FROM MOOSEs TO MOLASSES

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FROM MOOSEs TO MOLASSES

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

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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

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www.spec2000.net
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CANADA - Crude Oil
www.centreforenergy.com
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CANADA - Crude Oil Pipeline
www.centreforenergy.com
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CANADA Natural Gas
www.centreforenergy.com
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CANADA Natural Gas Pipeline
www.centreforenergy.com
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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

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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

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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)

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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)

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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

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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

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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

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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

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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

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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

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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

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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)

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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

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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

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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)

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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

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THE PROVINCES

• Lets now take a quick look at the major (and
  minor) oil gas producing
• Provinces
• The North

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BRITISH COLUMBIA
THINK OF CALIFORNIA WITH MORE RAIN
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BRITISH COLUMBIA
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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

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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

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BC tenure
Almost all Crown oil and gas rights.
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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

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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

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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

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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

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BC lng
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BC LNG PIPELINE ROUTES
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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

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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

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ALBERTA
THINK OF TEXAS WITH SNOW
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ALBERTA
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ALBERTA
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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

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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

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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

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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

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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

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ALBERTA Tenure History
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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

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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

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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

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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

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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

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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

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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

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SASKATCHEWAN
THINK OF OKLAHOMA WITH EVEN FRIENDLIER PEOPLE
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SASKATCHEWAN
www.oneexchangecorp.com
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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

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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

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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

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MANITOBA
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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

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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

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ONTARIO
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ONTARIO

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

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QUEBEC
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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

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THE EAST COAST
ATLANTIC OFFSHORE
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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

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THE NORTH
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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

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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

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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

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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

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THANK YOU

• PAUL M. NEGENMAN
• Phone [phone]
• Email pnegenman_at_lawsonlundell.com