TROCHU, Alta. — Alberta landowners are considering a court challenge to recover lease payments from the government when an energy company goes bankrupt.
Four hundred people gathered in Trochu April 9 at a Alberta Surface Rights Groups meeting to discuss a challenge, which includes setting up a $30,000 legal fund to argue a case in which a Vulcan area farmer is owed more than $112,000.
“It is a huge issue because there are thousands of these wells and there’s probably 50 or 60 companies that have gone bankrupt in the last five or six months,” said Daryl Bennett, who represents the Action Surface Rights Association in southern Alberta.
Compensation is paid to cover the right of entry, loss of use and potential damages when a landowner and energy company sign an agreement. The compensation agreement is reviewed every five years, and more landowners are discovering that no money is forthcoming because of company insolvency.
“You are not supposed to make a profit on what the oil companies are paying you. It is supposed to be compensation for your loss,” Bennett said.
“If these landowners are not being paid for their losses, they are being forced to subsidize industry, and they are being force to subsidize the government.”
Landowners with oil and gas wells on their property who have appeared before the Alberta Surface Rights Board in the last couple years seeking compensation were turned down because the company was insolvent. Provincial legislation says the government pays when that happens.
However, lawyer Keith Wilson of Edmonton, who specializes in agriculture and land use cases, said the board has said it cannot act because of provisions in the federal bankruptcy act.
“Section 36 of the Surface Rights Act says if the company does not pay or refuses to pay, you make a claim and the government will chase the company,” he said.
“The reason they are not paying you is they are saying there is a problem with the federal bankruptcy act.”
He said Alberta is unique in the way it deals with energy companies and private landowners. It allows companies the right of access to subsurface resources but guarantees landowners a long list of rights, including guaranteed compensation.
Bennett shares the opinion of Wilson and lawyer Shaun Fluker of the University of Calgary, which is that the government is backing away from its obligations because of financial constraints. The money would have to come out of general revenue.
A farmer often does not know who holds the lease, and if the company is bankrupt he does not know who is responsible for payments.
Fluker said the landowners have a strong case and could result in a long list of claims. The rurface rights board should also be required to explain why it refused payments.
“Regulatory agencies have an obligation to give an explanation on a decision like this,” he said at the Trochu meeting.
“The board, at the very least, has to explain how it come to this conclusion.”
Alberta property rights advocate Lee Cutforth raised the issue with the province in his 2014 annual report.
“A recurring and persistent series of concerns has been expressed over the past year with respect to various applications of the Surface Rights Act,” said the report.
It said the federal Bankruptcy and Insolvency Act interferes with orders for payment to landowners under Section 36 of the Surface Rights Act when the operator has filed for bankruptcy. Under these laws, the board apparently cannot remedy the situation without statutory changes.
Consultant Graham Gilchrist, formerly with the Alberta Farmer’s Advocate office, said these cases are growing. Firms are reneging on their fees to the orphan well fund and are not notifying landowners about upcoming compensation reviews. Landowners who question what is happening are rebuffed.
“The companies say go away, we are not doing anything, we won’t do anything unless you force us,” Gilchrist said.
He said the government can intervene and make regulatory change.
The orphan fund is fully funded by the oil and gas industry through a levy administered by the Alberta Energy Regulator. The fees cover the costs of an abandoned well facility, pipeline abandonment and reclamation liability. However, the province has had to add money to the fund to cover the cost of a growing number of orphan wells.
The latest government figures from 2011 indicate 150,000 well sites have been abandoned. Of those, 100,000 were reclaimed while the remainder were sealed but no reclamation was done.
Karen Sinclair-Santos, counsel for the surface rights board said there are different avenues for landowners when a company is in receivership or bankrupt. Each case is heard individually under section 36 of the Surface Rights Act.
If a company fails to make its lease or compensation payments the board may take away its access to the site and if payments are not made, all rights to the site are terminated. The board also may direct the minister of environment and sustainable re-source development to pay the money out of general revenue.
There have been some cases since 2012 where payments were not made because of provisions under the federal bankruptcy act.
“There are a few decisions of the board, not very many, where section 69 of the bankruptcy act prevents the board from proceeding with a stay of enforcement,” she said.