There are a number of factors that determine the amount of compensation a farmer might receive from an oil company drilling on his land. Many of these factors are spelled out in provincial law.
Compensation is made up of a first-year payment and annual rental payments. Some of the important factors determining compensation include: market value of the land (what is the land worth, is there other oil activity in the area); loss of use of the land (there will be an acre or more you won’t be able to farm); adverse effect (you’ll have to cultivate around the well site instead of going straight across); nuisance (noise, dust, inconvenience) and other adverse effects. The first-year payment should include an amount for the time and cost spent negotiating the surface lease.
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Other relevant factors can be included. This will depend on your negotiating or advocacy skills before the Surface Rights Board. For example, you might want extra compensation because the well site will destroy a stand of trees that are a special place for you.
Alberta legislation requires that the first-year payment include an entry fee of $500 an acre and a minimum of $250 where less than an acre is taken. Alberta legislation, including the Surface Rights Act, is available for free at www.gov.ab.ca/qp/. Saskatchewan legislation is only available on-line on an annual subscription basis.
Besides compensation, there are many other factors to consider. One is the environment. You should ensure the company will do everything possible to prevent contamination of the land and will assume responsibility for all pollution it creates and any claims made for environmental damage.
Consider liability for environmental damage discovered after the company stops operations on your land. While oil companies are required to restore or reclaim the land before ceasing operations, something may be missed, done improperly or perhaps future environmental standards may become more stringent.
Here is a hypothetical case. Oil activities have been carried out on your land. A purchaser who is offering to buy your land goes to a bank for financing. The bank demands an environmental audit, which turns up contaminants from an oil drilling operation. The bank will probably turn down the financing.
Will an access road be built across your land? If so, will the company ensure the gates are closed and trespassers kept off the road? In a query I had a few years ago, a reader complained that hunters, snowmobilers and mushroom pickers were using an access road built by a company more than the oil company was. These trespassers were leaving the gate open, scaring the cattle and polluting with cans, bottles and wrappers.
Another issue to consider is what the company will do to control weeds at the site and from entering your land via vehicles. One suggestion I’ve heard is a requirement that the company wash vehicles before entering the land.
Issues of occupier’s liability should be addressed. For example, what happens if the custom combiner falls into a sink hole that has developed near the well site as a result of the company’s activities?
If the land is leased, any grant of surface rights will interfere with tenant’s rights. In some cases, the lease agreement with a tenant may set out how compen-sation and other related matters are dealt with if an oil company acquires surface rights to your land. If your lease is silent on these matters, you will have to negotiate with your tenant on this issue.
Generally, any money paid for the value of the land and any entry fee should go to the owner. Compen-sation for adverse effect and nuisance will generally go to the tenant. If compensation is decided by the Surface Rights Board, it will decide how compen-sation will be divided.
According to my research, providing gas to the farmer as part of the compensation package is something that occasionally occurred in the earlier days of oil and gas development, but is not a common practice today. Legal issues with such an arrangement include what happens when the company ceases operations on your land and who is responsible if there is a problem with the pipeline.
