Background
On June 22, 2023, the Alberta Energy Regulator (“AER”) confirmed that compulsory pooling orders may be granted even if an impacted mineral rights holder has no intention of developing its mineral resources. In 2023 ABAER 003, the AER considered an application by Xenotime Energy Inc. for a compulsory pooling order under Section 80 of the Oil and Gas Conservation Act (“OGCA“). Xenotime sought to commence oil and gas operations under a parcel of mineral rights leased by Xenotime from the Crown in Right of Alberta. PrairieSky Royalty Ltd. held freehold mineral title to an adjacent parcel. Xenotime unsuccessfully sought to enter into a voluntary pooling arrangement with PrairieSky during prolonged negotiations.
After voluntary negotiations were unsuccessful, Xenotime applied to the AER for a compulsory pooling order. PrairieSky submitted a Statement of Concern to the AER in response to Xenotime’s application for a compulsory pooling order. PrairieSky argued that as it was merely a fee simple mineral title owner, and not a working interest owner, section 80 of the OGCA was inapplicable and a compulsory pooling order could not be issued.
AER Decision
The AER considered Xenotime’s application and noted that section 80 of the OGCA makes no reference to “working interest”. Rather, section 80 defines an “owner” as including any person who has the right or an interest in the right to drill for oil and gas. The AER held that even if an owner of mineral rights in fee simple lacks the necessary licence to conduct oil and gas operations, the right to drill for oil and gas is created by the fee simple grant of mineral rights, and the issuance of a licence is not necessary.
The AER held that granting a compulsory pooling order was an available remedy in the circumstances and went on to consider the merits of Xenotime’s application. The AER noted that compulsory pooling orders are extraordinary remedies and should only be granted as a last resort. The AER much prefers the negotiation of voluntary pooling arrangements and will only order a compulsory pooling arrangement when negotiations of voluntary pooling arrangements have been unsuccessful. When considering whether to issue a pooling order, the AER is required to consider the impact of issuing such an order on the respective rights of freehold mineral rights owners.
Xenotime leased an interest in approximately 70% of the quarter-section in question and PrairieSky owned a freehold interest in the minerals of 30% of the quarter-section. In determining whether a pooling order was necessary, the AER considered the history of negotiations between the parties. Xenotime had engaged PrairieSky in negotiations in efforts to come to an agreement, however PrairieSky was reluctant to enter into an agreement with Xenotime. Eventually, five offers and counteroffers were exchanged between the parties. When the parties could not come to an agreement, Xenotime advised PrairieSky that it may apply for a pooling order. Upon Xenotime’s application, the AER found that based upon the history of negotiations between the parties, a pooling order was necessary.
Key Takeaways
The AER granted Xenotime’s application for a compulsory pooling order and established that compulsory pooling orders are available remedies regardless of whether all impacted mineral rights holders are working interest owners or hold the necessary licence to develop their own oil and gas resources.
Should you have any questions regarding oil and gas disputes or matters before the Alberta Energy Regulator, please do not hesitate to contact the Energy Litigation Practice Group at Whitelaw Twining, including Gordon Becher and Aurora Allison.