3rd edition
Authors:	Duncan Kenyon, Nikki Way, Andrew Read, Barend Dronkers, Benjamin Israel, Binnu Jeyakumar, Nina Lothian
Publisher:	Pembina Institute
Publish Date:	October 2016
PDF Download:	[Landowners' Guide]              [Landowners' Primer]
Initiation Phase
Exploration Phase
Development Phase
Pipelines and Other Infrastructure
Environmental Impacts
Abandonment and Reclamation
Compensation, Rights, and Hearings                Compensation for Wells, Facilities and                 Pipelines                Surface Rights Board and Surface Agreements                Before a Hearing                Filing a Statement of Concern                Post Hearing and Regulatory Appeals                Surface Rights Board and National Energy                 Board Hearings
Appendices

Compensation and Surface Rights Access

In Alberta, mineral rights for oil, gas, and coal are not included in the surface rights of land. In most cases these subsurface rights are owned and controlled by the province. In these instances, energy companies are entitled to lease surface rights from landowners and lease land holders to extract oil and gas underneath private and public land. This section provides information to empower you, the landowner, in the event that a company or the government requests access to the surface of your land for the purpose of subsurface operations or pipeline siting. This chapter primarily focuses on compensation and the matters that determine compensation. Additionally, this section explains the role of the Surface Rights Board in granting right-of-entry orders and recovery of rental orders, as well as the process of registering your private surface agreement with the Alberta Energy Regulator. This section is complementary to much of the commentary about surface leases in Before the Project Starts, which deals with negotiation on matters other than compensation.

According to a recent guide published by the Alberta Land Institute, there is often confusion amongst landowners surrounding property rights and the complex relationship between surface and mineral rights. Canadian common law acknowledges that “all Albertans, as subjects of the crown, have broad rights to own, use, and enjoy property”; however, there are limits to these provisions. The provincial government currently holds 81% of Alberta’s mineral rights, with private entities and the federal government splitting the remaining amount. As a result, energy companies are entitled to lease surface rights from landowners to extract ‘minerals’ — in this case, oil and gas. This chapter provides information to empower you, the landowner, in the event that a company or the government requests access to your land for the purpose of subsurface operations or pipeline siting.

Compensation for Wells and Facilities

As a landowner, you will negotiate with a company or representative land agent to determine the amount of compensation you will receive for leasing land to a company so they can site wells or facilities. With regard to grazing leases on public land, the government determines access for oil and gas activities, but a company pays compensation to the occupant (lessee).

Compensation issues are clearly outlined in the Farmers’ Advocate publication, Negotiating Surface Rights. A publication from the Alberta Energy Regulator (AER), Proposed Oil and Gas Wells, Pipelines, and Facilities: A Landowner’s Guide, also provides a summary of the compensation procedure and other topics outlined in this chapter. For a look at the life cycle of the typical well and the impact of various stages of construction and operation, you can turn to the Canadian Association of Petroleum Producer’s guide, What to Expect When You’re Expecting a Well.

In the first year of a new lease, a company has to pay the landowner for the right of entry onto the leased land (except when the land is owned by the Crown). This fee is set at $500 per acre, up to a maximum of $5,000 for the entire site. If the area required is less than an acre, the entry fee is proportionate to the area, but not less than $250. This is a fixed payment, but other payments (such as compensation) can be negotiated. Some companies may consider this fee as payment for your time to negotiate the process, but you can cost this out separately in your negotiations.

In addition to the one-time right-of-entry fee, a company is also required to pay annual compensation. In the first year, this compensation must take into account

• the value of the land (this is the value if sold on the open market or the per-acre value of the land), based on the highest approved use of the land (such as agricultural, industrial, and residential). This is typically only considered in the initial payment, not in subsequent rent reviews.
• the loss of use by the owner or occupant (such as the gross value of the crop per acre at the time of the rental review)
• the adverse effect of operations
• the nuisance and inconvenience that might be caused by the operations.
• other relevant factors that may be specific to your situation, such as material and assets left at the end of construction or other non-cash transactions

After the first year, annual compensation will be based on the loss of use and adverse effects.

You can determine the value of the land through a local real estate agent. If the land is irrigated, compensation should reflect the value of crops that can be grown on that land.

The adverse effect refers to effects on the remaining land held. This might cover, but is certainly not limited to, the difficulties of farming in close proximity to a well site or access road, the cost of weed control, any additional checks required to ensure that livestock have not gone through open gates or fences onto the well site, and excessive noise, dust, or odour caused by the operations. Adverse effect can be generalized as the cost of managing the field differently, the time that it takes you away from your work, and future loss of use of your field.

Having an oil or gas well on the land will impose some limitations on future use of the surrounding land, as a company will put a caveat on the land they lease, including the access road, to protect their right of access to the well. The access route or pipeline rights-of-way may, for example, restrict the options for subdivision, especially due to setback requirements (see Setbacks). However, in many instances, one can still farm a portion of the lease and land adjacent to an access road.

If you are unable to agree on the amount of compensation to be paid, you can temporarily refuse entry to your land. The company will then apply to the Surface Rights Board for a right-of-entry order and the board will determine the amount of compensation you are to receive (see The Role of the Surface Rights Board). Even if you mostly agree on compensation, you may prefer to have the agreement formalized through the SRB by requesting that the company obtains a right-of-entry order, instead of signing a surface lease privately with the company. This is explained further in Right-of-entry orders when landowner and company agree.

Since the annual compensation agreement is reviewed only every five years, you will want to consider possible long-term impacts when negotiating the annual fee. However, a company may be willing to renegotiate compensation within the five-year period if circumstances change. It is important to note that companies are required to give you notice of the fourth anniversary of your agreement no more than 30 days after the fact; be aware of this date as you must be proactive in the event that a company fails to do so. You can take action by contacting the company directly or by requesting a review from the Surface Rights Board, who will then have the responsibility of making the company aware that the agreement is up for renegotiation. While the Surface Rights Act does not harshly punish company non-compliance with the renegotiation procedure, it does allow landowners to circumvent company inaction by directly requesting a compensation review from the SRB.

It may be helpful to discuss compensation issues with someone who already has a well on their land or to contact a local surface rights or synergy group (see Synergy Alberta).

The company must make annual payments until a reclamation certificate has been issued and they can terminate their lease. Sometimes a lease agreement includes a clause that will allow the company to reduce the annual lease rent once surface structures have been removed from the site, but before reclamation has been carried out. While this could enable you as the landowner/occupant to use or cultivate the land (if included in your agreement), a company may have less incentive to complete reclamation as it costs less for the company to keep the lease for potential future production than to pay for reclamation in the meantime. The Surface Rights Act makes no provision for such a reduction in compensation and you are legally entitled to the full annual lease rent until the reclamation certificate has been issued. A company is required to pay compensation even if it takes over wells from another company and the well is no longer operating.

If a company fails to pay rentals, you can request the SRB to terminate the company’s right of access, which allows the SRB to divert funds to cover rental costs until the well is reclaimed or the company resumes payments (see Recovery of rentals when company fails to pay below). Compensation cannot be recovered, however, if there is evidence that the person receiving the money is refusing access for operations, abandonment or reclamation. If a company is still operating but the SRB has terminated or suspended its right of access, the company is still obligated to abandon the well and reclaim the site (see Reclamation of Well Sites).

In the case of orphan wells where the owner has gone out of business, the industry- funded Orphan Well Association (OWA) steps in to deal with the abandonment and reclamation process (see Inactive Wells, Orphan Wells and Pipelines). This non-profit association receives its funds primarily through a levy that all oil companies must pay, and in part from provincial government contributions. Despite obligations for a company to reclaim a site, an increasing number of wells are being orphaned by insolvent companies (591 alone in the 2014/15 fiscal year), forcing the OWA to increase its efforts and secure more funding.

Compensation for Pipelines

Unlike compensation for wells (see Compensation for Wells and Facilities), there is no recurring payment of rentals for pipelines in most instances. Instead, compensation is generally a one-time entry fee before the company installs the pipeline. Only occasionally may an annual rent be offered, usually in the case of high-pressure, large-diameter transmission lines that require constant monitoring and where long-term damage is caused by their construction. Compensation is considered the value of land, plus a premium. Adverse effect, nuisance and inconvenience are considered damages, and may be settled after the pipeline is constructed. Compensation for adverse effects includes loss of crops, and loss of use of land during operations and while vegetation is re-established. Compensation is not calculated until a crop has been grown on the land so that the full extent of any damage can be assessed. The compensation does not include use of additional land for temporary workspace (typically called a staging area); the company should pay extra for this.

Where you and the company are unable to agree on the amount of compensation, the company may ask Surface Rights Board to resolve the issue (see The Role of the Surface Rights Board). Even if you and the company can generally agree on compensation, you may prefer to have a board order, and request that the company requests one from the SRB (see Right-of-entry orders when landowner and company agree). This has generally fallen out of practice, but it is still an option.

Any outstanding claims related to damages caused during pipeline construction should be dealt with through arbitration; there should be an arbitration clause in the right-of- way agreement. This will allow any disputes (over damage, clean-up, or other issues) to be settled without going to court. However, it is also possible to bring disputes relating to damage off the right-of-way to the Surface Rights Board, provided that damages are recognized within two years and amount to less than $25,000 (see Recovery of rentals when company fails to pay).

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