Alta. farmers take legal action on oil leases

A statement of claim in a recently launched class action lawsuit alleges that an energy company cannot arbitrarily cancel or reduce annual payments to landowners.  |  Reuters/Todd Korol photo

Producers launch a class action lawsuit against unpaid oil leases and ask for a judicial review of ASRB decisions

Alberta’s farmers are fighting to regain compensation they say they are owed for the disruption caused by oil and gas wells on their land, says a surface rights advocate.

“It’s a huge issue,” says Daryl Bennett, director of the Action Surface Rights Association. “There are thousands of farmers that are either not being paid by the oil companies, or the oil companies have arbitrarily reduced compensation from 50 to 80 percent.”

Farmers are taking their fight to the courts by launching everything from a class action lawsuit to applying for a judicial review of decisions by the Alberta Surface Rights Board, he says.

But the deeper problem is that a compensation system once funded by Alberta’s oil riches is being hit by an ailing energy industry, says Bennett, who is also a farmer in the Taber area.

“Conventional oil, they still are drilling some wells, but we’re never going to have the boom that we did before.

“And the other problem, too, is we’re now starting to find circumstances where banks are looking at the land and going (to farmers), ‘you’ve got all these orphan well situations on your land. We know there’s contamination, there’s leaks — we’re not going to give you a mortgage on that land.’ ”

Retired farmer and businessperson Reinhold Kautz recently launched a class action lawsuit against AlphaBow Energy Ltd. A statement of claim alleges the company is in breach of two Alberta surface rights agreements that do not unilaterally allow for the termination or reduction of annual compensation.

“We’ve heard from a number of other potential plaintiffs — I think over a dozen already,” says lawyer Mathew Farrell of Guardian Law Group in Calgary.

The statement of claim alleges AlphaBow Energy told Kautz that all surface rental payments were being deferred due to the severe impact of the COVID-19 crisis on the oil and gas industry.

He was informed in May via written correspondence by the company, says the statement. He was told the situation was to be reviewed in six months, with AlphaBow quoted as saying it would “determine at that time what our plan is to catch up on outstanding rental obligations.”

Farrell says farmers are in effect taking the risk during the bad times despite not receiving the financial benefits from wells when things are good.

“I mean, if I fall on tough times, then, you know, that doesn’t mean that I don’t have to pay my rent,” he says. “It should be no different.”

Guardian Law Group may also hear from farmers who are allegedly having problems with other companies, he says, adding “we have every intention of helping those people, too.”

Annual payments by energy companies range from $2,000 to $3,000 for grassland to about $6,000 for irrigation land, rising to as much as $30,000 for the latter in exceptional cases.

“You’re being paid for your loss of use of being able to grow a crop on the site, and you’re being paid for the adverse effect of having to farm around that site — the extra overlaps of fertilizer and seed and obstacles, danger of hitting it at night, contamination, all that type of stuff.”

Bennett says lack of payment to farmers mostly involves junior oil and gas companies, although some are larger ones.

“But it’s usually the companies that have taken over assets from companies that have gone bankrupt, and they’re trying to cut costs to make it financially viable. And they’re basically forcing the landowner to subsidize their takeovers of these less profitable companies.”

The Alberta Surface Rights Board has recently made decisions “where they’ve said that paying the full amount would unjustly enrich the landowner,” says Bennett.

He argues it goes against decades of legal precedent.

“There are some other landowners that are just going to take it to small claims court and claim breach of contract, and try to circumvent the surface rights board.”

Bennett says he’s concerned a cash-strapped provincial government might be pressuring the board to reduce the amounts owed farmers due to Alberta’s growing orphan well problem.

To help the struggling energy industry, the provincial government announced an exemption Oct. 19 on certain municipal taxes affecting oil and gas companies. Unpaid taxes by such firms to Alberta’s rural municipalities totalled $173 million last year, up from $81 million two years ago.

Surface rental payments don’t constitute a form of profit for farmers, says Bennett. Courts have determined they are financial compensation as required by legal contracts to make whole the losses farmers have suffered to their operations, “and that’s why unjust enrichment doesn’t apply,” he says.

Besides going through an internal re-hearing process, a request for a judicial review is to be filed at the Alberta Court of Queen’s Bench alleging the Alberta Surface Rights Board made an error of law, he says.

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