Update on Land Lease Delinquencies

Originally posted 31 October 2016

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Back in July, we highlighted a growing concern among farmers who were not receiving lease payments on a timely basis from oil and gas explorers in exchange for access to rural properties. Alberta’s Surface Rights Board adjudicates between farmers and the oil and gas community. As the tables below illustrate, this board handles thousands of cases every year.  The Board is a creature of Provincial Legislature under the Surface Rights Act  a relatively small statute consisting of 41 sections (32 pages). Predecessor statutes include the  1947  Right of Entry Arbitration Act, The Right of Entry Arbitration Act, 1952, the 1972 Surface Rights Act,   the 1942 Water, Gas, Electric and Telephone Companies Act,  the 1961 Expropriation Procedure Act, and the 1974 Expropriation Act.  Related Acts include the Water, Gas and Electric Companies Act , the Pipeline Act,  and Hydro and Electric Energy Act.

The complex interplay of these statutes, whose provenance goes back to the early economic developments transforming the province in the first half of the 20th century, requires significant legal expertise in adjudicating often hostile claims. Key definitions in the Act include terms such as minerals, owner, occupant,  operator, right of entry, and right of entry order,  and surface lease.  The Act prevails over “any grant, conveyance, lease, licence or other instrument, whether made before or after the coming into force of this Act, with respect to right of entry in respect of the surface of any land incidental to any operations concerning mining, drilling, pipelines, power transmission lines or telephone lines.”  The Board members, responsible for administering the Act and General Regulation, are appointed by the provincial Cabinet. The Act therefore is at the “leading edge” of conflict between the rights of agricultural producers and the energy and pipeline industry.

Under sub-section 8(3) of the Act, the Surface Rights Board (SRB) has extensive powers and:

(a) is not bound by the rules of law concerning evidence;
(b) may enter on and inspect, or authorize any person to enter on and inspect, any land, building, works or other property; and
(c) has the rights, powers and immunities conferred on a commissioner under the Public Inquiries Act.

The Board is not required to hold oral hearings but, “subject to the principles of natural justice” may make decisions based on written submissions.

Under the Surface Rights Act, the right of entry by an operator for any purpose requires the consent of the owner and occupant of the land, or by order of the SRB.  Various sections of the Act detail ancillary rights of access for roads through other properties. Section 13 spells out the considerable access rights of an operator to “conserve” the value of its wells including for re-pressuring the petroleum reservoir; storage of a petroleum product; or the storage and disposal of water or “any other substance produced from or to be injected in an underground formation.”

A recent amendment to the Act allows operators or successors to operators to enter land for the purposes of  enabling reclamation .  In 2010, the Act was amended to enable a right of entry to facilitate the injection of captured carbon dioxide into the underground formation. Section 18 of the Act stipulates the payment of a fee for entry which is the “lesser of (a) $5000, or  (b) $500 per acre granted to the operator, or a proportionate
amount, not to be less than $250, where the land granted to the operator is less than one acre.”  These fees do not apply to leases entered into prior to 4 July 1983 and are separate and a part from other compensation payable to the owners for the access to the land in question.

The Act also spells out the factors for the Board to consider in adjudicating compensation claims by the operator or owner. These include: the market value of the lease(s) held by the operator; the loss of use by the owner or occupant of the area granted to the operator; the value of the adverse impact on the remaining land of the owner or occupant caused by any “nuisance, inconvenience and noise”  caused by operator;  or value of damage to the land caused by the operations of the operator.

As with most administrative tribunals, the parties affected by a Compensation Order of the SRB may appeal the decision to the Court of Queen’s Bench. The Board may also make an order terminating the right of entry if the operator has not commenced to use or
has ceased to use the surface of the land or any part of it, and the operator, the owner or the occupant requests the Board for an order terminating the right of entry.

In the two tables that follow, the volume of orders and decisions of the SRB are shown. The Right of Entry Orders have declined significantly over the past two years due, presumably, to the decline in oil prices, and thus, the diminished incentive to seek access to drill for oil or natural gas. Compensation orders have also fallen over the past two years again because less investment has occurred in the oil patch. As the table shows total decisions have fallen by almost one-third from the levels of 2012 and 2013. However, decisions respecting recovery of rentals have increased dramatically in the past two years.

Alberta Surface Rights Board Decisions 2012-2016
Decision/Order Type 2016 2015 2014 2013 2012
Decisions (Regular) 873 1019 915 1033 1006
Right of Entry Orders 135 153 140 375 300
Compensation Orders 29 38 35 67 83
Full Termination Orders 54 244 249 162 80
Rescinding Orders 8 4 5 5 9
Amending Orders 28 86 387 707 930
Orders Determining Cost 10 30 8 20 82
Partial Termination Orders 9 7 8 10 88
Varying Orders 18 117 79 101 161
Varying & Amending Orders 5 73 55 60 141
Settlement Compensation Orders 41 47 120 128 69
Orders Confirming Compensation and Determining Cost 0 0 2 1 1
Damage Compensation Orders 2 3 6 2 10
Compensation Review Orders 36 24 36 42 65
Recovery of Rental Suspension 387 187 73 39 41
Recovery of Rental Termination 335 173 58 37 39
Direction to Pay* 187 ** ** ** **
Returning Direction to Pay* 136 ** ** ** **
Totals 2293 2205 2176 2789 3105
*Calculated as of May 2016                             **Not calculated

Section 36 of the Act addresses compensation to land owners where the operator has not  made payments under a surface lease, right of entry order, or compensation order. If the operator or successor to the operator fails to respond to a request for payment from the SRB then the Board may terminate the operator’s right of entry. If the operator fails to make payment, then the Minister may pay the money owing from the Province’s General Revenue Fund and such a payment becomes a debt owed by the operator to the Crown. The table below illustrates that most of the payments have been made by the Minister rather than by the operator. The year 2012 was an exceptional year in which industry operators paid a higher percentage.  The table records numbers not dollar amounts.

Recovery of Rental Applications
Years Paid by Minister Paid by Operator Withdrawn/other Total Per cent of Claims paid by Minister
2015 423 48 4 475 89%
2014 209 23 9 241 87%
2013 232 23 25 280 83%
2012 145 54 8 207 70%
2011 213 44 7 264 81%
2010 215 34 11 260 83%
2009 221 14 6 241 92%
2008 239 27 2 268 89%
2007 318 26 3 347 92%
2006 262 23 1 286 92%
Totals 2477 316 76 2869 86%

Albertarecessionwatch.com gratefully acknowledges the co-operation of the SRB in reviewing the first table above.

This entry was posted in Bankruptcies on by .

About albertarecessionwatch

Former Director, Institute for Public Economics, University of Alberta and currently Fellow of the Institute. Former executive with Alberta Treasury Branches. Worked for the Alberta government for 12 years with Federal and Intergovernmental Affairs and Alberta Treasury. Areas of focus: financial institutions legislation and policy, government borrowing, and relations with credit rating agencies. Ph.D in Political Science (Uof A), Masters of Public Administration and BComm. (Carleton University). Author of Politics and Public Debt: The Dominion, the Banks and Alberta's Social Credit. Presently working on study of Alberta provincial agency board appointments.

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