| This document is designed to assist landowners in designing negotiation strategies in the event that the subsurface title is leased and exploration and production development is required on the surface. It is based on risk management. What is that? Risk management is a process to find answers to these questions below from a pragmatic point of view.
These questions are:
- What is the event, risk or issue?
- What is the likelihood of this event happening?
- What is the magnitude of the damage if this event happens?
- What are the actions required to mitigate that risk or event?
Mitigation is the actions required to deal with the event. In general strategies can be lumped into 4 areas. These are: (Bauer L and Bushe D, Managing in Uncertainty - Designing Risk Management Strategies, Third edition 2003)
- Avoid or decline the risk
- Transfer or move the risk to a third party
- Control and actively engage strategies to lower the likelihood or magnitude
- Accept and assume the risk
This document is designed to address landowner concerns when assessing and engaging strategies to lower either the likelihood or the magnitude of a risk event. A landowner in general does not have the power to decline the offer of a surface lease. It is not generally advised for landowners to assume the risk brought to them by a third party. This leaves moving the risk back to the company (third party) and engaging in agreements that speak to risk mitigation. More information on risk management can be found on Alberta Agriculture and Rural Development’s website.
The Issue
Does a surface lease expire?
According to the Court of Queen’s Bench, with the right language it can and does.
In 1957, a well was drilled on lands in the Pincher Creek area. The Bruders are the current landowners and Pennine Petroleum is the well owner. The 1957 agreement provided for a 20 year term and three 10 year renewals, for a total life of 50 years. The well was shut-in in 1995. There is no reclamation certificate on the site and the company continues to make surface payments.
The Bruders’ asked the Court to remove the caveat from the land because the lease interest had expired. Pennine argued that section 144 of the Environment Protection Enhancement Act continued the validity of the interest. The Court was not persuaded and found the interest had expired.
The Court ordered the caveat discharged.
The Court wrote, (Pennine v Bruder ACQB 0807-00757) “Section 144 of the Environment Protection Enhancement Act continues an obligation on the operator or in this case the applicant to obtain a reclamation certificate. Section 144 does not automatically extend or renew leases without the input or involvement of the landowners.”
“It is clear Pennine still has an obligation to maintain access to the surface. They need to do so to continue their obligation to S144.”
The Surface Right Board has provided some next steps. The Board articulated in similar cases (Arc Resources v MacKenzie Decision 2008/0003), the way clear is for the land owner and the company to reach a new agreement and failing that, the company would make a right of entry application.
In the Winkler case (Buffalo Resources v Winkler Decision 2010/0796), the Surface Rights Board held “the right of the Operator to enter onto the leased land for the purpose of operating the well site expired…”. The Board was guided by the direction of the courts in Pennine in reaching their conclusions.
Why is this Important?
The language of a new surface lease is important. In this case, and others like them, the language is specific and finite on the end of the lease agreement. |