Legal Brief for April, 2022

Mineral Rights and Surface Rights

It is standard in Alberta for any properties which have been placed in the public domain for the purpose of private ownership to have a reservation to the Crown (i.e. the Government of Alberta) of "all mines and minerals" that may be on or under the surface of the property.  The usual wording on a certificate of title for standard ownership (known as "fee simple") is - "excepting thereout all mines and minerals".  The term "mineral rights" includes oil and gas.

Because of the reservation of mineral rights the Crown has the right to convey ownership of those rights in any property to businesses or operators who are interested in exploring for or producing whatever may lie underground.

There are therefore two certificates of title issued for any rural property - the first is for the fee simple ownership and the second is for the ownership of the mineral rights.  The owner of the mineral rights is free to sell, lease or mortgage its ownership interest without needing to obtain the approval of the fee simple owner.

The owner of the mineral rights for a property can explore for and develop oil and gas wells on the property (and it can also sub-lease the mineral rights to other operators, to allow them to do the exploration and development).  If they locate any oil and gas, or other minerals for that matter, the rights holder must then enter into a lease with the fee simple owner of the property for what are known as "surface rights"; as it needs to have permission from the fee simple owner of the "surface" of the property to be allowed to erect structures on the surface of the property that enable the actual production of whatever has been discovered.

This permission from the owner comes in the form of an agreement known as a “surface lease”.  That lease document is registered against a Certificate of Title by way of a document known as a caveat.  The "surface" portion of the property that is leased to the operator will be for a very limited area, being the minimum amount of land required for any structures to bring the oil and gas to the surface.  The remainder of the property is not affected by the "surface lease" and the fee simple owner is free to use such property as it wishes to.

If an operator discovers oil and gas in commercial quantities it then needs to hook up the well to a pipeline network in the neighbourhood in order to move the product to a refinery.  It is therefore required that the operator, in addition to the surface lease for the production structures, must also enter into a further agreement with the fee simple owner to obtain permission to build a pipeline from the production site to the boundary of the property.  These are known as "right of way agreements".  These pipeline rights of way are also for limited portions of the property, such as a 15 metre wide strip of the land from the wellsite to the boundary of the property.  The right of way agreement is registered on the title as a "utility right of way" or by way of a caveat.

The surface lease and right of way agreements always contain clauses by which the lessee (the oil and gas operator) agrees to indemnify the fee simple owner for any damages which may occur as a result of its activities on the property and to erect appropriate fences around any of its surface structures, and to reclaim/remediate the property if or when the oil and gas activity on the property is discontined.

As you can see from this overview of mineral and surface rights there is literally more to property rights than meets the eye.