Will Reversion Of Deep Rights Lead To A Resurgence In Exploration In Alberta?

Abstract

Abstract THE CROWN in right of the Province of Alberta, owns the minerals in approximately 80% of the lands in the province. Up to July 1, 1976, when the governing legislation was changed, the holder of a Crown petroleum lease was entitled to rights from the surface to the centre of the earth. Most of the producing fields in the province had been discovered over the 23-year period since the discovery of Leduc on February 13, 1947. Thus the deeper rights were sheltered by relatively shallow productive geologic zones held by relatively few oil and gas companies under leases granted to them for terms of ten or 21 years. Because the legislation then in effect did not compel a lessee to explore all potential geologic formations underlying his lease, the deeper formations tended to remain dormant. The lessee was usually content to produce the shallower zones rather than accepting joint-venture or farm-in proposals from other companies wishing to explore the deeper zones. Under the rules in effect until July 1, 1976, the lessee knew that the shallow producing zones would ensure retention of all rights. In the large producing fields with deeper zone potential, Pembina for example, the major oil companies, as lessees, diverted their exploration in the late 1960's away from Alberta to the frontier areas, particularly the Arctic. Alberta activities tended to be restricted to development of oil and gas from proven fields. Their departure from Alberta led to an explosion in the formation of many new, but small, Canadian companies who were eager to carry out exploration for oil and gas in the province but could not always get a piece of the action. The need for amending the Act to provide for a more open land tenure system became increasingly apparent as Alberta entered the 1970s. Departmental officials were besieged with verbal complaints from the smaller companies seeking drastic changes in the legislation to provide for a more rapid turnover of unexplored Crown petroleum and natural gas rights. And these complaints grew in number with the growth of the number of companies. In the summer of 1973, shortly after assuming his position as Deputy Minister of the Department of Mines and Minerals, as it was then called, Dr. G. B. Mellon commissioned Seaton-Jordan and Associates to study the existing land tenure system. The resulting report triggered a complete review of Part 5 of the Mines and Minerals Act dealing with Crown petroleum and natural gas rights. Initially, only the senior officials in the Department were involved in developing new concepts, but ultimately the Land Committees of both the Canadian Petroleum Association (CPA) and the Independent Petroleum Association of Canada (IPAC) were invited to provide input. The initial reaction from the CPA, representing the major oil and gas companies, was negative. CPA favoured retention of the existing tenure system as it would continue to preserve the preeminence of the majors in the Alberta scheme of things.