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

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Presentation on theme: "Oil and Gas Rights in Canada: Dealing with the Crown and Freeholders Paul Negenman, Lawyer Lawson Lundell LLP."— Presentation transcript:

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

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

3

4 CANADA - C RUDE O IL

5 CANADA - C RUDE O IL P IPELINE

6 CANADA – N ATURAL G AS

7 CANADA – N ATURAL G AS P IPELINE

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

25 BRITISH COLUMBIA THINK OF CALIFORNIA WITH MORE RAIN

26 BRITISH COLUMBIA

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

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

29 BC TENURE Almost all Crown oil and gas rights.

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

31 BC T ENURE   Leasing of Crown mineral and surface rights regulated by the BC Oil and GasCommission (BCOGC)   Fee Simple lands governed under the Land Titles Act and administered by the Land Title & Survey Authority of BC (LTSA)   Mixed Torrens and Registry system

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

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

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

35 BC – LNG PIPELINE ROUTES

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

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

38 ALBERTA THINK OF TEXAS WITH SNOW

39 ALBERTA

40 ALBERTA

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

42 WSB – T ENURE H ISTORY   Largest area of Fee Simple Mineral Title ownership outside of the USA   Three main categories of Fee Simple Title:   First - Hudson’s Bay legacy lands   1670 King Charles II granted all rights within the Hudson’s Bay drainage basin to “TheGovenors and Company of Adventures of England Trading into Hudson’s Bay   Oldest stock company in the world   1869 rights traded back to Crown, reserving 1/20 of surveyed lands   Becomes the Section 8 and 26 fee simple mineral lands   Now widely held by oil & gas companies

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

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

45 WSB – T ENURE H ISTORY   Third – Railway Land Grants – 1880s, cont’d.   CPR maintained ownership of these fee simple mineral rights   CPR creates Canadian Pacific Oil and Gas Company to administer these rights   CPOGC becomes PanCanadian Petroleum Limited   Fee simple administration and active oil & gas produces   PCP becomes Encana Corporation   2014 – Encana Corporation spins off the fee simple mineral rights into a new company –Prairie Sky Royalty Ltd.   Encana received $1.46 billion for 46% of the new company   One of the largest fee simple mineral companies in the world

46 ALBERTA – T ENURE H ISTORY

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

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

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

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

51 ALBERTA – C ONVENTIONAL O IL   Boom in Alberta conventional oil production due to HZ drilling   Wide area of tight oil plays, but many occur on Freehold tenure   Individual Fee Simple owners   Within the Checkerboard   Regulatory issues due to old “one well per pool” legislation   Adopted density drilling provisions in AB   Oil and Gas Conservation Rules   Applies to oil & gas wells in certain defined areas   Production Allocation Unit Agreement (of some type) required

52 ALBERTA –O IL S ANDS   Defined areas with massive projects   Crown mineral rights   Significant regulatory hurtles and processes   First Nations areas   Some large mining projects, but the vast majority of new production will comefrom in situ projects

53 ALBERTA – OIL T RANSPORTATION WOES   Unfortunately, we cannot fly our oil to market   Moves for pipelines to   BC   Eastern Canada   USA   Delays are moving more oil to rail   Federally regulated   Existing infrastructure and right of way

54 SASKATCHEWAN THINK OF OKLAHOMA WITH EVEN FRIENDLIER PEOPLE

55 SASKATCHEWAN

56 SASKATCHEWAN   Second only to Alberta in oil production, 20% (or so) of Canada’s oil production   Lots of small conventional pools and resource plays in SW Province   Massive Weyburn unit (currently in tertiary CO2 recovery)   Also has significant gas resources – mainly dry gas, not liquids   Massive move to HZ drilling   Spacing units almost dead   horizontal drainage area and ultimate drainage area used for HZ wells   Larger freehold footprint leads to more freehold validity issues and PAUA issues

57 SASKATCHEWAN   Crown surface and mineral tenure administered by the Saskatchewan Ministryof the Economy (SECON)   Licensing and development of oil and gas matters also regulated by SECON   Fee simple tenure governed under Land Titles Act, 2000 and Information Services Corporation (ISC)   Full Torrens system like Alberta   Many oddly split and complex fee simple titles

58 SK – F UN TENURE F ACT   SK is notorious for the “stealing” of foreign (US) fee simple mineral rights forproducing lands during the 1970s oil crisis   Oil and Gas Conservation, Stabilization and Development Act, 1973   Deemed transfer and vesting of private fee simple rights in Crown   Producing tract, down to and including producing zones   Anyone holding more than 1,280 acres (2 sections) fee simple mineral rights   Only lessor (fee simple owner) rights expropriated, not lessee (WI) rights   Actually stripped the lands out of the fee simple title and created new Crown acquiredmineral titles   Creates very confusing and custom Crown acquired splits in producing areas

59 MANITOBA

60 MANITOBA   Around 40,000 boe/d of oil production   Light sweet oil   Massive move to HZ drilling   Spacing units almost dead   horizontal drainage area and ultimate drainage area used for HZ wells   Production allocation required

61 MANITOBA   Largest fee simple mineral footprint (percentage wise) in the WSB, so lots offreehold validity issues and PAUA issues   Land Titles system is a mix of Torrens and registry   Manitoba Land Titles Office of the Property Registry   Land is Township survey, but many more meets and bounds splits due to thelonger and greater individual fee simple mineral ownership   Regulation of oil & gas activities by Manitoba Innovation, Industry and Mines

62 ONTARIO

63 ONTARIO   Minor oil producer   Legacy oil pools near or under great lakes   Really hard to drill through the Canadian Shield

64 QUEBEC

65 QUEBEC   Little or no existing production   No historical oil & gas industry   Very tentative steps in the early 2000s to explore for NG   No fracking way

66 THE EAST COAST ATLANTIC OFFSHORE

67 THE EAST COAST   Large offshore production and potential production   Relatively settled Crown ownership and regulation   Historical disputes between Federal and Provincial Crowns   Atlantic Accord (1985) NFLD   Canada-Nova Scotia Offshore Petroeleum Resources Accord   More recent disputes between Provinces   Generally administered through combined Federal Provincial Boards

68 THE NORTH

69   Onshore plays   Southern NWT   Central Mackenzie Valley   Offshore plays   Beaufort Sea   Artic Islands of Nuavut   Eastern Artic Shore   Some 1950’s legacy oil pools   Normal Wells   Administered through Federal Government in cooperation with Territories   Aboriginal Affairs and Northern Development Canada

70 BEFORE YOU BUY   I am sure you are all now super eager to come up and buy oil & gas assets orcompanies in Canada   Before you buy, there are a few pesky rules regarding foreign ownership andcompetition laws in Canada

71 BEFORE YOU BUY Foreign Investment   Investment Canada Act   Regulates foreign investment using a “net benefit test”   Investment Canada will review direct and indirect acquisitions of Canadianbusinesses by foreign nationals where acquisition exceeds $5M (if direct) and $50M(if indirect)   For WTO member states, acquisitions are only reviewable if direct and in excess of$354M (indirect acquisitions are not reviewable)   Acquisitions of control by state owned enterprises are subject to certain specific netbenefit to Canada tests, including the corporate governance and reporting structureof the non-Canadian acquirer   Any acquisition or establishment of a new business in Canada by an non-Canadianwhether subject to review or not may be reviewed and prohibited if “injurious tonational security

72 BEFORE YOU BUY Competition and Merger Control   Competition Act (Canada)   Governs the acquisition of operating businesses in Canada   Requires advance notice to the Federal Competition Commissioner where:   parties to transaction have assets or gross revenues from sales from or into Canada inexcess of $400M in aggregate   the aggregate value of target assets in Canada exceeds $82M or gross revenue fromsales in or from Canada exceeds $82M   an initial waiting period of 30 days is imposed subject to a supplemental informationrequest   an advance ruling certificate may be applied where no or minimal competition issuesapply

73 THANK YOU PAUL M. NEGENMAN Phone:


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