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FROM MOOSEs TO MOLASSES

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Oil and Gas Rights in Canada: Dealing with the Crown and Freeholders Paul Negenman, Lawyer Lawson Lundell LLP THE EAST COAST ATLANTIC OFFSHORE THE EAST COAST Large ... – PowerPoint PPT presentation

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Title: FROM MOOSEs TO MOLASSES


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

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

3
www.spec2000.net
4
CANADA - Crude Oil
www.centreforenergy.com
5
CANADA - Crude Oil Pipeline
www.centreforenergy.com
6
CANADA Natural Gas
www.centreforenergy.com
7
CANADA Natural Gas Pipeline
www.centreforenergy.com
8
CONSTITUTIONAL MONARCHY
  • Monarchy Part
  • Crown is the root authority for all law (laws and
    statutes)
  • All tenure ownership originates and ultimately
    vests in the Crown
  • Constitutional Part
  • The Crown is bound to act in accordance with
    Constitutional documents
  • Bound by Rule of Law (not men)
  • One government cannot bind a subsequent government

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

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

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

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

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

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

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

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

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

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

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

20
FIRST NATIONS
  • Federal Crown has a
  • duty to consult, and
  • duty to accommodate with First Nations inherent
    in the honour of the Crown
  • Applies to Treaty Bands and Non-Treaty First
    Nations
  • Additional claims to use of broader areas outside
    Treaty Lands or settled lands - Traditional
    Lands
  • Not full rights, but some rights
  • Less certain whom represents the First Nations
  • Generally dont 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 Queens 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 Queens Bench issues
  • Contract Law
  • Property Law
  • Issues with respect to Provincial regulators
  • Federal Courts deal with limited but important
    matters
  • First Nations issues
  • Issues with respect to Federal regulations
  • Most general oil gas matters end at Provincial
    Courts of Appeal
  • Many First Nation and other Federal Matters end
    at the SCC

24
THE PROVINCES
  • Lets 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
www.centreforenergy.com
27
BC tenure history
  • Large and sophisticated First Nations throughout
    BC
  • Captain James Cook arrives in the late 1770s
  • British colonies established on Vancouver Island
    and grow inland
  • Very little Treaty activity with First Nations
  • Different approach than in WSB

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

29
BC tenure
Almost all Crown oil and gas rights.
30
BC tenure
  • Land Survey system and odd mix of two survey
    systems
  • Most of Province is subject to the National
    Topographical System (NTS)
  • However, a significant portion of the NE
    producing area was surveyed under the Dominion
    Land Survey and uses the Township System
  • Balance of Western Sedimentary Basin (WSB) uses
    the Township System
  • Mostly nice tight square spacing units

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

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

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

34
BC lng
35
BC LNG PIPELINE ROUTES
36
BC OIL PIPELINES
  • The growth of Alberta Oil Sands and Conventional
    production has resulted in applications for new
    or expanded pipeline access to the west coast
  • Enbridge Northern Gateway (to Kitimat)
  • Expansion of Trans-Mountain Pipeline (to
    Vancouver)
  • Please ask President Obama to approve the
    Keystone Pipeline

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

38
ALBERTA
THINK OF TEXAS WITH SNOW
39
ALBERTA
www.oneexchangecorp.com
40
ALBERTA
41
WSB Tenure History
  • Alberta and Saskatchewan are late comers to
    Provincial status
  • Part of the NWT until 1905
  • Mineral Tenure not transferred to AB and SK until
    1930s
  • More defined process of settlement
  • Dominion Land Survey and Township System in place
  • Focus on Treaties with First Nations
  • Not complete, but much more complete than BC

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

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

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

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

46
ALBERTA Tenure History
47
ALBERTA Tenure
  • Crown mineral and surface rights granted and
    administered by Alberta Energy
  • Fee simple lands governed by the Land Titles Act
    and administered by Alberta Registries (Land
    Titles office)
  • Full Torrens system and rights for fee simple
    lands in Alberta and Saskatchewan
  • Common law principles on Freehold Lease validity
    and continuation

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

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

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

51
ALBERTA Conventional Oil
  • 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 Oil Sands
  • 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 come from in situ projects

53
ALBERTA oil Transportation 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
www.oneexchangecorp.com
56
SASKATCHEWAN
  • Second only to Alberta in oil production, 20 (or
    so) of Canadas 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 Ministry of 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 Fun tenure Fact
  • SK is notorious for the stealing of foreign
    (US) fee simple mineral rights for producing
    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 acquired mineral
    titles
  • Creates very confusing and custom Crown acquired
    splits in producing areas

59
MANITOBA
www.oneexchangecorp.com
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 of freehold 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 the longer and greater
    individual fee simple mineral ownership
  • Regulation of oil gas activities by Manitoba
    Innovation, Industry and Mines

62
ONTARIO
www.oneexchangecorp.com
63
ONTARIO
  • Minor oil producer
  • Legacy oil pools near or under great lakes
  • Really hard to drill through the Canadian Shield

64
QUEBEC
www.oneexchangecorp.com
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
THE NORTH
  • Onshore plays
  • Southern NWT
  • Central Mackenzie Valley
  • Offshore plays
  • Beaufort Sea
  • Artic Islands of Nuavut
  • Eastern Artic Shore
  • Some 1950s 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 or companies in Canada
  • Before you buy, there are a few pesky rules
    regarding foreign ownership and competition 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 Canadian businesses 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 net
    benefit to Canada tests, including the corporate
    governance and reporting structure of the
    non-Canadian acquirer
  • Any acquisition or establishment of a new
    business in Canada by an non-Canadian whether
    subject to review or not may be reviewed and
    prohibited if injurious to national 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 in excess
    of 400M in aggregate
  • the aggregate value of target assets in Canada
    exceeds 82M or gross revenue from sales in or
    from Canada exceeds 82M
  • an initial waiting period of 30 days is imposed
    subject to a supplemental information request
  • an advance ruling certificate may be applied
    where no or minimal competition issues apply

73
THANK YOU
  • PAUL M. NEGENMAN
  • Phone 403.218.7542
  • Email pnegenman_at_lawsonlundell.com
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