Red flag waved on surface rights

The Alberta Farmers’ Advocate Office is reminding producers of their surface rights following reports that some oil companies might be attempting to violate them.

The advocate office recently said in an advisory that it has received an increase in complaints over the last few months.

It said some oil companies have allegedly told producers that they will be reducing annual compensation for surface leases because of a change of use or a reclamation surrender.

Companies have told farmers they are facing economic hardship and that by reducing rates, their economic health will improve, the advocate office said.

As well, some companies have allegedly stopped paying annual compensation upon beginning, or claiming to begin, the reclamation process.

To help farmers navigate these challenges, the advocate office is reminding landowners that they have a right to review compensation every five years. A company can’t impose a compensation reduction without negotiating with a landowner in good faith or by going to a Surface Rights Board hearing.

Landowners are under no obligation to accommodate a company’s changing financial circumstances. Compensation is based on adverse effect and loss of use, not the state of the oil and gas industry.

The advocate office said adverse effect means landowners are compensated for changes made to their business practices, as well as stress, time and inconvenience they experience when their land is disturbed. Loss-of-use compensation is based on the amount of use or benefit that will be lost from a portion of land.

As well, farmers can obtain compensation for unpaid or reduced rentals through the Surface Rights Board under provincial legislation at any time during the five-year term.

The office said if a farmer cashes a cheque with a lower amount than what was agreed upon, it doesn’t imply the farmer is accepting that lower amount as the new rate.

Companies are responsible for paying the annual rent on a surface lease until a reclamation certificate is issued under provincial environmental legislation. Before a company applies for reclamation through the Alberta Energy Regulator, it must disclose the application to the landowner and allow 30 days of review.

Reclamation isn’t complete without consultation being initiated with the landowner.

Chris Montgomery, manager of exploration and production engagement with the Canadian Association of Petroleum Producers, said companies in Alberta need to live up to their compensation obligations.

If they can’t, he said they can renegotiate with farmers or go to the Surface Rights Board during the review period.

“I think it reflects the state of the industry today that we do face competitive challenges,” he said. “Companies, in some cases, are struggling, but at the same time there is no excuse for not complying with the rules that they are obligated to comply with.”

Surface rights compensation has been a long-standing issue in Alberta. With the crash in oil prices a few years ago, many bankrupt companies have abandoned their wells and are leaving farmers with the mess.

This is due to what’s called the Redwater decision, which was made by Alberta Court of Queen’s Bench in 2016. It allowed defunct oil companies to abandon their wells and give their leftover assets to bank creditors first rather than for cleanup efforts.

The Redwater decision, however, is currently being challenged at the Supreme Court of Canada. The high court is expected to make a decision later this year.

There are more than 1,800 sites registered with the Alberta Energy Regulator that have been abandoned. Those sites have estimated liabilities of more than $110 million.

The Orphan Well Association, which is funded by industry and has received government funding, is tasked to do reclamation work in cases where companies can’t. The association’s inventory has more than tripled from about 1,200 sites to 3,700.

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