligation to set aside land for aboriginal reserves (if fed gov

grants new lands because of treaty obligations)(iii) #3: Respect existing treaty rights

1. “Indians shall have the right in ALL seasons of the year on hunting, trapping, & fishing, on ALL unoccupied Crown land, and all other land to which Indians may have right to access”a. Badger – A physically unoccupied grazing land was deemed to be

unoccupied despite there being some prescribed use.(b) Province now has constitutional authority to legislate over its natural resources

(i) Exception: interprovincial and international trade federal power1. Federal NEB – can regulate pipelines, but not resources significantly under

provincial ownership

2) Ownership Interests in Oil and Gasa) What ownership interest is there in O&G? – a fugacious substance below ground

i) Need to have a secure property interest in order to have O&G exploration/productionii) CL position on mineral ownership: Fee simple title with no reservations = owns all below

surface, except gold & silver(1) Mineral = something that can be got under the surface for profit

(a) “owns minerals” = a bundle or rights – exploit, sue for trespass, transfer rights…(2) Mine = the space around a mineral (something which can be gotten by mining!) circular

iii) Alberta Mines & Minerals Act – lists everything considered a mineral. If not listed, then it belongs to the surface owner

b) Theories of ownership – how does standard idea of ownership apply to O&G, a fugacious substance?i) Texas: “defeasible fee simple interest”

(1) Ownership state – Petroleum lease is a separate & absolute fee simple. Ownership of surface owner in oil below land is absolute

(2) However, interest is defeasible in the event someone else taps reservoir(a) Critique: Not really an absolute interest then…

ii) Pennsylvania (Main View): Qualified ownership – interest in oil conveyed by Petroleum lease is not absolute until oil brought to surface. (1) Interest includes incorporeal right to explore and then absolute right in oil once brought

to surface.(2) Petroleum = A chattel real, a profit a prendre, and therefore an interest in land

iii) Oklahoma: Petroleum leases = grant of right to explore, but no interest in land(1) Compares oil to wild animal cannot be owned until captured

c) Landowners Mutual, 1952i) Broad: Despite its fugacious natures, O&G = mineral right that can be convey

EXCEPT mineral right precludes exclusion of other legitimate reservoir claimants ii) Narrow: Owners in M&M can convey a title to petroleum & natural gas

(1) F: Landowners attempted to convey ¼ interest in all PNG + related HCBs to Keystone. LTO refused to register transfer on basis that PNG was not a mineral

(2) LTO argument: PNG = fugacious substance, not a mineral that is amenable to ownership (how can you own something that is here today, gone tomorrow)(a) Ferae Naturae – oil is like wild animal that is only subject to ownership upon capture

(i) BUT: Until human intervention, PNG is stable in ground and does not move(b) Groundwater – see Borys – gas in earth is like GW and same principles apply

(i) Traditionally, English Courts had treated GW as ownership upon capture. Too difficult to impose liability otherwise because hydrological sciences non existent1. Pickles: Pickles drilled “spite wells” to prevent City wells from recharging,

because he wanted land to be expropriated2. Brewery: London brewery GW was blue from nearby print shop

a. Courts will only impose liability for GW pollution where P can prove it (ii) GW different from oil – oil stays in same place, whereas GW always moving

(3) Court held: O&G should be recognized as a mineral(a) Sask Court looked at Mines & Minerals Act. Mineral Taxaction Act – neither statute

narrowed the definition of a mineral(i) Also, Land Titles Act, Mines & Minerals Act, all contemplate PNG as mineral right

(b) Therefore PNG = a bundle of rights just like any other minerals(i) Exception: O&G rights holder cannot exclude “legitimate operations of adjacent

landowner”1. Like the Texas “defeasible fee simple interest”

iii) Policy outcome of Landowners : (1) Recognition of PNG rights as a defeasible interest results in excessive drilling

(a) Once oil discovered, adjacent landowners would build new wells as close as possible(b) Main problem: loss of pressure a single well would result in higher recovery

(i) There is a public interest in ensuring maximum well recovery iv) Regulation : to discourage i) too many wells, ii) clustering of wells

d) Oil and Gas Conservation Act (OGCA) and OGC Rules (OGCR)i) Section 4: Purpose of Act

(a) to effect conservation of and prevent waste of resources(b) b) to secure “safe and efficient practices” in the locating, spacing, etc –

(i) province can pretty much tell producer where to drill well(c) to provide for the economic, orderly, and efficient development in the public interest

of O&G resources – province can regulate production amounts

(d) to afford each owner the opportunity to get their share of a pool (i.e. piece of the pie) –i.e. through the use of target areas, reduces clustering around prime opportunities

(e) to record and disseminate information relating to O&G resources(f) to control pollution from operations

(2) The OGC Rules in Action: (a) Drilling Space Unit (DSU): specific surface area assigned per well, and the

subsurface area beneath that well. Can also be applied to specific pool/reservoir below a surface area.(i) DSU oil = 1 oil well per quarter section

1. S15(3): Possible to apply for smaller DSU, but must demonstrate unique reservoir requirements/technical considerations

(ii) DSU gas = 2 gas wells per reservoir per section (old rule: 1 gas well p sect)1. Gas usually found in narrow cylindrical formations, requires precision drilling

(therefore old rule expanded to 2 wells)2. May be gas reservoirs at different depth, no need to specify just one

(3) Target Area (TA): avoid clustering of well; depends where well bottom located(a) Two goals: 1) equitable withdrawal, 2) prevents drainage across lease lines(b) Pre-1981: oil = centre of ¼ section; gas = 4 interior LSD’s (6,7,10,11)(c) After 1981 (new wells): attempt to minimize disturbance of surface

(i) “Green Area”: sparse population area with minimal agriculture (North Alberta)1. Gas: DSU = 1 section, TA= central part of section (LSD 6,7,10,11)2. Oil: DSU = ¼ section TA = central part of quarter section

a. Point TA’s = centre of the DSU(ii) “White Area” – mostly the fertile belt (GP, Peace, Edm, Calg)

1. Oil = NorthEast quarter of a ¼ section (LSD 6,8,14,16)a. Drilling would be close to roads, avoiding surface damageb. Mistaken assumption that top & bottom well in same place

2. NG = central part of the section (ie NE corner of LSD 6)(iii)REG 4.030: imposed penalty on production if well off of TA

(d) After 2011: (i) Oil wells: at least 100m from all boundaries of DSU (800mx800m)(ii) Gas wells: At least 150m from all boundaries of DSU

1. Rationale: new oil & gas drilling techniquea. No longer conventional oil now tight oil/gas, location much more

variable, required fleixibility in target areas(iii)Removed spacing & density rules for coalbed methane and shale gas. Why?

a. CBM exists in pockets, not seam requires many wells to recoverb. Shale gas: same principle, isolated vertical pockets of gas in shale

i. Today, market conditions do not support drilling for eitherii. Also, recovery of gas produces many GHG

e) Enforcement i) through the AER (Alberta Energy Regulator)

(1) AER was formerly ERCB (Energy Resources Conservation Board)

ii) Section 11: nobody can drill an O&G well without a licenses(1) To acquire a license must go to regulator and prove

(a) All rights necessary to the DSU(b) If drilling, then must show in accordance with TA regulations

f) Pooling : combining tracts of land to form a DSU

i) Tracts can be combined voluntarily via contract(1) Voluntary Pooling Agreement

ii) S80 of OGCA tracts can be combined compulsorily(1) Intended to prevent “holdouts”(2) Compulsory Pooling Agreement, imposed by regulator upon holdout

(a) CPA available upon application to AER, provided two criteria met:(i) S80(c): that agreement to operate as unit cannot be made on reasonable terms(ii) (D): must provide details of efforts made so far to obtain agreement

(b) Critique: Puts production of O&G ahead of individual property rights(c) S80(4)(C): allocation of share of profit from pooling agreement based on proportional

to surface area ownership UNLESS shown this is inequitable(i) producers can bring reservoir map to displace surface area presumption

iii) s80(7)(a): if compulsory pooling order, then production on any part of unit counts as production on all other tracts (doesn’t apply to Voluntary Pooling Agreements)(1) For VPA, ordinary lease rules apply (i.e. delayed rental payments each year etc)

g) Unitization: voluntary combining of DSU’s to form a field, allows a single well to recover from many DSUs, instead of having to drill on each onei) The OGCA encourages unitization but doesn’t require itii) Collective operation/ownership means lesser overall costs for individual producersiii) Usually the largest land owner/participant is the field operatoriv) Participation Factor: a very precise number that determines each land owners share of production –

should get advice of reservoir engineer on this

h) Monopolization and Fair Access to Common Pooli) Ex. Shell has gathering system on all portions of the land they own, with a feeder to each

gas well. How do the other owners of the field get their gas to market?(1) They can set up their own infrastructure quickly (before gas depleted) or tie into Shell’s

infrastructure.ii) Common Carrier

(a) S48(1): Upon application, Regulator can have Shell declared a common carrier(b) S48(2): No owner of common pipeline can discriminate against other sources

(i) S48(3): Cannot prioritize their gas/oil over other gas/oil(c) S55(3): If appropriate cost of carriage cannot be determined between parties, then

either can apply to Alberta Utilities Commission (ASC) to fix rate(2) Idea comes from CL principle of Common Carrier – i.e. originally stage coaches(3) Policy rationale: otherwise Shell would be able to leverage its infrastructure to unfairly

get a larger production of the reservoiriii) Common Processor Orders

(1) Once deemed common processor, must process O&G of other owners (2) Regulator can prescribe processing fees

iv) Common Purchaser Order (1) Owner of refinery must purchase ALL oil brought to refined and cannot discriminate

against other producersv) NOTE: All common orders are designed to prevent owners from gaining an unreasonable

advantage from owning infrastructure

i) Borys v CPR, Privy Councili) Based on vernacular test, there is a difference between Petroleum and NG.

Owner of NG rights has claim to “gascap gas”, but not gas intrinsic to Petroleum. (1) Oil producer can incidentally produce gas provided they do so through

reasonable means of extraction (ordinary industry standard)(a) Corollary, gas producer has right to produce gascap gas leverage over

oil producer

(i) Overturned by S39 OGCA: effectively, must produce oil before gas1. The OGCA wants to prevent sterilization of wells

(2) Critique: Distinct from scientific approach, phase is depended on P&T and changes as soon as reservoir is tapped. Completely artificial distinction between Petro & NG, they are the same substances (hydrocarbon molecules) just in different phases

(3) Original Reservoir Test: Ownership of gas vs petroleum is based on the phases at time of original reservoir conditions (as opposed to Surface Test, or Well Bottom)(a) Therefore, oil producer can Oil that has NG components (which enter gaseous form

at surface)(4) F: Borys acquired land from CPR. CPR had reserved “all coal, petroleum and valuable

stone”. CPR leased Petroleum interest to IOL. Borys claimed NG interest, which was not specifically reserved. Concerned IOL’s activity would deprive him of his interest.

(5) Outcome: PC held that Borys did have rights to gascap NG. However, IOL also had “right to work” Petroleum provided they did so through reasonable means of extraction.(a) Theoretically, Borys would have been able to produce gas and deplete gascap,

sterilizing IOL’s oil interest. Therefore, Borys able to renegotiate handsome royalty for self.(i) Note: In 1949, no viable use for NG. It was valueless. Therefore, unclear how

Borys applies to oil producers selling NG for profit in 2000. Are they required to compensate NG rights holders? (IMPORTANT HYPOTHETICAL)1. Gascap owners are more organized now, and have better means of making

claim:a. Free Holder’s Owner’s Association (FHOA) in Alberta b. Gas owners have some sort of property interest:

i. Unjust Enrichment OR Conversionc. Alberta also has more permissive class action legislationd. Reservoir mapping (phase diagrams)/reservoir engineers can produce

oil:gas ratio, identifies amount of gascap gasi. Therefore, possible to determine formula re: gascap royalties

(b) Subsequent cases have treated Borys as a fundamental principle of O&G law, not just a mere contracts interpretation.

(6) Practical note: IOL made natural gas lease with Borys. Things to watch out for:(a) Ensure that secondary term is “as long as anything is being produced”, not just oil or

gas, as that could void lease interest(i) Be sure to tie lease to longest lived resource

(b) Ensure oil company is under no obligation to produce natural gas, until they have finished producing the oil

j) Surface Rights:i) CL natural easement rights to subsurface minerals implies a surface access right

(1) Rationale: otherwise, subsurface mineral rights would be meaningless(a) Alberta has removed the CL rule of immediate access

ii) Surface Rights Board, via Surface Rights Act (1) Driller may enter land only with consent of owner OR by a “right of entry order” made

by the Surface Rights Board(a) Requires demonstration of:

(i) Good faith negotiations with landowner(ii) Produce last offer made + evidence of rejection = Right of entry order, which

includes payment of compensation based on principles below(b) Compensation based on:

(i) Highest and best use of land (current market value)(ii) Compensation for loss of use of land(iii)Adverse effects on other land (i.e. make other land more difficult to plow)

iii) Producers cannot gain access to the land through the mineral lease – must be separate surface lease, or separate amount paid(1) Rationale: must be clear to farmer that they are giving up surface rights

iv) If producer already has a well license, the SRB cannot deny them access to the land

k) Prism Petroleum v Omega, CoAi) F: Gas owners carefully unitized “all petroleum substances not defined as oil”. Defines oil

as everything that can be recovered in liquid form through ordinary production means, i.e. if recovered as vapour, then gas. Oil rights producer unitizes oil rights leases oil rights to Omega who commences oil production. Prism claimed ownership to gas vapor being produced from wells.

ii) Prism (gas owner) argues: (1) Unitization agreement distinct from Borys, as it defined what substances could be

produced by oil producer (liquid form). They replaced Borys interpretation by specifying that they had rights to evolved gas.(a) Recall: Borys was just a case about contract interpretation

(2) TJ: accepted Prism’s Argument that the wording of the agreement displaced Borysiii) CoA: disagreed with TJ. Claimed issue was whether plain meaning of definitions (“solution

gas”) referred to surface or original reservoir conditions(1) CoA applies Borys: Solution gas is defined based on original reservoir conditions

(a) Doesn’t clarify Borys re: evolved gas – CoA refuses to get into nuances of solution gas v evolved gas – Percy thinks this is wrong.(i) IF you want to challenge Borys, must be able to displace it clearly

(b) Doesn’t really clarify whether original reservoir conditions means: original conditions at time of recovery? At bottom of recovery well?

(2) Beginning of trend for Courts to treat Borys as a Rule of Law, rather than interpretation of a specific conveyancing agreement

iv) CoA “…the Borys case has stood unchallenged for approximately 40 years. In the result, the concepts of solution gas being part of the petroleum being recovered from a well and that one looks to reservoir conditions as the “point of recovery” have been part of oil & gas law since that time. Certainly the word of relevant documents may, in any given case, change those concepts. I have attempted to demonstrate, that was not done here…”

v) Outcome of Prism: (1) Borys still seen as a contract interpretation of contract, but beginning of trend for

Canadian cases to view Borys re: solution gas as a rule of law(2) CoA refused to address “evolved gas” perspective, and dealt with it as “solution gas”

Percy thinks this is incorrect(a) Evidence in this case that parties intended something different than Borys

(3) Evolution gas in reservoir is an everyday occurrence, whether due to human intervention or not. Depends on P&T. Prism does not provide a solution to how to address different contractual treatments of phase changes.

(4) Industry commences test case (Amaco) to see interpretation on stages of a reservoir

l) Anderson v Amaco, SCCi) Gas owners argue: ownership of NG should be determined at time hydrocarbons enter well

head (since “surface test” has already been rejected in Borys)(1) Therefore evolved gas should belong to NG owner

ii) Oil owners: ownership of NG determined at time of original reservoir conditions(1) Therefore, evolved gas would be liquid in original reservoir conditions

iii) I: Did Borys apply to “original reservoir conditions” or “at the bottom of the wellhead” conditions?

iv) H: Ownership interest = reservoir conditions at time contract was entered int (1) This means, most of the time original reservoir conditions, as was in Borys(2) Important to have stability in ownership requirements

(a) Makes no sense to say ownership changes dependent on phase – must have a certainty of fixed variables re ownership

v) Implications: (1) Solution gas, Evolved gas Petro owner(2) Gascap gas gas owner

vi) “Gas in connate water” (gas in the water at the bottom of the reservoir(1) In dicta, SCC commented that this would theoretically belong to the Crown, as her

majesty owns all of the water in the province(2) Critique: BUT, the gas isn’t water, it is simply just contained in it

(a) Very odd situation, and has mostly been ignored..

3) Gas over Bitumen : Large gas layers overlay bitumen. Gov’t issued Bit and NG leases separately in order to prevent gascap exploitation and consequential sterilization of bitumen interest.a)b) AEC v Goodwell, ABCA

i) Adds to Borys – NG owners should get compensation for incidental use of gas by oil/bitumen producer

ii) F: Goodwell owned gascap rights. AEC had bitumen rights and was producing via SAGD which used incidental gas amount. Goodwell asked EUB (ERCB/AER) to cancel AEC’s bitumen license because they were producing excess gas.

iii) EUB: Held that AEC could not produce any NG in conjunction with bitumen(1) EUB took no notice of the Borys principle, which allows incidental production provided it

is industry standard meansiv) CoA: Recognizes that AEC is allowed to incidentally produce gas but must compensate

Goodwell accordingly (adds to Borys Principle)(1) Unclear where compensation would come from if NG was not sold…

v) Note: (1) Benefits of applying to EUB directly: 1) less formal, 2) panel of engineers, more open to

“understanding of a person on the street” – not necessarily legal argument

c) Gulf Surmont Shut Ini) F: Conoco provides computer model to EUB suggesting NG production (32M barrels) would

sterilize 7.5B barrels bitumen field. EUB responded by shutting in 146 gas wells.(1) EUB provides precautionary principle: while uncertain about risk, they took precautious

approach of stopping NG production to prevent bitumen sterilization(a) Percy thinks this is a sensible approach – minimize risk of sterilization

ii) Compensation : NG producers wanted compensation for shut-in. Industry has political clout, and it would affect investment in province if Alberta refused compensation. Note, this was not considered expropriation, since they only deferred the gas extraction interest.(1) Producers argued for ALL profit from producing natural gas (NG vol * market rate)

(a) However, once bitumen production complete, NG owners still able to produce(2) Crown compensates 146 gas well owners $80M. They do so by alleviating royalties in

other gas production. In return, NG producers provide gov’t with an overriding royalty interest on shut-in gas, to repay compensation once shut in NG can be produced.

(3) Conoco paid $20M of compensation, however this is only after its bitumen interest breaks even. They pay a slightly higher royalty on this interest to comp gov’t.

iii) Gov’t Royalty Structure (1) Since 2007: Gov’t received 1% royalty until corp covered costs. After breakeven point,

Gov’t received 40% “Net Profit Interest”.iv) Distinction between Goodwell and Gulf Surfmont?

(1) AEC, in Goodwell, did not receive compensation for gas usage, whereas Gulf Surmont did. Why?(a) In Goodwell, NG owners were predominantly farmers – not organized etc

d) Expropriation?i) CN v Vancouver – Test for whether constructive taking deserving of compensation:

(1) There is a total loss of use of land(2) There must be a transfer of beneficial title to the Crown

ii) On this basis, unlikely that gas well owners would have been successful in legal challenge against gov’t

iii) Tenner v BC: Sterilization of mineral rights sufficient to warrant compensation(1) F: BC gov’t classified land as parks, which disallowed mining. Tenner owned mineral

rights in this land.iv) Mineral Compensation Regulation

(1) Amount of compensation is equal to expenses incurred in setting up mining operations, NOT loss of profit (expectation profit)

e) Coal Bed Methanei) Alberta underlaid by vast coal seams. Approx 135 trillion cf. Extracted by fracking.

(1) Recall: Between 1904-1912 many settlors settled on CPR land. CPR had only reserved coal rights to themselves. Recall Borys – settlors have NG rights?

ii) Coal Bed Methane Act, 2010(1) “CBM is hereby declared to be and at all times to have been, natural gas..”

(a) This essentially extinguishes NG property interest argument of coal owners(b) Act also deemed its action as not being expropriation

(i) However, unlikely coal owners would have had an expropriation claim in CL1. No transfer of beneficial ownership to Crown2. Coal owners can still make use of right they can extract coal

(2) Note, the CBM Act doesn’t void past express transfers of CBM rights to coal owners(a) i.e. Past litigation where Encana “bullied” owners into settlement

iii) Amoco v Southern Ute – nature of CBM(1) F: Tribe ceded land to US gov’t who provided it to settlors, but reserved coal. Gov’t gave

land back to Tribe, along with coal rights. Did Tribe have gas rights?(a) Coal owner’s argument: We should own NG

(i) Historically, NG was a hazard to coal mines. Coal owners had statutory duty to ensure safety of mine by precautionarily controlling NG.

(ii) CBM is unique to coal(b) US SC Approach: Adoption of vernacular test at time of transfer

(i) In 1906 coal was understood as being distinct from methane gas1. An external validation of the approach taken in Borys really!

(c) Nature of CBM – it exists as: (i) A free gas – i.e. gascap gas – that which is found above the coal seam(ii) Gas that is dissolved in water in coal (connate gas?)(iii)Gas that is adsolved to the surface of the coal, and exists within pore space

1. Once pressure changes, gas separates from coaliv) CBM Dewatering:

(1) First step in CBM is to dewater the coal mine – this require disposal somehow(a) In Alberta, cannot dispose of water on surface or in potable g water

(i) This means operators need to dispose of it in deepwater saline water layers(2) Second, CBM wells (fracking) require water injection/stimulation

(a) Operator cannot use potable water otherwise removed from hydrological cycle when placed in deep-water reservoir

f) Natural Gas Storage – allows for storage of NG when price is low (i.e. in summer)i) Mines and Minerals Act – 1994 Amendment (ss 56, 57)

(1) S56: person has right to use a well or a drill a well to inject a substance into an underground formation if permitted by AER to do so

(2) S57: if person owns both Petro & NG rights in land, that person is the owner of the storage rights WRT to every underground formation within that land

(a) If NG & Petro ownership is spit, then those persons are co-owners of those storage rights

(b) Where person owns the title to a mineral in any land, that person is owner to storage rights in cavity made by extracting said mineral

(3) If Crown owes storage rights, then any rival claim is subordinate unless they have an express agreement with Crown that states otherwise

ii) M&M act does not cover rights of surface owner:(1) Surface owner: naturally occurring caves belong to surface owner (unless mineral

claims)(a) Therefore, surface owner may have claim if they owned surface rights prioer to 1994

(ASK)(2) Note, this same problem does not occur in the CCS Act or the CBM Act because both of

those deem i) there is no expropriation and ii) applies retroactively(3) In contrast, M&M Act is not retroactive & deemed expropriation

(a) Why? Politics at time – gov’t MLAs seen as rights reformersiii) US Case Law Principles re: NG Storage

(1) Kentucky: Re-injecting gas into land is like releasing wild animal again for capture(a) NG follows ferae naturae principle – you never own the NG, like a wild animal(b) Therefore, anybody can recapture NG from u/g reservoir

(2) Texas: The only way to give up NG storage claim is to “abandon” it (intention)(a) Therefore, if you inject gas for storage, it remains your gas

(i) BUT, would surface owners have claim in trespass if your gas is under their land? (HYPOTHETICAL)

iv) CCS Act, 2010 – Carbon Capture & Storage(1) Underlying Policy: Alberta only has intensity approach to reduction in Carbon. Only way

to make net reduction? Carbon sequestration(2) “Pore Space” – pore space contained in, occupied, or formerly occupied by minerals or

water below the surface of the land(3) Crown owns, and has always owned, all pore space in the land

(a) No earlier grant from the Crown ever conveys that pore space(b) This enables Crown to now freely grant Carbon sequestration lease to operator

(4) Impact on storage rights under M&M Act? (a) Ex. If sequestered carbon somehow migrates into A’s storage space (depleted NG or

Oil reservoir/underground cavern/former coal mine etc).(b) “pores previously occupied by minerals” = seemingly applies to Caverns(c) Recall, s57 M&M, in event of conflict with Crown, Crown gets storage rights(d) Additionally, Crown has always owned these rights

(i) No deemed expropriation (VERIFY)(5) Carbon Sequestration Tenure Regulation (AR68/2011)

(a) Spells out ability of gov’t to issue CS leases etc

4) The Nature of a “Lease”

a) Berkheiseri) An O&G “lease”, is not a sale, is not a lease, rather it is:

(1) Maj: A grant of a profit a prendre(2) Min: An irrevocable license to seek forth and win the main substance

ii) F: Testator left land to A. She then leased PNG rights to Oil Co. She then died. A claims entitlement to lease profits. Residuary beneficiaries (RB) claim it should go to them.(1) RB argues: the “lease” is actually a sale, therefore severed from the land (ademption:

removed from bequest). It reverts back to the residuary upon expiry. (a) Critique: Calling it a “sale” is faulty. There is a reversion. Also, complete removal of

M&M during lifetime of lease unlikely – not a “sale” of minerals.

(2) This is also not a normal lease, as the lessee has no obligation to return property in same conditions – i.e. it is like leasing a hotel room to Mel Gibson (he’ll trash it)(a) Objective of “lease” is to return as little as possible at end of it

(3) Analagous to a “profit a prendre” (an interest in land), like a right to hunt on land(a) Profit a prendre: once PaP expries, the land goes back to the owner once the allowed

thing (hunted animals, oil & gas etc) is taken out (or perhaps nothing).iii) Outcome: Following Berkheiser, a PNG lease was technically no longer a “lease”

(1) LTO could refuse to recognize PNG interests on this basis – very concerning to PNG leaseholders with registered intersts.

(2) Land Titles Clarification Act: A PNG lease is a “lease” for the purpose of the LTO

5) Blowouts a) Due to strong regulatory remedies in Alberta, there hasn’t been a case re: blowout to dateb) Therefore, some reliance (in terms of framing issues) on US case lawc) Elliff v Texxon, Texas

i) Texas is an absolute ownership state, subject to two limitations:(1) State regulatory power(2) Defeasible interest subject to rule of capture by legitimate adjacent owner

(a) BUT – this is only “reasonable capture” – cannot rely on RoC in the case of “reckless and irresponsible” drainage

(3) Remedy: Recovery means for blowout is trespass, and less likely conversionii) F: P owned land adjacent to D. Same reservoir underlay both plots. D’s well suffered

blowout, wasting oil for years. P wanted compensation for loss, even though blowout not on their land(1) P argued: D’s negligence caused waste of P’s subsurface ownership rights(2) D argued: P had no ownership interest to be compensated, as O&G does not become

personal property until it is captured(a) Proferred Louisiana CL a “no-ownership state”, no ownership until capture

(3) Reasons: (a) The “rule of capture” only applies where it is “reasonable capture”, not “reckless

and irresponsible drainage”(i) IOW: there is some duty to co-owners of reservoir to not be wasteful

(4) Remedies: (a) Tort of trespass: where measurable damage to land

(i) Ex. loss in market value resulting from depletion of reservoir1. At time of Elliff – unclear what impact of reservoir was on market value

(b) Compensation for lost oil & gas: based on unit prices per volume lost(i) Does this fit into existing category?

(c) Conversion: remedy for taking of personal property interest(i) Xerex v PetroCanada: Doubts that owners have sufficient property interest in

subsurface PNG in order to have a claim in conversion. You don’t really have a personal property interest in the oil until it is brought to surface.

(ii) Texas: believes there is a sufficient property interest in subsurface O&G to support conversion claim.

d) Blowouts in Albertai) Atlantic Oil Company, terrible safety practices, caused massive blowout in 1948.

(1) Resulted in the Atlantic Claims Act, let AER regulate a solution to blowout:(a) Placed proceeds from repaired blowout well into compensatory trust fund

(i) Covered cost of repairing blowout (by IOL) + damages for neigbour1. However, ACA also removed right to sue (subject to approval of AG)

(b) Deemed Atlantic to have overproduced, and reduced production on other Atlantic wells accordingly. This allowed other producers to recompense from common reservoir

(c) ACA is important because it:(i) Demonstrated AER as a strong regulator(ii) Established culture of regulation over litigation

1. Consequences of blowout are almost immediately taken over by reg2. Blowout litigation is expensive, because blowouts are technically difficult to

understand(2) Interim Guideline for Resident Compensation During Well Blowout

(a) An industry led settlement approach to ensure parties are fairly compensated(i) Demonstrates how industry/regulator are averse to litigation

(b) Three tier settlement procedure:(i) Tier 1: Immediate out of pocket expenses resulting from home evacuation(ii) Tier 2: Direct damages from blowout (i.e. damage to house/cattle)(iii)Tier 3: Long term unknown costs (policy still being developed)

(c) If residents don’t feel sufficiently compensated, then four options:(i) Negotiation(ii) Mediation(iii)Arbitration – more expensive than mediation(iv)Litigation – guide emphasizes that this is a formal, costly etc

1. Never seen blowout case go to litigation in Alberta2. Weird that AER puts this out as informational letter when it has such a

negative treatment of litigating against big oil.(3) Therefore, two reasons why no cases in Alberta:

(a) Regulatory intervention occurs at an early stage(b) Industry and regulator are averse to litigation

(4) ERCB Investigation Report – focuses more on operator/engineering mishaps, not compensation

6) Subsurface Exploration: a) Principle: Device emits shockwaves into earth (i.e. dynamite, or vibrator truck). Rate at which

shockwaves return reflects the nature of the substance you are hitting.i) Limestone returns quickly; Oil slowly.ii) Set a pattern of “shot holes” across a field, plot them over large area and see if results are

consistent.

b) Issue: Whose permission is required before conducting exploration?i) Phillips v Cowden, USii) The explorer requires the M&M rights holder, but not necessarily the surface

owner(1)Court doesn’t fully discuss permission reqs of surface owner (but recall CL

implied easement with M&M, otherwise sterilization)(2)If no permission of M&M owners Geophysical trespass

iii) F: Phillips received surface owners permission to explore on land of which Cowden had M&M rights (and did not provide permission). Cowden claimed trespass.

iv) Reasons – why M&M permission is required: (1)Geophysical Trespass = direct interference with mineral estate.

(a)Sending shockwaves into P’s property is an invasion of their estate(b)Also direct interference provides viable information about estate (c) Damages? Trespass does not require that there be any damage.

(i) Typical trespass damage = Difference in value of land before/after trespass

1. There is no real loss in market value due to D’s exploration2. BUT, what if land was speculative & exploration showed no reservoirs?

(2)Damages awarded? For assumpsit – waiver of tort (Percy thinks Unjust Enrichment)(a)How much money did D save by their trespass?

(i) Court views it as: if P & D had a contract, how much would D have paid?1. Cost per acre to explore

(ii) i.e. Restitution for a wrongdoing recovery of benefit to defendant(iii) Triggered by wrongdoing of trespasser, and the fact they reaped a benefit

v) In Alberta: (1)No exploration can be conducted unless the “exploration program” is approved(2)Exploration regulations require that the explorer obtain the consent of the “landowner”

(surface owner) and anyone else whose consent is lawfully required (likely applies to M&M owners).(a) If they fail to do this, then it is a regulatory offence

(i) This does not create a cause of action(b)SRB does NOT have authority to allowing access for exploration (s12(1))(c) If surface owner refuses, then explorer can always go to neighboring property or use

adjacent road allowance

vi) Phillips v California Standard, 1960 ABSC(1)Offsite exploratory shockwaves are not sufficiently direct interference to

constitute a trespass. Rather, damage resulting from shockwaves (contaminated well) is a nuisance.

(2)F: Exploration on adjacent property let to contamination of P’s well(3)Reasons:

(a) In Canada, trespass actually requires a physical entry on the property of P.(i) Therefore vibrations in land ≠ trespass

(b)Nuisance = unreasonable use of property so as to interfere with neighbour’s use of property(i) Unlike trespass, nuisance requires that you prove damages

vii) Wassan v California Std, 1964 ABSC(1)Punitive damages are available for deliberate trespass for exploratory

purposes(2)F: Exploration company sought approval from surface owner (not M&M owner). Instead

of waiting for response Exp Co went ahead and cut survey lines and explored, on presumption that delay was more than costs they would be sued for

(3) Itc, the deliberate breach of the exploration regulation was sufficient to warrant punitive damages(a)Court focuses on anything that aggravates or mitigates D’s conduct.

7) Acquisition and Conveyancing of Interests in Oil & Gas a) Underlying CL Principle: A person cannot contract with themselves

i) In unitized field supporting a JV, how can A (as operator in charge of processing) contract (tie-in) with one of their own wells outside of unitized field? (1)A owes duty to co-venturers to ensure their wells pays appropriate processing fee

ii) S10(2) Common Parties contract and Conveyances (brought into LOPA)(1)a contract is not invalid if a person contracts with themselves provided they are acting

as an agent for some other person.(a)Applies to contracts for conveyancing of an interest in real/personal property(b) i.e. where acting as operator of unit, they are acting on behalf of JV

iii) s63: Right of First Refusal (ROFR) is an equitable interest in land can register caveat

b) Hayes v MayhoodPNG Lease = Profit a prendre, irrevocable license, and a “lease” for the purpose of various statutes (if similar to DoPA and LTA)

i) F: Under Devolution of Property Act, an estate can enter into a lease of estate property for a period of more than a year if it has Court approval. One beneficiary of estate objected, claiming Court didn’t have authority as a PNG lease isn’t a “lease”.

ii) I: Is a PNG lease considered a lease within the realm of the DoPA? YESiii) Court fudged it:

(1)Since the Land Titles Act defines PNG lease as an ordinary lease, then a DoPA lease to encompass a PNG lease as well, since they deal with similar subject matter(a)BUT recall that the LTA was only amended to encompass a PNG lease after

Berkheiser suggested that a PNG lease was not a real lease(b)Concern: What other legislation does the LTA extend to? Brings uncertainty into the

law – any “lease” term may now mean a PNG lease.iv) Outcome: if term “lease” used in other legislation, possibility it may be a PNG lease

(1)Think of MPA in which Court may authorize leasing of minor’ property.v) Practice Point: if Oil Co wants to lease property from an estate, then they i) get consent of

beneficiaries and ii) get Court’s approval (To prevent switchback)

c) Lease of Life Estatei) Common issue: most wills include life estate to spouse with remainder interest to kids

ii) Moffat Estate(1)After death, LT, also executor (in conjunction with one beneficiary), agree to PNG lease

in exchange for royalties, delay rental payments, etc. Excluded beneficiary claims this is draining the remainder interest.

(2)Court: Each barrel of extracted oil diminishes the value of the estate(a)The produced oil royalty represents the corpus of the estate. The money is a

substitute for the corpus and should therefore be kept in a fund (capital) and the income from that fund can go towards the LT.(i) This could be changed, however requires approval of all beneficiaries & LT

(b)Therefore, legal title in new PNG leases rests with the remainderman(i) However, they cannot possess the payments from the lease until after the LT is

dead.(ii)Additionally, the remainderman cannot execute a new lease during the LT as this

would waste the LTs property(c) BUT if the PNG lease is executed by testator, then presumption is that it is the

intention that the LT should benefit from the payments.(i) BUT the LT cannot drill another well or enter into a new lease, that would be

wasting the remaindermens interest(3)Practice point: If Oil Co is going to enter PNG lease with LT, ensure they have clear

support from all beneficiaries

d) PNG Leases during Sales conveyancesi) In an agreement for sale of the land, the buyer may have option to pay full price over the

course of 10 years (or any other period)ii) In this circumstance, Oil Co would need to deal with both parties to have PNG lease

(1)Vendor would grant O&G lease and Purchaser provides consent to Oil Co, and agrees to postpone registration of Agreement of Sale at LTA until after PNG lease

(2)Oil Co then registers PNG lease, so it ranks ahead of Agreement for Sale on LTiii) Also seen where Purchase can exercise option to buy land

(1) Itc, Oil Co gets consent of both parties

8) Rule Against Perpetuities (RAP)a) RAP comes into play when “another interest” comes into play on top of original PNG lease

i) i.e. will the “top lease” or “renewal right” vest outside of the perp period?ii) Top lease = if someone suspects original lease contains fault, they will negotiate top lease

with the farmer, register this interest in the LTO and challenge the validity of the existing lease. Also possible for a top-top lease, where same.(1)How long will original production last? Will top lease ever vest?(2)Essentially ties up the lessor’s reversionary interest

(a)“In the event the original lease is successfully terminated, you will enter into a lease with us, you will receive a bonus and we cover all litigation costs”

b) CL Rule: No future interest is good, unless it must vest, if at all, not later than 21 years after some life in being at the creation of the interesti) Triggered by contingency and intended to prevent remotenessii) CL exception: RAP doesn’t apply to option to renew in a true lease

(1)BUT a PNG lease is not a true lease (Flegan)c) CL RAP still applicable because

i) Alberta Perpetuities Act isn’t all encompassing(1)Only applies to instruments created after July 1, 1973(2)Also, almost every US state is governed by same CL RAP

d) Perpetuities Act – prospective following July 1, 1973i) S3: No longer is the mere possibility of late vesting enough to destroy a gift

(1) S4: Must ‘wait and see’ to see if there will be a late vesting.(a) Contingent interest is valid until actual events establish that interest will not vest

within perp periodii) S17:RAP does not apply to an ‘option’ to acquire a reversionary on term of lease or renewal

of lease(1) RAP does not apply to option to renew a lease of real or personal property

iii) S18: In commercial contract, perpetuity period is 80 years for interest that may be acquire at future time (Applies to future profits a prendre)

e) Canadian Export v Flegal, 1978 ABSCi) The CL RAP exception, that true lease renewal clauses doesn’t violate RAP,

doesn’t apply to PNG leases. (PNG leases are not true leases, they are profit a prendre)

ii) F: PNG lease with primary term of 10 years. Renewal clause allowed for another primary term of ten years with identical renewal clause (an so on). (1) Lessor claims renewal right violates RAP and therefore invalid.(2) Lessee claims lease renewal options are exempt for CL RAP

iii) Court: (1) CL lease exception does not apply to PNG lease, which is a profit a prendre(2) Policy rationale:

(a) RAP is intended to prevent the sterilization of land. Itc, the PNG lease would have been sterilized as the lessee would never have needed to start production

iv) Note (Percy comments): (1) Perp problem could have been avoided by adding a very long lives in being clause

(a) Right of renewal will not extent past 21 years beyond the life of any survivor born under the reign of Queen Elizabeth.

(2) If this lease occurred after 1973:(a) S4 Perp Act: “Wait and see” as to whether renewal option would still be needed (i.e.

no production) after 80 years (s18)9) CAN Extract: Justice Stevenson in Flegal narrowed the application of Hayes v. Mayhood, holding that “given a

broad and liberal interpretation of the Land Titles Clarification Act it does not say, and this decisions does not suggest, that an OG lease is a lease for all purposes, and, in particular, for the purposes of application of the common law as distinct from statute law.”a) Recall: Hayes v. Mayhood turned on whether the OG lease could be considered a lease under the DRPA,

whereas Berkheiser was applying the CL to determine whether an OG lease is a lease or a sale or something else. Hayes is therefore distinguishable from prior and subsequent decisions because we are not looking at the application of an Act but a CL rule.

Possible Exam Question10) In this case, the “wait and see” provision, and s. 18 which extends the perpetuity period to 80 years had not yet

been enacted.11) If Flegal were to happen today, what argument could be made to avoid the application of RAP, and guarantee a

mineral rights lessee the continuation of the lease?a) Hayes v. Mayhood: Perpetuity rules deal with real property. The word “lease” in the CL rule and s.17

includes an oil and gas lease, and the LTA defines a lease as for the purposes of that Act. According to Hayes if an O&G lease is a lease for the purposes of the LTA, and the DORPA, then it is also a lease for the purposes of perpetuities legislation.

b) When we see the word “lease” there is a modest alarm bell because of Hayes v. Mayhood. So, if you are desperate, bring this up.

c) Pan American v Potapchuki) Contracts cannot be retroactively applied to prejudice top lease interestsii) Ensure top leases have timeframe on when they can vest to avoid RAPiii) F: Original lease on unitized land required production on “said land” in order for primary

term to be extended. Pan American had been producing from gas well on other unitized land from same reservoir, but not on same land. Potapchuk recognized problem and got top lease with land owner & registered caveat on LT. Then, land owner terminates lease with Pan American in favor of top lease.

iv) Arg #1: Pan American had subsequent contract with farmer that “said lands” extended to all unitized lands.(1) Once the top lease is filed, it is notice to all the world of the interest. After which, Pan

American cannot attempt to modify their position via contract in a manner that retroactively prejudices Potapchuk’s interest.

v) Arg #2: Pan American argues top lease violates RAP (desperate argument)(1) PA argued lease might last a long time, and therefore top lease might not vest(2) BUT top lease option had time limit of 5 years, therefore would vest outside Perp.

d) Pan Canadian Petroleum (lessor) v Husky Oil (lessee), 1994 ABQBi) #1: Affirmation of Flegal – PNG lease is not a true lease, no CL RAP exemption on

renewal optionii) #2: Production that extends primary term is vested, therefore doesn’t violate

RAPiii) #3: The right to renew a Profit a Prendre is not a vested interestiv) F: Two leases (Shallow Lease and Mineral Lease) had primary terms of 25 years with option

to renew, which resulted in identical lease (and so on – Flegal problem). Production had

started on shallow lease. No development yet on Mineral lease. Husky attempted to renew both leases – however Pan Canadian argued that both violated RAP

v) H: The renewal options both violated RAP, however the Shallow lease was save by production. The Mineral Lease was declared void

vi) R: (1) Arg #1: PNG leases should benefit from the CL exception re: true lease renewals

(a) Flegal applies – PNG ≠true leases and do not benefit from CL exception(2) Arg #2: Husky argued that their interest had already vested it – they were just

extending it through two mechanical steps (timely notice, renewal payment)(a) Court suggested a vested interest couldn’t be contingent on anything

(3) Arg #3: Husky argued policy – the land would be sterile as they had an incentive to recover their $M already spent on the deep lease(a) Court: no development of mineral lease + potential to renew it indefinitely =

sterilization(4) Note, the shallow lease was held as still being valid despite having a “subject to”

renewal clause. Primary term only perpetually renewable in the absence of production, once production started then no possibility of i) remote vesting, ii) sterilization of interest. (a) i.e. the lease would continue to the secondary term in the event of production,

subject to i) termination of the primary term or ii) renewal of the primary term.

e) Scurry Rainbow, ABCAi) F: IOL had 10 yr primary term lease w/ Taylor. Freehold OG (now Scurry) secured top lease

with Taylor for 99 yr term, option-able within 42 years of signing. Scurry assigned Tarragon toplease, who proposed JV with Max. While reviewing documents, Max saw toplease was likely invalid due to RAP and sues (on behalf of Tayler) that declaration is void. (Tarragon/Scurry also counter-sue for breach of confidence.)

ii) I: Is S/T/FH void because it violates RAP? NO, because of policy reasonsiii) TJ: 42 year term exceeds 21 year perp period, and therefore violates RAP

(1) 21 years runs from date of signing. Since the top lease was not executed before 1971 (21 years after creation), it is void.(a) No lives in being clause, no shorter option period (safety valve – Potapchuk)

(2) Top lease provided for approx. 141 years of sterility

iv) CoA: Top lease is valid, holding otherwise would violate underlying policy of RAP(1) Policy of RAP: “preventing the fettering of the marketability of property over long

periods of time by indirect restraints on alienation”(2) CoA recognizes that top-leases are common business practice and increase

competitiveness of drilling on land. RAP should encourage marketability of land.(a) Note, Percy disagrees – once top lease registered, IOL lost incentive to develop land

because they knew their lease interest might be challenged.v) CoA Dissent (Percy prefers): Agrees, same reasons as TJ

(1) Also, Sask Leg had previously refused to abolish RAP despite having recommendation from Sask Law Reform Institute. If leg refused, why should Courts do it? Too much judicial activism.

vi) Outcome (1) Tarragon actually settled with Max to avoid SCC appeal. They knew they were lucky.

Also, Tarragon had 183 other leases in the province with same wording as this one…didn’t want to jeopardize those interests with reverse SCC ruling.

vii) What if: Taylor (farmer) brought action? (1) ITC, Max had essentially breached confidence by bring RAP action. Court likely not

overly sympathetic with their position.

(2) Taylor could have argued his land was being sterilized by lengthy option (42 yr) toplease. Court more sympathetic to farmer, who may not have appreciated the nature of the top lease when he signed it (141 years of sterility)

12)The Freehold Lease

a) Location: NE quarter, section 12, twn 2, range 34, west of 1st Mb) Granting Clause: Lists substances intended to be convey

i) “all the petroleum, natural gas, and related HC (except coal and valuable stone)”c) Habendum: Describes the duration of the interest

i) Outlines primary terms “the term of 10 years” ii) Secondary term: extended term = as long as leased substances are produced

(1) Problem: “production” is not defined. Use Clifford, reasonable operator test.iii) “subject to the sooner termination of the said term as hereinafter provided” (see provisos)

(1) Note: Following Kininmonth, oil co’s started using “the lease shall continue so long as there is production or operations on the land”

iv) Proviso #1: The “Delay Rental” Clause(1) If “operations for the drilling of a well” are not commenced “on said lands” by the first

anniversary date, then the lessee must pay delay rental payment to continue primary term for additional year.(a) Strict interpretation: really a condition subsequent, lease vested in lessee but will

terminate upon event of non-payment.(i) Note: S18 Default Notification clause doesn’t apply here as Courts have held that

there hasn’t been a breach. Simply the lessee has elected not to make payment and therefore the option to extend the lease has not been exercised.

(b) Alternative “Drill or Pay” – You must drill a well or pay a fee(i) The lessee must drill a well or otherwise pay a fee to extend lease. In event of

non-payment, then the lease categorizes this as a breach. The lessor must notify the lessee of the breach, and the lessee has a cure period to remedy.1. Lessor can sue for damages only, but lease does not terminate

v) Proviso #2: The “Dry Well” Clause(1) If the operator drills a dry well (before production), or drills a well and then production

ceases in the primary term, then the lease terminates at the next anniversary date, UNLESS another well is drilled or the delay rental payment is paid per proviso #1

vi) Proviso #3: The “Continuous Operations Clause”(1) Allows the lease to continue after the expiry of the primary term if the drilling or

production is interrupted by something beyond the lessee’s control.(a) If no production at end of primary term, or production interrupted after primary term

(i) THEN lessee must commence drilling or working operations and lease remains in force so long as operations are prosecuted (in force with view to finish)

(ii) UNLESS i) cause is beyond lessees control, ii)lack of intermittent market(2) Kininmonth: Proviso #3 only applies if the lease has already been extended by

production as pursuant to the Habendum.(a) Unless Habendum states “lease shall continue as long as there is production or

operations on said lands”(i) Operations = see sample definition in Canadian Superior(ii) ASK on Wednesday about whether Kinenmonth applies to sample lease, as

sample lease has “if at end of the 1- year term” or “if any time following the expiration of the 10 year term”, whereas Kinenmonth only had the latter (if at any time following the expiration).

d) Clause #2: Outlines royalty paymentsi) Ex. 12.5% of the leased substance produced from said land

(1) Option to take Royalty in Kind – taking the substance as-is (barrels of oil)

ii) In not in-kind, then “an amount equal to the current market value on the said lands”(1) Post-production costs (i.e. processing, etc) are deducted from sale price(2) Ensure clause says “market value” and not “selling rate”, as company’s can sell at low

prices in inter-company dispositions (i.e. if IOL owns well & refinery)iii) Jumping Pound Formula (JPF) – Determines market value on said lands

(1) Deduction of transport and processing costs from market value of saleable product(2) =Tailgate price – (Costs of Transportation & Processing) –(Capital Costs)(3) Capital Costs = Costs of Building the System (assumed 50% equity & 50% debt)

(a) Problem: capital costs are determined by oil companies – conflict of interest(i) i.e. adopt a high return on capital to justify a higher royalty deduction

(4) Alberta government has equivalent to JPF for calculating their royalty interest(a) Gas Cost Allowance (Regulation) – rigorously specifies what is/isn’t deductible

(i) Acanthus Resources: acceptable to deduct additional costs to render oil more marketable (i.e. applicable for heavy oil)

e) Clause #3: Shut In Wellsi) In the event the operator needs to shut in a well, they must pay a Shut In Royalty(SIR)

payment, equal to the DRP, to the lessee before the anniversary date of the year of shut-in. This will deem the shut in well as “producing”.

ii) Note, the shut in must be due to a) factors beyond operators control or b) intermittent lack of market

f) Clause #8: Offset Wells – an enforcement mechanism for lessors when adjacent lot is draining common reservoiri) In the event there is commercial production in a laterally adjoining spacing unit

(1) And if neighboring land is not owned by same lessor(2) Or if same lessor, then there is a different lessee

ii) Then (1) lessee must drill well within 6 months of adjacent SU well being placed(2) OR surrender lease

g) Clause #9: Pooling Clause – makes production on pooled lands = production on “said lands”i) Lessee has right to pool leased lands with other lands above same reservoirii) Production on pooled lands now counts as production on “said lands”, as in Habendumiii) Lessor shall receive portion of royalties based on proportion of SA land in pool

(1) Recall:(a) Pooling = voluntary or compulsory combining of tracts to form DSU(b) Unitization = voluntary combining of DSU’s to form a unit

h) Clause #18: Default Clausei) In the event of a default (breach, non-performance, non-observance etc) by the lessee of a

term of the lease then:(1) Lessor must bring notice of breach to lessee’s attention(2) Lessee must then commence to remedy breach within 90 days(3) Note, default clause does not apply to DLR or SIR payments, because those are not

breaches, rather they are options or time conditions attached to the lease.(a) i.e. if option is not taken, habendum dictates that the lease simply expires

i) Clause 22: Manner of Paymenti) Stipulates where/how the payment to the lessor must be realizedii) Lists the depository address etciii) See Paddon Hughes

j) Kininmonth (SCC)i) F: OilCo is at end of 10 yr primary term. Is conducting drilling/operations to produce well,

however because of spring road closure did not get well producing until after end of primary term. Argues that Proviso #3 allows extension of primary term to complete drilling.(1) Habendum clause: “To have and enjoy the same for the term of 10 years from the date

herefof and so long thereafter as the said substances are being produced from said lands subject to sooner termination as hereinafter provided.”

(2) Proviso #3: “if at any time after the expiration of the said 10 yr term the said substances are not being produced on the said lands and the lessee is then engaged in working operations thereon, this lease shall remain in force…

(3) CoA: The spring road ban was not sufficiently outside of Oil Co’s control to evoke the continuous operations clause. Road closure reasonably foreseeable, and permit could have been applied for.

(4) Martland J, SCC: Interprets these two provisions as meaning that:(a) The Habendum dictates that the primary term (PT) can only be extended by

production. The commencement of drilling/operations does not extend the PT(i) Without production, the lease automatically terminates at the end of the 10th

year.(b) Proviso #3 only comes into effect after production is realized and subsequently

interrupted. Proviso #3 does not serve to resurrect the lease after the Habendum clause brings it to an end.

(c) Further, Lessee cannot rely on force majeure argument for spring closure, as the road ban was reasonably foreseeable to Alberta producers.

(5) Fallout: (a) Many Oil Co’s amended their leases to replace “production” with “production or

operations” in the Habendum.(b) Demonstrates how strictly/harshly the Court will interpret a PNG lease(c) Habendum triumphs over Proviso #3 governing duration of lease

(i) Subsequent litigation: what does “operations” mean if not defined in lease?

k) Canadian Superior (CSO) v Crozeti) F: PNG lease commenced July 31, 1975 and expired midnight on July 30, 1980. CSO

assignee started preparing for drilling on July 23 got surface lease, surveyed roads, built roads, prepped well area for rig, brought on rig, got well license (July 30). Derrick raised to vertical position and commenced drilling on July 31 (technically lease had expired at this point). Crozet had a top lease interest.

ii) I: Was lessee conducting “operations” on midnight July 30? YES, lease extended.iii) “Operations shall mean: drilling, testing, completing, reworking, recompleting, deepening,

plugging back or repairing of a well in search of or in an endeavour to obtain or increase production of the leased substances or any of them, excavating a mine, production of the leased substances or any of them (whether or not in paying quantities), or operations for or incidental to any of the foregoing.

iv) Crozet argued: None of the defined components of “operations” occurred by July 30(1) Operations definition suggested well had already been drilled

v) Court: View contracted purposively and interpreted “operations incidental to any of the foregoing” to mean preparatory steps.(1) Test for when preparatory steps are incidental to operations:

(a) Prep steps must be taken in good faith with BF intention of completing well(b) Prep steps must be taken with reasonable diligence pursue to standard practice(c) Prep steps must simply not be minimal

vi) Outcome: (1) Court is reluctant to interpret contract strictly against CSO – comment on the

“liberalization” of absolute strictness of interpreting lease

(a) Views lessee and lessor as being two sophisticated parties capable

l) CSO v Murdoch, 1969 SCC (Kinenmonth problem + delayed SIR + estoppel)i) Reinforces Kinenmonth – production must occur before expiry to extend termii) Parties can repair a defect/lapse in the lease through separate contractiii) Facts:

(1) #1: Lease brought into production following expiry of primary term (Kinenmonth problem). Oil Co applied to ERCB to have well shut-in. Following approval they sent Shut In Royalty (SIR) payment to lessor.

(2) #2: Also, lessor originally had only contracted with Ms. M, but Mr. M also had an interest in the land. CSO later settles with both Mr & Mrs M to ratify the lease, combing both of their interests and declaring the old lease (the terminated one) as being valid

iv) I: Is previously terminated lease (due to Kinenmonth problem) still valid because of supplementary contract with lessor? YES

v) R:(1) Reinforces Kinenmonth no deemed production because SIR payment after expiry

(a) Nor was there any production before the expiration(2) However the lease was extended by a supplementary contract between all parties

(a) Note, there was no top lease in this circumstances so CSO could renegotiate their position

(3) SCC recognizes that this is not an estoppel case, it is simply enforcing a contract that all parties agreed to. Mrs M isn’t “estopped” from changing her position, she is just contract-barred from doing so.

m) “shall have paid or tendered to the lessor on or before the said anniversary date” i) See “Manner of Payment” clause must get payment to certain depositoryii) Paddon Hughes v Pancontinental Oil, 1998 ABCA

(1) F: PO is lessee of pooled leases: Thatcher & Bishop Lease. PH is a top-lessee. Leases require payment by August 17th (T) & 20th (B). PO provides evidence cheques were mailed on Aug 9, but not received until Aug 26 & Sept 4. Without delay rental payments, the lease terminates.

(2) I: Were payments realized before DRP deadline?(3) Bishop Lease; specified that mailed payments are acceptable, implying that payment is

realized at the moment of mailing (Aug 9).(4) Thatcher Lease: Only specified that payment “should be received at X address”, but

otherwise didn’t specify timing/method of delivery(a) Court generously interpreted this as meaning mailing was appropriate, and date

mailed was date of payment(b) Dissent: “all payments made to the lessor at the address specified” should mean

that it is the date received, not the date put in the mailbox (i) Jurisprudence suggests that where contract is silent, default = received

(c) Percy agrees, and notes that MoP clauses vary significantly per contract, therefore this is not really a binding authority.

n) What is meant by “capable of production” in the Habendum? What if marginal?i) Omers Energy v Alberta (ABCA 2011)

(1) F: PNG lease extended by marginal production. Well entered problems, was shut in for 3 years. Lessor entered new lease (not top lease) with different lessee. During this time, OMERS drilled two new wells, one of which started producing. Lessor applied to ERCB to have OMERS license pulled, which they did. Appeal of ERCB goes straight to CoA.

(2) I: What level of production is required for the lease to remain valid?(3) ERCB:

(a) “Capable of Producing” TEST:(i) Capable to produce in its existing configuration and state of completion(ii) Capability to produce “meaningful quantities of the resource”

1. Prudent Operator Test: length of production depends on whether a “reasonably prudent operator” would continue to operate the specific well in light of relevant production.

(4) CoA: Affirms ERCB test well should be able to produce in a consistent state without needing further operations to produce it(a) Sporadic production over a few years ≠ Production

(i) Sporadic well shouldn’t be a means to keep speculative interest alive whil looking for other key wells

(b) Even if Shut In, must still be capable of production(c) “within 90 days cessation of operation period” mean non-producing well had 90 days

to be revived(5) Outcome: OMERS loses marginal well and the producing wells that were installed after

lease terminated

ii) Bearspaw v Encana, 2011 ABCA(1) F: B had gas wells prepared for production, but was not connected to pipeline. E

challenged lease on basis that wells did not meet “producible” lease requirement.(2) H: “Producible” simply means wells must be capable of immediate production of a

quantifiable amount of NG, not that they must be tied in with pipeline.(a) There was no covenant that required the wells be tied into a pipeline to be

considered “producible”(b) Producer simply needs to be able to “turn on tap” upon whim

13)Shut In Wellsa) To take advantage of the Shut In Well (SIW) clause, the lessee must:

i) Must demonstrate Shut In is due to factors beyond operator’s controlii) Must get Regulator’s permission to shut-in well. Takes time,iii) Pay Shut In Royalty (annual payment) prior to the anniversary date of the lease

(1) This is the critical step – failure to do so results in termination of leaseb) Timing of SIR payment

i) Kissinger: It’s okay to make a pre-emptive shut in royalty, even if actual shut in falls in subsequent year (after anniversary date), provided payment arrives before.(1) F: Operator drilling gas well at end of primary term (which was extended by operations).

Unsure if well would need to be shut-in so operator paid SIR cheque in advance. Lessor received cheque before the anniversary date.

(2) Lessor argued: SIR received prior to anniversary date, however well was never shut in before the anniversary date.

(3) Held: SIR payment made in advance of well shut in is valid(a) It’s ok to send an SIR payment ahead of time, even if the party may not know

whether they will have a true shut in well.(b) Note, itc: the SIR clause in this case simply said that the operator must not have

abandoned the well in order to validly shut it in(i) This is an easy threshold to meet to satisfy shut in clause

c) Prereqs to shutting in well i) Durish v White Resources Management

(1) To get “deemed production” during well shut-in, must satisfy the “reasonable cause” test, otherwise lease terminates pursuant to proviso #3 (following a 90 day downtime)

(a) A disagreement over processing fees is not a reasonable cause for a shut in, as the processee can apply to have the pipeline declared a common carrier

(2) Even if valid shut-in, SIR payments must be received before, or “within a reasonable time of expiry” (depending on what lease says)

(3) Payment option in Clause 3 is an option, not a true obligationa(4) F: WRM shut in wells for several consecutive years following a disagreement with

processor. They owed arrears in high processing costs and didn’t want to pay them. Additionally, they didn’t send SIR payments until 7 months after they were due.

(5) Court: The lessee refusal to pay high processing fees doesn’t satisfy the “cause within reasonable control” or “lack of intermittent market” requirement of the Shut In Clause/proviso #3.(a) The lessee could have applied to the regulator to have the pipeline declared a

common carrier.(b) The lease is invalid because the delay following the cessation of production was >90

days.(6) Even if a valid shut in (which deems it production), the late SIR payments invalidate

their argument.(7) The lessee is also not entitled to a notification of breach, because the payment of the

SIR, like the DRP, is an option to continue the lease, to deem it production. A failure to pursue this option just means the lease runs its course, not that it is a breach of contract.

(8) Based on the language ““the lessee shall pay the lessor at the expiration of each such year…” the Court softened the payment requirement, and said that if it was paid within a reasonable time following expiration, that would also be acceptable.

ii) Teg Holdings Ltd (“lack of transportation facilities”)(1) Court will not allow lessee to avoid production where it is simply more

commercially favorable for the lessor to not produce.(2) Onus on lessee to demonstrate reason for non-production(3) F: Operator claimed they needed to shut in their well because too costly to get access

to pipeline and lack of intermittent market. Well shut in for 20 years.(4) H: Were the wells “shut-in, suspended or otherwise not producing as a result of, a lack

of or an intermittent market or lack of transportation facilities or any other cause whatsoever beyond the control of the lessee?”

(5) Court:(a) Onus on oil company to demonstrate that they satisfy necessary test to excuse non

production i.e. to get deemed production via SI clause.(b) Court reluctant to accept soft “lack of transportation facilities” reason

(i) Policy: Otherwise processors with wells would be able to monopolize wells.(c) There was a nearby pipeline, within ability of TEG to negotiate access or apply for a

common carrier(d) Not excused from lack of or intermittent market because there should have (e) Note, real motivation: TEG was operating a well over-encumbered with overriding

royalty payments. Likely waiting to hold out on production until gas prices went up.

iii) Lady Freyberg (“lack of or intermittent market”)(1) Onus on the lessee to prove there is an absence of a good market

(a) TEST: Based on information available at the time would a prudent lessee have foreseen profitability?

(2) F: Lessee shut in lease for 21 years. Claimed “lack of market” exception.(3) Overwhelming evidence that there was a good market if gas for a long time

(a) Lessee had two other wells in the same field that were producing(i) Why? The other wells had more favorable royalty terms. (motivations)

(4) TEST: Would a prudent lessee based on the information that they had avaialable to the time have foreseen profitability?(a) Objective/subjective standard.

(i) Prudent lessee based on 1) character and nature of lessee, and 2) reasonable expectations of parties

iv) Kensington Energy v B&G Energy, 2008 ABCA(1)Essentially two shut in clauses:

(a)Role of C#3: to allow an SIR payment be made to deem production – supplements habendum

(b)Role of P#3: to implement 90 day time limit in event no “good oilfield practice” reason for shut-in (avoided if SIR payment made)

(2) F: Kensington acquired 5 year primary tem lease in 1987, spudded well in 92, and operated well from 96-01 then shut-in gas well in 01. Appropriate SIR payments were made throughout. Lessors not party to litigation. B&G acquired top lease and brought claim that K’s lease had expired.

(3) Clause #3: If all wells are shut in… the lessee must pay a royalty(4) Proviso #3: If well is shut in, suspended, not drilled etc, 90 day maximum period of

inactivity, UNLESS “good oilfield practice” reason(5) I: Does proviso #3 limit the application of clause #3, to only “deem production” when

there is a “good oilfield practice” reason (in addition to SIR)? NO(6) Reasons: Proviso #3 does not limit clause #3 – the clauses deal with different things

(a) Object of proviso #3 is to prevent 90 day time limit from running against the lessee in the event there is a valid cause for the shut-in(i) Whereas object of Clause #3 is to require a shut in payment to deem production

any time well is shut in for more than 90 days1. In this lease, no requirement that shut-in have a valid cause or lack of

intermittent market(b) Clause #3 is connected to the Habendum, and “deems production” where the SIR

payment is made. It would be illogical to have a minor part of Proviso #3 modify this relationship, which has the raison d’etre of deeming production

(c) Distinct from Durish: In Durish, similar lease, but lessee in that case had not made required SIR payments. In absence of payments, clause #3 didn’t operate to deem production. Therefore proviso #3 kicked in – in the absence of a “good oilfield practice” behind shutting in the wells, then 90 day time limit was triggered.

v) Stewart Estate v TAQA North, currently before the ABCA(1) Hinges on: “well can be shut in as a lack of or intermittent market”(2) TJ (same as in Freyberg) provided generous interp in favor of lessee(3) TEST:

(a) Is it commercially prudent to shut-in the well during relevant peiod, given the low price of gas and the high processing costs?

(4) Test favors a commercially reasonable interpretation as opposed to a strict literal interpretation (i.e. no market, verses a commercially prudent market)

14)Unexpectedly Terminated Leasea) What remedies are available when a lease is held to be invalid?

i) Note, usually a gap in time between when lease becomes invalid and discovery of it.ii) Sources of innocent trespass:

(1) Improper surveys(2) Conducting operations after lease has unexpectedly terminated(3) Note, Crown gives no warranty of title not liable if they mess up lease

b) Disgorgement – the notion of “profit stripping”i) Essentially an arbitrary and punitive form of punishment, as the amount is based solely on

how much over-production occurred.(1) “good faith” trespassers = net proceeds; “bad faith” = gross proceeds (Champlin)

(a) BUT “bad faith” trespass in Wassan only fixed exemplary damages awardedii) In equity, disgorgement is usually reserved only for equitable wrongdoings:

(1) Ex. Breach of fiduciary duty, breach of confidence (LACs Minerals), where rationale is to punish wrongdoing of faithless fiduciary, untrustworthy confidante…

(2) Therefore, disgorgement really is intended to punish blatantly wrongful acts

c) Champlin v Aladdin – (geophysical trespass – a case of mistaken title)i) F: Champlin mistakenly produced on Alladin’s land. Halted production and offered “net

proceeds” to Aladdin. Alladin insisted on revenue being calculated at highest market value, not what champlin sold it for.(1) Alladin claimed it was a conversion – claiming the oil was actually personalty that was

converted by Champlin(a) While Texas case supports this, Xerex casts doubt on whether subsurface oil is

personalty(2) Court held that Aladdin cannot have highest market value, or claim in conversion

because they did not litigate promptly. (a) See Asamera – requires parties litigate once interest crystallizes, or otherwise they

must take steps to mitigate their loss(b) Policy: should not be able to sit aside and speculate on oil price

(3) Also, Champlin was a “good faith” trespasser(a) Policy concern that gross proceeds would far exceed compensation for Aladdin(b) A “bad faith” trespasser would need to give up gross proceed

d) Weyburn v Sohioi) Challenges availability of Champlin “automatic disgorgement” remedy

(1) Instead, trespasser only needed to “partially disgorge”ii) Grounds for Estoppel argument: i) PE cannot revive a dead lease ii) unequivocal

repres that they will not rely on strict legal rights, iii) reliance on represiii) F: Lessor brought action that lease had terminated (same as in Kinenmonth). Initially,

neither lessor nor lessee noticed the discrepancy and production continued. Discrepancy went unnoticed for approx. 7 years.

iv) H: Lessee only needs to disgorge profits following moment when lessee filed claim.(a) This was intended to allow S, an innocent trespasser, to recover their costs(b) Unjust Enrichment argument raised by S, albeit subconsciously (not called UE)

(i) Unfair to enrich Lessor (W) at expense of the good faith Lessee (S)1. S would not have drilled well if they knew their lease was expiring2. W received an incontrovertible benefit (they were enriched at S’s deprivation.

Once lease expired there was no juristic reason for the enrichment (S would not have invested in it if they couldn’t use it)

(2) Distinct from Champlin: As noted in Williston, S ended up getting 70% of production and W ended up with 30%, whereas in Champlin, producer needed to disgorge all of their net proceeds.

v) Promissory Estoppel (PE) Argument ( Sohio ): an argument of last resort(1) Lessee argued that Lessor, W, should be estopped from denying validity of lease

(a) On the facts: Lessor i) asked for offset well, ii) reminded lessee to pay their share of mineral tax, iii) received royalties through, iv) allowed Sohio to unitize their land.

(b) These “words and conduct” should estop lessor from claiming there was no lease(2) BUT Estoppel requires the following :

(a) PE cannot create a contract where there isn’t one (that requires consideration)

(i) PE cannot revive a dead lease(b) Must be unequivocal representation that lessor won’t rely on strict legal rights

(i) Itc, impossible since lessor was not aware that lease was invalid!(c) There must be reliance on said representation by lessee

(i) Lessee was acting on the basis that there lease was valid(3) Mutual mistake cannot support claim in Estoppel

e) Williston Wildcatters (Lessee) v Bank of Montreal (Lessor)i) Court adopts more compensatory approach instead of just auto disgorgement

(1) BMO incapable of producing land themselves only awarded boost in royalties(a) Net-proceeds would have exceeded fundamental principal of compensation

ii) Compensation for “lost opportunity” based on reasonable expectation in circsiii) F: Leased expired, but lessee continued production. Lessor claimed net proceeds.iv) H: Lessor only received damages for incremental royalty rate they could have negotiated

upon actual lease termination (given less risk involved with producing well lease). (1) Compensation should be for reasonable lost opportunity:

(a) BMO was not an oil company – their only lost opportunity was potential to re-lease land to somebody else for a higher royalty

(b) Therefore, compensation simply higher incremental royalty payments.(i) BUT it was only a marginal well, so really only nominal damages itc

v) Critique: Some lessors will get compensated less than others in exact same circ(1) BUT this is in line with tort law, i.e. personal injury: injured neurosurgeon compensated

more than injured hobo

f) Lady Freyburg, 2007 ABQBi) F: Voyager (V) shut-in well on LF’s land. Previous case (2005 ABQB) held lease as being

terminated and producer liable. Issue in this case is appropriate remedy.ii) V argued LF was not entitled to net-proceeds (profit stripping):

(1) While she was physically capable of producing well herself, given her nature of preferring passive investments (9 days of evidence) she likely would have just re-leased lands to producer bidders.

iii) BUT she would have been able to do so at a respectable premium (30-45%) based on productivity of well LF received substantial damages (~$2,5M)(1) Distinct from BMO: where well was only marginally productive nominal damages

iv) Factor: Court was critical of V because they continued to fight her even after previous Court decision that they were liable.(1) But conduct was not “sufficiently reprehensible” to award punitive damages

(a) Muddled by fact that there were other defendants involved Voyager(2) As lessee’s were not considered “bad actors” the appropriate measure of damages was

compensation (not restitution)

g) Summary: i) Champlin –

(1) Good Faith trespasser net proceeds disgorged (Mild Restitution)(2) Bad Faith trespasser gross proceeds disgorged (Harsh Restitution(

(a) UNLESS claimant fails to litigate promptly (Asamera)ii) Weyburn – could support mild argument that Champlin applies in Canada

(1) Disgorgement allowed to extent, but good faith trespasser allowed to recover expenses (however done differently than champlin)(a) Based on date that statement was filed (30:70 split)

iii) Wildcatters – Damages based on tort principles of compensation rather than disgorgement (harsh v mild restitution)

(1) TEST: Compensation for “lost” opportunity based on reasonable expectations in the circumstances oil producer: net proceeds; passive investor: boost in royalties(a) How is net proceeds compensation different from net proceeds disgorgement?

(i) Direct comp for “lost opportunity”, not punishment for wrongful gain of D based on degree of wrongfulness (i.e. mild vs harsh restitution]

h) Unjust Enrichment argument i) Possible to sue both in Tort (trespass, conversion) and in UE

(1) UE profiting from an equitable wrongdoing (breach of confidence – ie LAC)(a) Benefit: An incontrovertible benefit? Continued occupation of land; exploitation

resources(b) Deprivation: lost opportunity to exploit own resources(c) Lack of juristic reason: the lease is no longer valid, therefore no legal right to be

there(d) Remedy: reasonable bonus + market royalty rate for right to stay on land

(2) Therefore, should be able to sue in UE but end result will likely be the same as a tort in trespass

(3) Williston court incorrect when holding P did not have a claim in UE(a) Court thought UE mean disgorgement, BUT it does not (various remedies)

i) Xerex v Petro Canada, 2005 ABCAi) Compensation principle applied for bad faith equitable wrongdoing

(1) Demonstrates that tort compensation is highly fact dependent(2) NO real legal basis for this award, just seems fair to the Court

ii) Fiduciary duty engaged when drilling overholdiii) During negotiations, a misrepresentation can amount to an equitable

wrongdoingiv) F: 1980’s gov’t implemented Deep Rights reversion. Xerex owned deep right. PC owned

shallow rights. PC received permission from regulator to drill “overhole” into Xerex’s layer so they could fully exploit their shallow layer. PC wrongfully took samples of X’s layer, which revealed it was a very rich property. PC approaches X to make deal. X at end of lease so agrees to allow PC to produce in exchange for royalty. Before producing, PC sells rights to Progress (in package with other production rights), who begins producing, ultimately gets $16.2M in proceeds, and ignores X’s royalty. In course of pursuing P for royalty, X discovers PC’s wrongful conduct and claims UE.

v) X claims i) Breach of fiduciary duty, ii) Misuse of Confidential Information(1) Essentially Bad Faith Trespass

vi) I: What is the appropriate remedy in these circumstances?vii) H: PC used wrongfully obtained info for profit. Disgorgement for equitable wrong.

(1) BUT – only 50% of Progress’s proceeds. Why? (2) There were two complicating factors

(a) PC sold package of interests to progress for very little ($12.5M)(i) Progress had gained net proceeds of $16.2M from X’s former interest(ii) Because PC sold for very little, not fair to provide just disgorgement to X

(reallocating PC’s wrongful gain to X)(b) At time of deal between X and PC, there were only 12 days left in X’s lease

(i) Therefore, unlikely they would have produced themselves(3) 50% based on the fact that if PC had properly disclosed information to X, then they

likely would have been able to negotiate a 50% royalty on production.

j) International Corona Resources v LAC Mineralsi) Equitable wrongdoing (breach of confidence), wrongdoer entitled to

compensation for benefit (construct mine) transferred to claimant(1) Compensation = costs that claimant would have spent themselves to acquire

same benefit

(2) To claim lien: improvement must be made under bonafide believe that the claimant owned the land

ii) F: Corona had info on large gold mine, but not enough resources to develop it. Approached LAC with confidential info to garner their interest. LAC took info and developed mine on their own.

iii) SCC held: Breach of confidence, LAC needed to transfer land to Corona.iv) I: What compensation should LAC receive from Corona for developing lands?v) LAC received the costs that Corona would have otherwise spent to develop land

themselves(1) This equated to LAC’s actual costs, less the cost of a mill since Corona already had an

operating mill on adjacent landvi) Corona didn’t have $$ to pay LAC, so LAC was allowed to register a lien on the land

equivalent in value to the enhanced value of the land due to the conferred benefitk) Republic Resources, 1982 ABQB

i) Claim in UE only possible when benefit (well) begins to realize value(1) Itc: well not producing at time of claim, how could lessor be expected to pay?(2) Other factors: Lessor hadn’t asked for benefit; O&G is risky venture

ii) F: Kininmonth problem – RR didn’t finish well until after expiry of primary term. Lessor successfully sues for termination of lease. RR makes claim in UE against lessor on basis that lessor received $188K gas well.

iii) H: RR not entitled to compensation for unascertainable benefit. Various unconvincing reasons:(1) Court could not award UE when it was unclear whether well would produce or not

(a) Lessor may not receive any money to pay court order(2) Additional:

(a) Lessor had not asked for benefit(b) O&G production is an inherently risk venture

iv) Outcome: (1) If filing a claim in UE

(a) Commence action once well is producing(b) Equitable lien (as in LAC Minerals)

(i) In Republic, P argued for lien under incorrect Act (LTA) instead of Law of Property Act, as seen in LAC (for Ontario) 1. However apparent that Court reluctant to provide lien to RR for some unsaid

reason

15)Nature of Royaltiesa) Royalties are reflective of speculative nature of O&G production, lessors only receive an

interest in future revenue. Operators may not have cash/assets to pay up front.i) Represents a share in productionii) S1 Securities Act: A Royalty is a security

b) O&G is a dynamic industry. Land constantly changing hands and frequent insolvenciesi) Better to have Royalty as an interest in land, where it is enforceable in rem

(1) i.e. an interest in land is binding upon future purchasers(2) As opposed to: A contractual right, which is only enforceable in personum (privy)(3) LTA: Requires that interest be an interest in land in order to attach to title

(a) Even if there is a caveat registered on title (for contract right), may not be binding on purchaser

(b) prohibits title being issued for interests smaller than 1/20th

c) Lessor’s Royalty: i) A Royalty on Production: a cost free share of production carved-out of mineral estate

(1) Lessor’s Royalty = an interest in land because it is carved out of the mineral estated) Gross Overriding Royalty Interest (GORI)

i) If well is farmed out by lessee, then they carve out a “working interest” to operator in exchange for a GORR.(1) “Working interest” carved out from interest of lessee(2) More difficult to describe as an interest in land, because lessee do not own mineral

estate, only the leasehold(a) Therefore, GORI may appear more like a contract instead of a lease

e) Two approaches to Characterize Royalies: i) Traditional Approach: Did actual wording of written lease convey interest in land?ii) Functional Approach: Did parties intend to convey an interest in land?

f) Bensettei) Royalty = interest, depends on specific language used in granting instrumentii) If drafting royalty clause, be sure to stipulate you are granting a royalty

“interest”(1) Otherwise risk that it be denied as a contractual right instead of prop interest(2) Words “property”, “interest”, “minerals in situ”… instead of “payment”

iii) Speculative nature of minerals does not prevent interest from being conveyediv) A royalty interest can be conveyed at any point by owner, even before

explroationv) F: Burke (private corp) provide 6% royalty interest to P. SHs registered caveat at LTO.

Later, Burke sells land to D. P then lays claim against D for royalty.(1) Language of grant: owner “doth give, grant, bargain, sell, assign and transfer a 6%

royalty in all the minerals which may be found in, under, or upon said lands”vi) I#1: Did Burke have a valid interest to grant a royalty?

(1) Yes, he had a valid mineral estate and could convey a fraction of this interestvii) I#2: Was the Caveat valid?

(1) Yes, an interest in minerals is a property interest and can therefore be registered(a) As specified by Sask LTA

viii) I#3: Did Burke make a successful conveyance?(1) Yes, language is unambiguous transfers 6% fractional interest of mineral estate

ix) I#4: Was conveyance an interest? If not, if contractual right, then dies with sale.(1) YES, Court needed to assess language of granting instrument to assess whether it

intended to convey a property interest or a mere contractual right(2) Royalty “in” land = interest; Royalty “on” land = Commission (contractual)(3) Using the word “royalty” instead of “interest” does not change fact that it is the

conveyance of a property interest.x) Who pays the royalty?

(1) The lessee has taken the lease with all encumbrances…

g) Sask Minerals v Keyesi) Martland J: Traditional Approach – focus on specific words in contract re royaltyii) Laskin (dis): Functional Approach – depends on intention of grantor.

(1) “Royalty” should be reputably presumed as interest in landiii) F: Astral acquired salt leases in exchange for “a royalty of $0.25 per tonne on all salt

produced and sold from the said leaseholder property.” Sask Co buys leases from Astral and indicates they do not owe royalties since they were not interests in land

iv) I: Was granted royalty an interest in land?v) H: Based on Bensette traditional approach, royalty was not an interestvi) Martland (Maj):

(1) #1: Not an interest because no permission was received from Minister(a) Permission required, as mandated by certain statute

(2) #2: Also, the specific wording in lease suggests this is not an interest(a) “Royalty” does not necessarily create interest in land

(i) “Royalty on substances produced, saved and sold” = contractual right

1. Indicates a right in personalty (salt blocs), which does not run with land(ii) Should have used “Royalty in MM” for a property interest

vii) Laskin (Diss): Ridiculous to focus on specific wordage. Adopts functional approach(1) Courts must look at intention of the grantor – the purpose of the transaction

(a) Royalty = payment to enable someone to exploit MM(b) Compares royalties to CL farming “rental charge” (farmer rents out field) which is an

interest in land(i) Regardless of whether charge is x$/acre or x% of money earned by harvest.

(c) Function of royalties essentially the same as rental payments(2) Should be: Rebuttable presumption that term “royalty” = a Property Interest

(a) Can be rebutted by otherwise clear intention that it is a contractual right only

16)Royalty Trust Agreementsa) Problem: Farmer provides profit a prendre to Oil Co in exchange for a Royalty Interest, which

could be worth very little or a lot.i) From investment perspective, nice to diversify with other Royalty interestsii) BUT you cannot subdivide interest < 1/20 at LTO!

b) Solution: In Alberta, Trust Companies provided “trust certificates” to farmers (lessors) in exchange for their Royalty Interest (RI). Lessors could then subdivide trust certificates further than 1/20th LTA restrictioni) Note, Saskatchewan has a different solution. Farmers would form companies into which

they would all input RIs in exchange for shares. Each farmer received shares based on proportional land ownership.

c) BUT – when farmer transferred Royalty Interest to Trust Co, was this just a contractual right? If so, it cannot be registered in the LTO as an interest in land. i) Trust Co would not be able to enforce Royalty Interest against future lessors (or lessees)

17)Guaranty Trust v Hetherington, 1989 ABCAa) F: 1948: Aldens leased lands. 1952: Transferred RI to Prudential Trust via RTA – caveat

registered for RTA. 1958: lease expired w/o production. 30 years later, production commences but under new lessor. Lessee identifies caveat and will only pay royalty to Trust Co, not lessor. Lessor sues, claiming RTA was not an interest in land

b) I: Was the RTA an interest in land, requiring Oil Co pay Trust Co? c) H: CoA held RTA was terminated based on a technicality- not determinative of RTA nature.d) TJ: Adopted traditional approach per majority in Sask Minerals caveat invalid

i) RTA says that lessor transferred “12.5% share of production”(1) Share in production is a contractual interest, not an interest in land

e) CoA: Decides case based on cancellation provision of RTA contracti) Indicated lessor only obligated to preserve royalty in favor of Trust Co if lease was

cancelled, however itc the lease expiredii) Percy: calls bullshit – there are no cancellation clauses in leases, just expirations. Parties

clearly intended cancel=expiredf) Outcome:

i) Result unsatisfactory to industry – so a large number of test cases were stated to verify status of RTA agreements

18)Scurry Rainbow Oil v Galloway Estate (93 ABQB, 95ABCA)a) Adoption of functional approach in Alberta wrt Royalty Trust Interest

i) Presumption: Royalty interest is an interest in land(1) UNLESS – specific language manifesting a contrary intention

b) QB: Court looked at terms of agreement to interpret parties intentionsi) Clear that agreement were intended to bind successors

(1) Especially since some agreements can be entered into even before a lessee enters the picture

ii) Otherwise agreements would be worthless if only binding on owner in his personal capacity as a contractual right

c) ABCA: Basically just reinforced the QB’s decisioni) Lessor has two rights: reversionary right on profit a prendre, and fee simple interest in in

situ substance as constituted by royalty interest(1) Royalty interest attached to in situ oil and even when oil becomes personalty

ii) When RI assigned to RTI it is carving out from this interest, therefore runs with land

19)Bank of Montreal v Dynex, 2002 SCCa) Royal Interest or a GORR COULD create an interest in land

i) IF that is the intention of the partiesb) F: Dynax had number of leases with caveated, GORR interests on them. BMO financed Dynax

and took security interest in leases. Dynex became insolvent and BMO acquired Dynax’s property. BMO attempted to sell off without regards to GORR interest. BMO claims GORRs are only contractual interests. GORR owners disagree,

c) Issue: Do GORs represents an interest in land?d) TJ: GORs invalid because old CL rule that it is impossible to create a further interest in land out

of an incorporeal heridatement i) Corp H = a material object (land, building, trees etc)ii) Incorp H = a right in land (easements, profit a prendres etc)

e) CoA: Adopts Laskin’s functional approachi) RI or GORR are both interests in land. You can carve out an interest from anther interest

regardless of whether it is a Corp H or an Incorp Hii) Possible to create further interest out of incorporeal hereditament, provided:

(1) Parties intended to do so(2) And the interest was no greater than the based interest (nemo dat)

iii) Laskin identified RIs as interests in land, therefore should be able to have sub-interestsiv) No point in creating GORs unless they ran with the landv) By filing caveat, parties evidenced their intention that it should run with land

f) SCC: i) An OG lease is an interest in land (Berkheiser), therefore if you own this interest in land you

can create another interest in land in the form of a royalty.(1) “RI can be created from IH, such as working interest or profit a prendre, if that is the

intention of the parties”(2) Royalty interests would only make sense as property interests in unproduced minerals.(3) Royalty interest of overriding royalty interest = interest in land IF:

(a) Language used in grant demonstrates intention of it to be an interest in land(b) The interest, out of which the royalty is cared, is itself an interest in land

g) Remitted back to Trial: i) TJ: “in the event of…. Net substances… produced, saved, and sold…”

(1) The language doesn’t appear to provide an interest in land(a) Same reasoning as Martland in Hambly!!! Full circle.

h) PP: If drafting royalty agreement, make it clear that Royalty Interest or GORR attaches to a portion of the working interest an interest in the MMi) Avoid: “interests in petroleum substances, saved produced and sold” etc

20)Crown DispositionsLicense granted for exploratory purposes productive well drilled in order to validate license (licensees may group wells in initial term to benefit from single validation) once validated, then licensee can apply for intermediate term (lease) [OLD SYSTEM], NEW SYSTEM = production in license means license automatically becomes lease, indefinite as long as productiona) The breadth of Crown dispositions have been narrowed over past decades as Alberta P&G

becomes more attractive, the gov’t tightens their bargaini) Until 1962:

(1) Crown leases renewable for 21 year term(2) Covered huge tracts of land (1900 acres)

(a) Generous, as to attract investors to develop remotely located interestsii) 1976 System

(1) Two tier system introduced(a) Licenses for Exploration (under M&M Act)

(i) The Plains: 2 year term, max 15 sections(ii) The North: 4 year term, max 32 sections(iii)The Foothills: 5 year term, max 36 sections

1. More remote/unattractive prospects have longer terms/larger land(b) Leases for Production:

(i) Duration 5 years1. To extend lease term:

a. Drill productive well within SU included within leaseb. OR unitize interest with other productive well

i. THEN offset royalty payment requiredc. Subject to obligation to pay offset compensationd. OR can pay $25 per hectare to extend lease by 1 yr if you have seismic

data suggesting lease is potentially productiveiii) 1998 System

(1) Removed the need for a two-step process(a) i.e no need to do a separate lease application

(2) If you had license, and you drilled a productive well within the license term (2,4,5 yrs) then you can produce from license(a) You don’t need to apply for a separate lease

(3) Leases will expire at end of primary term UNLESS proven to be productive:(a) Continuation is on application to the Minister(b) Continuation may be based on productivity of related areas(c) Continuation may be based on drilling of qualified well

(4) License automatically converts to lease upon production(a) No need to apply for separate “lease” any more

b) Why seek license instead of lease? i) Longer working period under a license, as you get initial exploration time plus the

extendable lease option. So (2,4,5 exploration years + 5 yrs for lease)ii) License = a step for a longer interest, where 5 yr period is not sufficient to demonstrate

productivity

c) How to obtain Crown lease? i) Tender system held every two weeks except over Christmasii) Company interested in lands approaches Crown Minerals Review Committee and requests

that they be tendered the CMRC always says “yes”(1) Therefore, initiating corp generally has an advantage as they likely know more about

the land than anybody else(2) 8 weeks later land posted on system and goes to highest cash bid(3) Can request that lands be posted either as a license of a lease(4) Max area?

(a) If license, then max areas as per 1976 licensing requirements(b) Min area:

(i) 1 DSU for leases(ii) 6 sections for licenses in plains(iii)1 section for license in North or Foothills

iii) Advantages of system:(1) Free of corruption

(2) Really is an unbiased system as it is based solely on highest bidder(3) Massive source of Crown revenues

(a) 2010: $2B, 2011: $3.5B, 2012: $700M, 2013: $500M, 2014: $489M

d) Extension of lease i) Lease expires at end of primary term unless proven producing or productiveii) Continuation is upon application to the minister

(1) May be based on productivity of related areasiii) Continuation may be based on drilling of qualifying well

e) Terms of Crown Grant i) The lease is worded strongly in favor of the Crown

(1) The Crown doesn’t warrant that the title is good(a) The Crown grants M&M interests “in so far as it has right to”

(2) The Crown can change the Royalty rate at any point(a) The Royalty is as stipulated with the M&M Act(b) The lessee contracts to comply with the M&M Act, therefore has no legal options if

the royalty rate is changed even drastically (c) Also, the lessee contracts out of any right to claim an exemption from the M&M Act

(such as immunity, prerogative etc)(3) Royalties are calculated “free of any deductions except as under the M&M Act”

(a) Unlike freehold lease where Lessee determines what transport deductions are in place (via JPF), the Crown stipulates what specific deductions are allowed in a Crown lease.

(4) The Crown can also strip lease of certain mineral rights at any time(a) Why? The compliance with the law provision – no legal recourse for lessee

(i) Lessee must comply with all future and present laws, including those that strip the rights of the lesseee

(b) 1980’s Deep Rights Reversion: Crown stripped deep rights from lease so as to include productivity and return from same surface area

(c) 2009: Shallow rights reversion(i) Similar principle as DRR, but to shallow rights(ii) Legislation is passed, in M&M Act, but never proclaimed (after backlash)

ii) Why is the Crown lease still a viable option for operators?(1) There is a degree of political confidence in the system

(a) Despite past gov’t actions that have angered industry(i) Royalty Reform 1973(ii) Royalty Review 2007(iii)Deep Rights Reversion 1980’s

(2) In developing world:(a) Companies usually insist on fixed royalty rate for entire term of lease(b) Stabilization clause – subject to countries laws as they now stand

f) How to verify Crown Title? (To ensure that interest is unencumbered)i) Land Titles Search at the local LTO

(1) BUT Land Titles Act doesn’t cover all of the province such as Northern Alberta or Foothills, which have never been brought under the LTA

ii) Crown Mineral Dispositions Registry System(1) S91(5) M&M: Registered transfer is valid against any prior or unregistered transfer

(a) Allows for security interests, liens etc to be registered against leasehold interestiii) The LTA Assurance Fund

(1) Where the LTO makes an error, forgets to record an interest, then assurance fund intended to compensate both parties for loss

(2) BUT – the assurance fund does not apply to Mines & Minerals!

(a) Ex. If clerk forgets to record a reservation of PNG!(i) Subsequent operator is SOL

(3) Therefore, you need to do a “Historical search” on the mines & minerals interest(a) Every mineral interest needs to be searched back to root of title

(i) All conveyances since the original Crown title(ii) Note, only applies to LTO mistakes, not unregistered interest (those don’t get any

protection)

g) Industrial Coal & Mineral Ltd, 1977 ABQBi) If the gov’t messes up and cancels your lease (acting unfairly) then there

remains a right to proceed with lease as if it wasn’t messed up(1) Administrative law remedy, not property right based(2) F: Lessee received title to Crown lease that contained an abandoned well. Dispute over

whether the abandoned well was granted with the lease?(3) Lessee can only claim a right to what lessor granted them(4) Lessor can essentially grant any right provided they own the interest(5) “Right to work for, explore, win and recover O&G did not include abandoned well(6) BUT Minister acted unfairly and ought to have asserted that well was not included when

it became clear that lessee was relying on said well to extend lease(a) Gov’t didn’t act fairly in dealing(b) Remedy: Treat the lease as if it wasn’t expired, the right to proceed as if there

wasn’t a delay caused by gov’t

h) Default & Cure i) S8(1): Minister has discretion to extend lease period to allowed “deemed protection” or to

fix dates of events to allow production etc(1) If they think it is in the public’s best interest (CURE)

ii) S8(1)(e): Minister can reinstate cancelled/surrendered lease if application made within 60 days of cancellation (REINSTATEMENT)

iii) S45(1): If there is a breach of conditions of lease, lack of general compliance with any law or regulation Minister can cancel a Crown lease(1) If the breach is remedial, then Minister must provide 30 days notice for it to be

remedied