Irate mineral rights owners are making an Alberta election issue out of a rich natural gas formation by calling on the incumbent Conservative government to take sides with them in a dispute with industry.
The political duel erupted out of an old sore spot in Canada’s chief gas-producing jurisdiction, hotly contested “split titles” to coal, oil and gas. The property owners are circulating petitions, enlisting candidate support and urging friends and neighbors to make divvying up rights to coalbed methane (CBM) a deciding factor in how ballots are marked on election day March 3.
Only 19% of Alberta mineral rights are “freehold” or privately owned. But the minority share includes the province’s most accessible and least environmentally tricky CBM in a geological formation called the Horseshoe Canyon.
Members of the Alberta Freehold Mineral Owners Association are claiming ownership of the gas in the coal, insisting that the two are entirely different substances instead of the inseparable twins they are held to be by industry legal doctrine. Depending on who is counting, the shallow and dry Horseshoe Canyon seams carpet an estimated 4,700 square miles and harbor 3 Tcf or more of recoverable CBM between the province’s principal cities of Edmonton and Calgary.
EnCana Corp., Canada’s top gas producer, dominates mineral rights ownership in the region thanks to its pedigree as a merger of PanCanadian Energy and Alberta Energy Co. PanCanadian was heir to 19th-century federal land grants for construction of the Canadian Pacific Railway.
The bequests included all minerals. Starting about 1904, Canadian Pacific “reserved” or held back for itself the coal when transferring land titles to settlers that rode the rails west to Alberta. A century later, EnCana is seeking to have the gas in the coal included in the reserved mineral rights in lawsuits in the Alberta Court of Appeal and Alberta Court of Queen’s Bench.
The lawsuits follow an apparent but not complete loss in a case decided a year ago by the Alberta Energy Resources Conservation Board (ERCB). Following well established doctrine developed by the courts in the United States in similar disputes, the ERCB ruled that in CBM the coal is a container and the gas is separate content for practical purposes of regulatory approvals and production projects.
But the Alberta board also hedged its bets on settling the legal definition. “That ultimate authority belongs to the courts,” the ruling conceded. On top of challenging the ERCB’s tentative legal finding in court, EnCana is contesting well licenses granted by the board for rival producers that have made deals with freehold mineral rights owners to drill into CBM in the Canadian Pacific legacy properties.
The cases are projected to stretch out into mid-2009 and possibly take much longer if the fight winds up going all the way to the Supreme Court of Canada, as has happened in previous split-title fights. EnCana is supported by Canada’s biggest coal-mining concern, the Carbon Development Partnership of Sherritt International Corp. and the Ontario Teachers Pension Plan.
Alberta’s Conservative government has refused to touch the political hot potato for about four years, insisting that only the courts can settle the complicated dispute and rejecting repeated appeals by freehold mineral rights owners to enact legislation declaring gas and coal to be separate items.
“Our government has not only failed to protect us from the actions of powerful corporations,” freeholder association President Else Pederson writes in a widely circulated newsletter. “It is assisting these corporations in their efforts to usurp our heritage. It is time that we took strong action to protect our property rights and sought accountability from our government.”
The association maintains that the legal battles have effectively frozen CBM development involving freehold mineral rights. The lengthy legal fight will also enable production projects in Crown or provincial-government owned CBM properties to drain the gas out of nearby freehold acreage, the group adds. The old railway land grants were distributed in a way that created a checkerboard pattern of Crown and private mineral rights in the region between Edmonton and Calgary, creating numerous spots where the two types of titles abut one another.
A former senior Conservative cabinet minister, Ty Lund, pledged to prod the government into taking action by introducing legislation taking the freehold owners’ side as soon as the election is over. He will propose a private member’s bill, a type of measure that almost never passes in the Canadian parliamentary system but often tests support for an idea and can lead to government enactments. Lund, who is running for reelection in an area where numerous freehold mineral rights owners live, said he has already begun to recruit political allies in Alberta’s ruling party.
EnCana, meanwhile, has moved to cool passions aroused by the dispute. In a letter sent to all freehold mineral rights owners claiming coal gas, the company says it “wants CBM development to proceed without delay despite the ownership uncertainty.”
EnCana promised to pay royalties on CBM extracted from contested freehold coal deposits until the courts rule on the legal ownership issue. If CBM is ultimately defined as a separate mineral from coal, the producer said it will continue to pay royalties. If the decision goes the other way and defines CBM as part of the coal originally reserved out of the freehold properties by ancestor Canadian Pacific, EnCana pledged that the current holders of the mineral rights titles will be given a break. The company promised only to stop writing royalty checks, and not to sue for retroactive recovery of payments made during the court fight.
“EnCana believes methane from coal, as a constituent of coal, belongs to the owner of the coal rights, and that is what it is arguing in court,” the letter said. “However, it may take two to three years, and could require a ruling from the Supreme Court of Canada, before the court determines ownership of coalbed methane.”
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