Introduction

The following article was contributed by J. Darryl Carter, a Canadian lawyer in private practice. Mr. Carter's office is located in Grande Prairie, Alberta. The article was previously titled Some thoughts regarding representing landowners whose land is required by oil and gas companies or powerline operators when published on the author's lawfirm website. It has been reproduced here with the permission of the author.

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Jan 2004

The most important matters to be considered when a company approaches a landowner to install a wellsite, pipeline or powerline, are the location of the facility, the amount of compensation and the form of the agreement:

1) LOCATION OF THE FACILITY:

Many landowners believe they have no alternative but to accept the location proposed by the Company. If, however, there are reasonable grounds for opposing the location in Alberta, an objection may be made to the Energy Utilities Board. If the matter is not resolved, the Energy Utilities Board may hold a hearing to decide the issue (as long as the objection is not frivolous). Usually, the Board staff will encourage the parties to meet informally before the hearing in the hope that they will resolve the dispute voluntarily. The Board also has a mediation process it may employ to attempt to resolve the dispute without a hearing.

In British Columbia, the Oil and Gas Commission (the equivalent of Alberta's Energy Utilities Board) has had a policy of requiring the Mediation Arbitration Board (MAB) to issue a right of entry order before it (the OGC) would give consideration to an objection. However in a recent case regarding a coalbed methane well, the MAB ruled that the OGC should deal with the matter first: Peace River Corporation v. 61035 B.C. Ltd. (Mediation Arbitration Board order 367M).

It is important to raise valid objections to location before entering into negotiations regarding the amount of compensation. Otherwise, the very fact that the landowner is discussing compensation will indicate that the location is acceptable.

If a pipeline comes under federal jurisdiction (e.g. the recent Alliance project), objections to routing are not filed with the National Energy Board until after the permit for the overall project has been issued. The NEB will then hold a "detailed routing" hearing. The detailed routing hearing deals with methods of construction as well as routing.

2. COMPENSATION:

Land agents employed by the operators to negotiate compensation continue to use the "four heads" approach, by placing a number under each of four categories:

1. Land Value;
2. Loss of Use;
3. Adverse Effect;
4. General Disturbance.

The numbers are then added for a total offer. The land agents suggest that this is indeed required by Section 25(1) of the Alberta Surface Rights Act, which reads as follows:

I have long argued that the Act requires numerous factors to be considered. Many of these factors, such as "nuisance", "general disturbance" or "adverse effect" are difficult to assess; therefore, the best one can do is to consider all the relevant factors and arrive at an all-inclusive or "global" assessment (see Carter, Compensation for Surface Rights in Alberta (1985) 23 Alberta Law Review 435).

My experience has also shown that the best way to determine the proper level of compensation is to look at agreements between landowners and operators in comparable situations. The case of Siebens Oil & Gas Ltd. v. Livingston (1978) 15 L.C.R. 32 (Alta. C.A.) is the classic authority for the proposition (p. 37): "no matter how expert outsiders are ... the oil companies and landowners have the better judgment as to what compensation should be paid in their own interests."

Comparable agreements provide evidence of the value of surface rights taking into account all the factors specifically listed in section 25 of the Act as well as those not listed.

There were many cases in the 1980's, especially in the Grande Prairie area, which relied upon comparable agreements as evidence of the value of the owner's surface rights considering all the factors together, e.g:

Petryshen v. Nova, An Alberta Corporation
(1982), 23 Alta. L.R. (2d) 193, 27 L.C.R. 276 (Alta. C.A.)

Nova, An Alberta Corporation v. Bain
(1984), 33 Alta. L.R. (2d) 187, 31 L.C.R. 47 (Alta. Q.B.)

Anderson Exploration Ltd. v. Dion Unreported
10 February 1984, Alta. Q.B., Judicial District of Peace River, Action No. 8309-0968 at p. 5

Markovich Bros. Farming Co. Ltd. v. PanCanadian Petroleum Ltd.
(1984), 30 Alta. L.R. (2d) 211, 31 L.C.R. 152 (Alta. Q.B.)
(leave to appeal denied by the Alberta Court of Appeal)

Dome Petroleum Ltd. v. Richards
(1985), 34 L.C.R. 1 (Alta. Q.B.)

Perhaps because of these Grande Prairie cases, the use of comparable agreements has also been called the global approach but these are two different concepts (see the Carter article at p. 448 and also Barton, Controversy in Surface Rights Compensation (1985) 24 Alberta Law Review 34 at p. 36).

It is important not to concentrate on individual heads, e.g. the land, because you may overlook the real issue, of what the taking is for. A wellsite is not the same as a pipeline, a powerline or a strip mine - all of which are covered by the Surface Rights Act.

As Madam Justice Trussler stated in Jones v. Bankeno Resources Ltd. (1987), 37 L.C.R. 221 (Alta. Q.B.) at p. 225:

It would be easy to suggest the legislation needs to be amended but, in fact, s. 25 requires the flexibility it now has, as opposed to rigid certainty, because of the various types of takings where it is used to ascertain compensation. Different factors must be taken into account and there should be a different result depending if the entry is, for example, for a wellsite or a pipeline or a transmission line. The impact on the owner of each of these uses is markedly different.

It is sometimes suggested that you have to have a pattern to look at other agreements but as Mr. Justice MacLean stated in Lomond Grazing Association v. PanCanadian Petroleum Ltd. [1985] A.J. No. 922, 63 A.R. 120 (Alta. Q.B.) at para. 26:

It isn't, however, necessary to establish a pattern in order to have the evidence admissible. The pattern relates only to the weight to be given the evidence.

and at para. 30:

I am satisfied that in this case two equal competing parties met on an equal open basis and freely and voluntarily entered into a settlement unaffected by the power of compulsion and expropriation and unaffected by any other extraneous factors determined only to reach settlement on the basis of an amount that represented a fair value for the rights that the operator wished to take from the owner.

3. FORM OF THE AGREEMENT:

Once an agreement on location and compensation is reached with the operator, I advise my clients that a right of entry order issued by the Surface Rights Board protects their rights better than signing a surface lease or easement form prepared by the Company.

Some of the reasons for giving this advice are as follows:

a) Reviewability. Oil companies and power companies have standard form agreements which they expect landowners to sign. The wellsite, pipeline or powerline will affect the landowner for many years; however, it is impossible to draft an agreement to provide for all contingencies. Too often landowners who have already signed agreements say "if only I knew what I know now I would have done things differently."

Industry representatives meet every few years to redraft standard form agreements and attempt to bring them up-to-date. Unfortunately, this does not assist someone who has signed an agreement that is now out of date. A right of entry order issued by the Surface Rights Board, however, is always open to review. The Surface Rights Act, s. 29, provides that the Board may "review, rescind, amend or replace a decision or order made by [the Board]".

b) A right of entry order may be terminated by the Board if the operator is not using the land. The standard form agreements cannot be terminated without the operator's consent.

c) The Board may place conditions in the order to protect the landowner with respect to matters such as soil conservation, drainage and weed control. A breach of the Board order should entitle the landowner to seek redress from the Board as opposed to having to go through the ordinary Courts.

d) A right of entry order must have a survey plan attached. When companies obtain signatures on agreements; however, they often do not attach the survey plan until later and landowners often complain that the plan shows a different location than they thought they had agreed to.

e) When the annual rental for a well site or power line is reviewed by the Surface Rights Board a landowner under a right of entry order is entitled to interest on the amount awarded but a landowner who has signed an agreement is not.

f) In pipeline cases, the Board will not hold a hearing regarding damages if there is an arbitration clause in an agreement. The landowner is therefore faced with costs of private arbitration. Under a right of entry order; the issue of damages can be reserved allowing the Board to settle the dispute.

g) The company can stymie arbitration under a private agreement by refusing to appoint an arbitrator. Under a right of entry order, the arbitrator (the Board) is already appointed.

h) Landowners may take advantage of favourable rulings by the Surface Rights Board, e.g. that no distinction be made between permanent right of way and workspace on pipelines.

i) Right of entry orders are always on file and easily obtained from the Surface Rights Board. Locating old private agreements can sometimes be difficult, for example when the land is being sold.

j) Landowners can avoid situations where the Board has denied jurisdiction because a surface leases has been signed e.g. denying the right to a rental review for plant sites. If a plant site is covered by a right of entry order, there could be no such ruling.

k) In the case of Alliance Pipeline Ltd. v. Seibert [2003] A.J. No. 1436 (Alta. Q.B.), the Court relied upon a clause in the agreement signed by the landowner to grant an injunction allowing the pipeline company access to land outside the right of way without paying compensation. This would not have been possible if there had been a right of entry order instead of the signed agreement.

l) A right of entry order only permits the company to use the land for what it requires at the time. It cannot, therefore, come along later to put in another pipeline, for example, using the same area covered by the prior order. This is especially important because under a right of entry order, the Company must pay the entry fee for all the land which they use a second time.

m) If an operator fails to pay the required compensation, the landowner would have to sue to recover. A right of entry order, however, can be filed directly as a judgment with the court.

n) The company cannot say "we have leased this area, we can do what we want." For example, companies with a surface lease for an access road will often sub lease the road to a second company for the second company to access a different wellsite. This would not be possible under a right of entry order without a separate arbitration to the Surface Rights Board.

o) The landowner is in a stronger negotiating position by insisting on a right of entry order rather than a form agreement. It takes away the threat that land agents have used in the past that if the landowner does not agree with their proposal the company will "go to arbitration." If it is the landowner who is asking to "go to arbitration," the company land agent no longer has any threat.

J. Darryl Carter, Q.C.
Grande Prairie, Alberta
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December 2003