| Granting
clause: |
Delete
the phrase: "and to store and recover any substances
injected into the Lands". There is no provision in
the lease providing any compensation to you in the event
the oil company decides to use your lands for storage purposes.
Clause 4(a) specifically states that no royalty shall be
payable on non-leased substances injected and recovered
from the Lands. A lease agreement is supposedly for the
mutual benefit of the owner-lessor and the oil company-lessee.
If your oil company-lessee benefits from using your mineral
interests for storage purposes, should you not share in
this benefit? |
| Clause
1 (e): |
Add
the following words: "but only to the extent that the
foregoing are included in the Certificate of Title set forth
above." This change is only required in split title
situations so as to make the lease applicable to situations
in which the freehold owner-lessor's title is to all mines
and minerals except coal and petroleum. |
| Clause
1 (f): |
Delete
the phrase: "any well drilled on any spacing unit laterally
adjoining the said lands" and substitute "any
well on any spacing unit laterally or diagonally adjoining
the said lands". Some oil companies take the position
that "any well drilled" means drilled after the
date of the lease. Furthermore, your lands can be drained
from a diagonally adjoining well to the same extent as they
can be drained from a laterally adjoining well ("Understanding
Your Lease Agreement - The Offset Clause"). |
| Clause
1 (g)(iii): |
Delete
the phrase: "injected substance" and replace with
"substance injected for the purposes set forth in clause
1 (g)(i) above."
Why should the recovery of substances injected for storage
purposes be considered part of the Operations sufficient
to continue your lease when you receive no benefit from
such operations? |
| Clause
1 (g)(iv): |
Delete
the phrase: "any acts for or incidental to any of the
foregoing".
This subclause is far too broad. The habendum clause ("Understanding
Your Lease Agreement - The Habendum Clause") provides
for your lease to be continued beyond its primary term so
long as there are operation upon the said lands. Is raising
capital to conduct well operations an act 'incidental' to
well operations? Is holding a meeting to discuss raising
capital 'incidental'? |
| Clause
3: |
Delete
the word: "producing" and substitute "commercial
production of".
Some companies interpret 'capable of producing' to mean
capable of producing any amount of the leased substances.
As almost any well in Alberta is capable of producing some
gas, this interpretation allow the oil company-lessee to
extend your lease indefinitely for speculative purposes
with any well which is not abandoned and a token payment
of $1 per acre per annum ("Understanding Your Lease Agreement - The Shut-in
Well Clause"). In clause 1(b) 'commercial production'
is effectively defined to require the oil company-lessee
to test any well which it intends to use to continue your
lease and to establish that the well is capable of producing
leased substances in sufficient volume under current pricing
conditions to justify drilling an identical well. |
| Clause
4(a): |
Delete
from the 4th line the phrase: "the Lessee may deduct
any reasonable expense incurred by the Lessee (including
a reasonable rate of return on investment) for separating
, treating , processing, compressing and transporting the
leased substances to the point of sale beyond the wellhead"
and substitute: "the Lessee may deduct any reasonable
expense incurred by the Lessee in processing and transporting
the leased substances beyond the wellhead (including a reasonable
rate of return on investment)".
The Crown does not allow the expenses associated with separating
and treating to be deducted - why should you ("Deductions
from Freehold Royalties", "Understanding
Your Lease Agreement - The Acanthus Decision")? |
| Clause
4(d): |
Add
the following phrase: "including, without limiting
the generality of the foregoing, all financial information
relating to the reasonable expense deducted by the Lessee
in determining the current market value at the wellhead". |
| Clause
4(e): |
Add
new clause as follows: "The current market value for
that portion of the leased substances comprised of natural
gas and the condensate and natural gas liquids contained
therein shall be equal to the Reference Price for the said
substances as published by the Alberta Department of Energy,
less any intra-Alberta transportation allowances or fractionation
allowances permitted in determining the Crown's valuation
price for Crown royalty purposes. Provided that, in the
event that the Alberta Department of Energy or its successor
ceases to publish monthly Reference Prices, transportation
allowances and fractionation allowances, the current market
value of natural gas and the condensate and natural gas
liquids contained therein shall be based on the method then
used by the Alberta Crown to establish a price for the said
substances for Crown royalty purposes." As it
stands, the 'market value' clause permits an unscrupulous
oil company-lessee to assign low priced, arms-length gas
sales contracts or transactions to the lands of freehold
owners and higher priced sales contracts or transactions
to Crown lands. Because the Crown demands a royalty based
on the weighted average price of all gas and gas by-products
sold in the Province during the previous month (the "Reference Price"), the effect of assigning sales contracts
or transactions in this way is to minimize the oil company's
overall royalty obligation ("Gas Contract Manipulation"). |
| Clause
8: |
Delete
the word "laterally" in the 2nd and 3rd lines,
the 2nd line of 8(a), the 1st line of 8(b), the 2nd line
of 8(c), and the 4th line of 8(d) and substitute 'laterally
or diagonally"
Wells in diagonally offsetting spacing units may drain your
mineral interests to the same extent as wells in laterally
offsetting spacing units ("Understanding Your Lease Agreement - the Offset
Clause"). |
| Clause
9(d) & (e): |
Delete
entirely and substitute as Clause 9 (d): "If, at any
time during or after the primary term, the Lessee wishes
to unitize the lands or the leased substances or any portion,
zone or formation thereof with any other lands, zones, formations
or substances, the Lessee shall provide the Lessor with
a copy of the proposed Unit Agreement together with a written
request that the Lessor approve the proposed unitization.
Any and all such requests by the Lessee shall be accompanied
a summary of the basis and manner of the proposed unitization,
including the manner of allocating unitized production among
the tracts of land proposed to be unitized. The consent
of the Lessor to such unitization shall not be unreasonably
withheld."
As it stands clause 9 (d) is convenient for an oil company-lessee
because it gives the lessee the right to unitize your lands
in any manner it chooses without your consent. In some cases
it is in your best interest, as a freehold owner-lessor,
to enter into a unit agreement, but in other cases it is
not ("Understanding Your Lease Agreement
- Pooling and Unitization"). The vast majority
of the more than 750 unit agreements in Alberta were formed
before oil company-lessees began to demand these extraordinary
powers. Why should you give up an important right for the
convenience of your oil company-lessee? |
| Clause
9(f): |
Re-number
as Clause 9 (e) and delete the phrase "whether conducted
before, after or during the exercise of the rights and powers
granted under this Clause," |
| Clause
13 (a): |
Add
the following sentence: "At the end of the Primary
Term, the Lessee shall surrender all zones or formations
within the Lands which lie below the base of the deepest
formation completed for and capable of production of the
Leased Substances within the Lands, the Pooled Lands or
the Unitized Lands."
Alberta Crown leases have contained a deep rights reversion
clause for a quarter of a century ("Deep Rights Reversion"). |
| Clause
13 (d): |
Add
new clause 13 (d) as follows: "In the event of the
Lessee having registered in the Land Titles Office for the
area in which the lands are situated, the lease and this
addendum or any caveat or other document in respect thereof,
the Lessee shall withdraw or discharge the documents so
registered within a reasonable time after termination of
this agreement. Provided that, in the event the lease and
this addendum shall terminate but only as to a part thereof,
the Lessee shall take such steps as may be necessary to
amend or replace any caveat or other document registered
with respect to the Lease and this addendum to limit it
to those parts of the lease and this addendum that continue
in force."
Some oil company-lessees fail to remove their caveats when
a lease terminates leaving their freehold owner-lessors
or a subsequent lessee with the cost of clearing title.
In the case of deep rights reversion, because oil company-lessees
seldom file lease agreements with Land Titles and because
the caveats they file usually contain only a cursory description
of the underlying lease agreement, a requirement to amend
caveats in the event of deep rights reversion is absolutely
essential in order to make other oil companies aware of
the availability of the freeholder's deep rights.
|
| Clause
15(b): |
Delete
the phrase: "; nor shall it terminate if the Lessee
within the 30 days of such final determination has remedied
or commenced to remedy the breach or breaches, and having
so commenced to remedy the breach or breaches, thereafter
diligently continues to remedy the same".
If your oil company-lessee does not remedy an alleged breach
on the basis that there has been no breach, and the alleged
breach is subsequently confirmed by a final judgment of
a court, what possible reason is there to give your oil
company-lessee a second chance? |
| Clause 19 (e): |
Add
new clause 19 (e) as follows: 'All payments to the Lessor shall be accompanied by a report setting forth the basis
for the payment. The report shall include: (i) for crude
oil: the volume produced in cubic meters; the volume sold
in cubic meters; the price received per cubic meter sold;
the gross sales proceeds; the deductions for transporting
from the wellhead to the point of sale; and the net sales
value for royalty purposes;(ii) for natural gas, condensate,
propane, butane and pentanes plus: the volume of raw gas
and condensate produced in thousands of cubic meters and
cubic meters respectively; the volume of propane, butane
and pentanes plus recovered from the raw gas in cubic meters;
the volume of condensate, propane, butane and pentanes plus
sold in cubic meters and the volume of residue gas sold
in thousands of cubic meters; the heat content per unit
volume of the residue gas sold in gigajoules
per thousand cubic meters; the Reference Price of each of
the products sold, including any adjustments for intra-Alberta
transportation or liquid fractionation; the gross value
of each of the products sold for royalty purposes; the total
gross value of all products sold; the deductions for transporting
from the wellhead to the point of sale; the deductions for
processing; the total net value of all products sold for
royalty purposes; and the total net value for royalty purposes
as a percentage of the total gross value of the products
sold." Some freehold owners receive no reports accompanying
their royalty payments. Other freehold owners receive reports
in which the units of measurement are not reported. Many
freehold owners receive reports they do not understand.
Most freehold owners have difficulty comparing publicly
gas available weighted average gas prices based on heat
content ($/gigajoule) to prices
reported in their royalty statements in $/1000 cubic meters
("Royalty Reporting"). |
| Clause
22: |
Delete
the following sentence: "The terms of this agreement
constitute the entire agreement between the parties, and
no implied covenant or liability of any kind is created
or shall arise by reason of anything contained herein."
Oil and gas exploration and development is a complex business
and it is impossible to draft a freehold lease agreement
in which all possible eventualities are addressed ("Conflicts Between Oil Company-Lessees and Owner-Lessors").
The Law of Implied Covenants developed in the United States
to address this problem and imposes broad unwritten duties
on oil company-lessees to properly develop their freehold
owner-lessor's lands. Although no corresponding body of
law exists in Canada, why you should agree to specifically
exclude implied covenants from your lease agreement? |
| Clause
27: |
Add
new clause 27 under the heading "Applicable Law":
"This agreement shall be construed under the laws of
the Province of Alberta. The parties hereto agree that the
ten-year period for seeking a remedial order under section
3(1)(b) of the Limitations Act, S.A., 1996 c. L-15.1 (the
"Act"), as amended, for any claim (as defined
in the Act) arising in connection with this lease shall
be a period of time equal to the term of this lease plus
two years (the 'New Limitation Period"). Provided that,
in no event shall the New Limitation Period be less than
10 years" The Limitations Act effectively bars legal
actions brought more than 10 years after the cause of the
legal action arose and requires legal actions to be brought
within 2 years of discovery of a cause of action. Section
7 of the Limitations Act also provides for parties to a
contract to set their own ultimate period for purposes of
limitations. British Columbia has a 25-year ultimate limitation
period. |
