Alberta Surface Rights Board rules that lease payments are based on landowner’s loss of use, not the state of the energy market
A July ruling by the Alberta Surface Rights Board affirms that energy companies cannot unilaterally reduce their lease payments for sites on farmers’ and ranchers’ land, says the Farmers’ Advocate Office.
The FAO said in a news release that the July 17 ruling in the case of Ember Resources Inc. v Bates is important to note, since many oil and gas companies continue to seek reductions in lease payments.
Some cite reasons of economic hardship or changes to use of the leased land as reasons for seeking lower payments. Some also attempt to reduce the acreage of the leased area and claim they should pay a reduced rate as a result.
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The drastic reduction in income and activity within Alberta’s oil and gas sector in recent years has caused financial issues for many companies and there are widespread efforts to reduce costs. Attempts to reduce lease payments to farmers and ranchers are among those efforts.
“The amount provided for annual rental is based on a landowner’s adverse effect and loss of use, not the state of industry,” the FAO said.
In the SRB decision, the board said Ember failed to comply with Surface Rights Act requirements to provide adequate notice that it wanted to review lease payment rates or that it was reserving its right to apply for a compensation review.
The FAO noted the significance of Ember v Bates because it shows “no change to surface lease payments may be made without first undertaking required notification as provided for in Section 27(4) and (5) of the Surface Rights Act and undertaking good faith negotiations to attempt to reach agreement with landowners, and, failing agreement, obtaining an order ‘fixing, confirming or varying the rate of compensation payable’ from the Surface Rights Board.”
The Farmers’ Advocate Office provided a summary of key issues related to the ruling.
Under current rules, landowners and operators have the right to a five-year review of the compensation rate and a landowner can apply to obtain compensation for unpaid or reduced rentals through the SRB at any time during that five-year term.
“An operator must negotiate in good faith with a landowner. The FAO recommends the landowner keep a log of contact attempts and communication with the operator and the representative they speak with. It is preferred to have all communication in writing,” it said.
As well, landowners do not need to apply for an SRB review if they are satisfied with the original amount specified in a surface lease, the FAO said.
They can apply for recovery of reduced rental payments under the Surface Rights Act, after which the energy company will be served with a demand for payment and will have to justify a rental reduction to the SRB.
Lease payments to landowners are based upon adverse effect, that being the oil and gas well sites’ effect on time, stress and inconvenience from the land disturbance.
They are also based on loss of use, which can include the area of the site itself, presence of an access road, loss of crop, hay or pasture area, effect on crop rotation, need for or lack of weed control, difficulties farming in confined spaces and other impacts.
