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| FHOA's Concerns » Deep Rights Reversion
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| DEEP RIGHTS REVERSION | |
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In 1976, the Government of Alberta amended
the form of Crown lease used in Alberta so that the rights earned by an oil company-lessee
were restricted to those geological zones above the base of
the deepest geological formation proven capable of production
from the lease. In 1983, the Government introduced further deep
rights legislation which provided for the rights below the deepest
zone proven capable of production in all existing Crown leases
to revert to the Crown. Some oil companies, forced to give up
potentially valuable deep rights in Alberta Crown leases that
they had acquired in good faith under pre-existing rules, privately
complained about the Government's violation of the sanctity
of contract. But the changes were accepted without court
challenge and the oil and gas industry has now come to recognize
that the "industry has benefited
greatly by deep rights reversion regulation on crown lands in
the different provinces."1, because a deep rights reversion clause
does not allow the original oil company-lessee to monopolize
all potentially productive zones with shallow production and
frees up potentially productive deep zones for other industry
members to lease and evaluate. British Columbia and Saskatchewan have both followed Alberta's lead with respect to deep rights reversion. The deep rights reversion legislation in
the western provinces applies only to Crown lands, however PanCanadian Petroleum Limited ("PanCanadian"
now "Encana Corporation"),
the corporation that owns the majority of the privately-held
mineral rights in western At the request of the Office of the Farmers
Advocate, the joint committee of the Canadian Association of
Petroleum Landmen (the "CAPL')
and the Natural Resources Section of the Canadian Bar that was
responsible for drafting the CAPL 99 lease addressed the issue
of including a deep rights reversion clause in the lease. According
to the committee, "the first reason" for including
such a clause 'is the issue of fairness."2 This view was shared by Mr. John B. Ballem. In the 3rd edition of 'The Oil and Gas Lease in According to Mr. Ballem: Unfortunately, somewhere between the time
that Mr. Ballem apparently reviewed
the joint committee's recommended lease form and the time the
lease form was approved for use by the oil and gas industry,
the issue of fairness fell off the table. The CAPL 99 lease,
which was approved for use in the fall of 1999 almost concurrently
with the release of Mr. Ballem's book,
contains no deep rights reversion clause. |
