Initially, the CPR saw its land grant solely in the context of its railway operations - by selling farm-sized portions of its grant to settlers and encouraging homesteading on the Canadian prairies, the CPR could create traffic on its rail line. CPR land sales started in 1881² and, for almost a quarter of a century, homestead lands were sold to settlers in the same form as the lands had been acquired from the Dominion Government. As a result, settlers acquiring homesteads from the CPR during this period also acquired the rights to petroleum and natural gas beneath their lands.

The world's second oil boom began in 1901 when a well drilled at Spindletop along the Texas Gulf Coast blew in at 100,000 barrels per day. At about the same time, Alberta's first oil well was drilled along Cameron Creek, near Waterton. Despite these developments, it wasn't until 1906 that Sir William Shaunessy, then President of the CPR, hired a French geologist named Eugene Coste to explore for oil on CPR railway grant lands in southern Alberta. In that same year, Shaunessy ordered the deed under which the CPR sold homestead lands to settlers to be altered to reserve petroleum rights for the CPR.³

Coste found no oil in southern Alberta, but did discover commercial quantities of natural gas on CPR lands near Bow Island. This was not the first natural gas found on railway company lands. In 1883, the CPR had drilled Alberta's first gas well at Langevin Siding near Medicine Hat while boring for water. The drilling derrick subsequently caught fire and exploded destroying railway company property and seriously injuring two CPR employees. Clearly, at the turn of the 20th century, natural gas was not the highly valuable commodity which it is at the turn of the 21st century. In fact, natural gas was considered to be a dangerous nuisance⁴ and, according to the CPR's successor, PanCanadian Petroleum Limited ("PanCanadian" now "Encana Corporation"),"Canadian Pacific was not very interested in natural gas"⁵.

Sir William Shaunessy was disappointed with Coste's drilling results. He told Coste that the CPR was looking for oil and not gas, and rejected Coste's "extensive project" for exploiting the gas found on CPR lands.⁶ Shaunessy recognized that "some day or another the gas may prove valuable" but was concerned that "We have put out a good deal of money without any practical results ..." Coste subsequently formed a company to build a pipeline from Bow Island to Calgary, and transferred $200,000 worth of shares in this company to the CPR in return for the right to buy gas from the CPR's lands and drill wells thereon. The pipeline was completed in 1911 and the company subsequently became the Canadian Western Natural Gas Company.

In 1912, the CPR established a Department of Natural Resources in western Canada. Colonel J.S. Dennis was appointed head of the department with the title of Assistant to the President⁷, P. L. Naismith was appointed Manager, and George A. Walker was hired as full time solicitor.

The natural gas which Eugene Coste had discovered and was producing from the Bow Island area of southern Alberta is what is known as 'dry gas' - gas which in the subsurface contains such limited quantities of normally liquid hydrocarbons dissolved in solution that, when the temperature drops as the gas is produced at surface, no measurable hydrocarbon liquids are produced (see "The Nature Of Oil And Gas and their Ownership"). Although it wouldn't be publicly acknowledged by the CPR or confirmed by a court for almost 40 years (see "1950 - 1953 Bory's v. CPR and Imperial Oil Ltd."), CPR documents in the Glenbow Museum make it clear that the CPR's own lawyers were of the opinion that the railway company's reservation of petroleum in land sales to settlers did not include the right to dry gas (see "1920 - The Turner Valley Controversy"). According to historian W. K. Lamb, one of Walker's first acts upon being appointed solicitor of the Department of Natural Resources was to insist that the CPR change its policy regarding what substances it reserved for its own account in land sales to settlers.⁸ From 1912 onward, the CPR retained the right to both petroleum and natural gas in its land sales by virtue of its reservation of all mines and minerals.

As a result of the CPR's retention of petroleum and its failure to retain natural gas during the 1905 - 1912 period, the title to petroleum and natural gas became 'split' on approximately 1 million acres of land in Alberta and an unknown number of acres in the other prairie provinces.

It wasn't long before the 'split-title problem' raised its ugly head (see "1920 - The Turner Valley Controversy").

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