Canadian Association of Petroleum Landmen Supplement 2012

connection energy & agricultural land

C a n a d i a n A s s o c i at i o n o f P e t r o l e u m L a n d m e n S u pp l e m e n t 2 0 1 2

Presented by

is a great sense of community “ There 448950 and willingness to lend a helping hand.

Devon Canda Corporation ” FULL PAGE - IFC - Devon employee

Learn more about Devon’s values at www.devonenergy.com

Best Workplaces 2012

Commitment Runs Deep

Canada

table of Contents

14 5

messaGe from the editor by dean gould, b.A. econ., PMlM, P. land — spectrum land

16 21

messaGe from the President

by Margaret Ariss — blackPearl resources inc.

8

PlanninG Your estate: the new alBerta wills and suCCession aCt by glen nazaruk, llb — burstall Winger llP

services ltd.

7

25

24

surfaCe rental PaYments: who to PaY and when

by Janet Harren, Psl — cenovus energy Jason tweten, Psl — Action land & environmental ltd.

alBerta oil and Gas surfaCe aGreement Clauses by nikki sitch, Psl, P.land, b. comm. (PlM) — barrick energy inc.

14

as Gas PriCes have faltered, “wet” Gas has BeCome the foCus for drillers

25

by gary richardson, Psl, bA, bA, environmental Mgmt. cert. — talisman energy inc.

by Jasone blazevic, Psl — encana corporation

16

reClamation: a landowner’s Guide

by Jarvis nicoll, P.Ag, Psl — canada West land services ltd.

Andrew Fulford, Psl — encana corporation

fresh water use in hYdrauliC fraCturinG of shale Gas

29

neGotiator’s noteBooK: neGotiation suCCess CheCKlist by dave savage, P.land — savage Management ltd.

More than half of Synergy Land’s employees are based in rural communities throughout Western Canada.

We are pleased to provide local connections to the energy industry.

Pursuing Perfection www.synergyland.ca | 1.877.961.LAND (5263)

energy & AgriculturAl ConneCtion | 2012

3

®

The Canadian Association of Petroleum Landmen (CAPL) is proud to have dedicated individuals working with members of the rural community to develop our abundant natural resources in a fair and efficient manner for both Agricultural and Petroleum and Natural Gas interests.

It is the CAPL’s mandate to offer its continued support to the heart and soul of our community – the agricultural producer.

The CAPL is an expanding organization committed to enhancing all facets of the land profession through communication, education, professional development, technology and member services.

The CAPL’s activities interface with other resource-based associations, government departments and the public to facilitate common understanding of the issues, challenges and solutions in the business of the oil and gas industry.

The CAPL continues to support the agricultural and ranching communities through its annual sponsorship of the Reserve Champion Steer at the Calgary Exhibition and Stampede.

350, 500 – 5th Ave SW | Calgary, AB. T2P 3L5 | Ph: 403-237-6635

www.landman.ca Land is the basis of all wealth

President: M. (Margaret) Ariss Managing Editor: Dean Gould, P. Land Director, Public Relations: C.S. (Chris) Lamb Advertising Sales: Nicole Kiefuik Published by: JuneWarren-Nickle’s Energy Group The Canadian Association of Petroleum Landmen is an expanding organization committed to enhancing all facets of the land profession through communication, education, professional development, technology and member services.

2012–2013 CAPL Board of Directors Vice-President J. (John) Covey Finance N. (Nikki) Sitch, P.Land, PSL Secretary/Social R. (Rob) Mardjetko Public Relations C.S. (Chris) Lamb Communications J. (Joan) Dornian Education K.L. (Kevin) Egan Field Acquisition and Management J. (Jasone) Blazevic, PSL Member Services G. (Gloria) Boogmans, P.Land Professionalism K. (Kent) Gibson Technology S. (Sally) Jackson, P.Land Business Development (Alberta & British Columbia) Keely O’Neil Business Development (Saskatchewan & Alberta Oilsands) J.M. (Jan) McKnight

Message from the editor Welcome to the Energy & Agricultural Land Connection!

Every year, with the generous support of its volunteers, various sponsors and publisher, the Canadian Association of Petroleum Landmen’s (CAPL’s) Public Relations Committee is able to provide its annual publication featuring articles that are intended to provide its readers some insight into the many issues affecting the oil and gas industry and the community in which it operates.

Similar to previous publications, this year’s compilation of topics and related articles was specifically constructed to provide an overview along with some insight into oil and gas field operations and the related activity affecting the surface landowner.

All data, opinions and information expressed by the authors of the articles featured in this publication are theirs alone, and do not reflect the position or opinions of the Canadian Association of Petroleum Landmen (CAPL) or any employee thereof, or their respective member companies and/or employees. To view past publications, please visit: www.landman.ca and click on the “Annual Feature” tab located within the “Publications” tab at the top of the website page.

The future scope of the Energy & Agricultural Land Connection is open to your suggestions. I would like to encourage you to contact me with any comments or suggestions that you may have with respect to this publication or topics you would like to see in next year’s publication. I may be reached via email at dean@spectrumlandservices.com.

— D.A. (Dean) Gould, P. Land Managing Editor CAPL Public Relations Committee

Past President J.E. (James) Condon, P.Land

#350, 500 - 5 Avenue S.W. Calgary, Alberta T2P 3L5 Phone: (403) 237-6635 Fax: (403) 263-1620 www.landman.ca

Energy & Agricultural ConnectioN | 2012

5

Proud to be part of your community

As a member of your community, we share your commitment in keeping it safe, clean and strong.

Midwest Surveys Inc. Midwest Surveys has been providing professional land surveying services to the oil and gas industry since 1949.

Our ten offices are strategically located in order to provide better service throughout Western Canada.

At Midwest we are dedicated to professionalism, customer service, high ethical standards, technical expertise and safety.

Contact us today!

Calgary (Corporate Office) 403.244.7471 1.800.387.3032 www.midwestsurveys.com

Service Beyond Boundaries

Find out how ARC is acting on this commitment: www.arcresources.com

Message from the President The Canadian Association of Petroleum Landmen (CAPL) is a professional organization for people involved in all aspects of petroleum land management. The CAPL membership includes individuals responsible for the acquisition, administration, and disposition of mineral and sur face rights for petroleum exploration and production companies, as well as for related service and financial institutions in the Canadian energy industry.

The organization’s mandate is to provide and promote activities to enhance the value of its membership and promote the role of the landman and the land profession. The association achieves these goals through the volunteer efforts of its members, represented by a board of directors consisting of 13 elected volunteers.

The CAPL’s objectives include: • Establishment of the highest professional and ethical standards.

• Promotion of education and training in petroleum land management, including a structured mentorship program, student scholarship program and support of land-related, educational institution curriculums at Olds College, Mount Royal University and the University of Calgary, and the corresponding student body organizations.

• Engagement and input in public and government relations.

• Encouragement of fellowship and cooperation among its members through association-sponsored activities.

In keeping with its vision to maintain a positive, open relationship with its members and community stakeholders, CAPL has an ongoing relationship with the 4-H Foundation of Alberta.

Each year, CAPL purchases the Calgary Stampede reserve champion steer. With the assistance of a number of generous sponsors and the tireless efforts of Terry Cutting and his hard-working committee, that steer is raffled off and the proceeds of the raffle go to the 4-H Foundation. This is the eighth year of this fundraiser and this year CAPL raised close to $18,000, which will go towards various 4-H initiatives, including scholarships.

For me, personally, the relationship with 4-H is very important and as a former 4-H club member, I appreciate the importance of the 4-H clubs to rural agricultural youth. I grew up on a cattle ranch southwest of Calgary, was one of a large family and ranching was dad’s way of keeping all those kids too busy to get into too much trouble. As a member of the Red Deer Lake 4-H Food Club for several years, I benefited from the required public speaking, participation in Achievement Day and interaction with other clubs.

The energy industry and the rural, agricultural community in western Canada are intrinsically linked, and that interaction and relationship require understanding and appreciation of the various interests.

You can check out the CAPL website at www.landman.ca.

— Margaret M. (Mercier) Ariss President, CAPL 2012-2013

Energy & Agricultural ConnectioN | 2012

7

alBerta oil and Gas surfaCe aGreement Clauses by nikki sitch, Psl, P.land, b. comm. (PlM)

APPENDIX “A”

SCHEDULE “C”

SEC.16(b)

there are many different types of agreements signed between landowners, occupants, and oil and gas companies. Because of their importance, term and depth, this article covers the alberta surface lease and the alberta right-ofway agreements. many of the clauses are covered, but not all of them.

the Alberta surface lease is a private agreement negotiated between the owner of the land (“landowner”), the person renting or in occupation of the land (“occupant”), and the oil and gas or energy company (“company”), and may cover a wellsite, access road, plant site, compressor site or other facilities. there are different versions of the surface lease used; however, most of the clauses are similar. the canadian Association of Petroleum landmen (cAPl) has four different versions of its standard lease: 1988, 1995, 1995(1) and 2012. Many companies use one of these agreements or a modified version of one.

DATE the date written on the lease is the date that the landowner signs and this becomes the effective date of the company’s obligations—including annual compensation payment and annual 8

energy & AgriculturAl ConneCtion | 2012

compensation review notice, according to section 27 of the Alberta Surface Rights Act.

DEFining ThE “SAiD LAnDS” the legal land description as to the quarter section or other titled unit affected is inserted exactly as shown on the certificate of title. the phrase “excepting thereout all mines and minerals” is necessary to fulfill the Surface Rights Act requirement to separate mineral and surface compensation.

gRAnTing CLAuSE this is the formal grant of the land to the company and is identified by “now therefore this indenture witnesses that.” this clause refers to the survey plan that shows the leased land (outlined in red) and is defined as the “leased Area” (or “demised Premises” on older leases). the surface lease cannot be open-ended and must have a

PhoTo: PhoToS.CoM/CoLLin oRThneR

ALBERTA SuRFACE LEASE (2012 VERSiOn)

FIG.8(a) SEC.5

SEC.17

SCHEDULE “B”

term; the term of the lease is 25 years. this clause defines the uses of the lease, which includes exploration through to development, production, remediation and reclamation. it covers the life of the well or facilities on the leased area.

PAyMEnT CLAuSE this clause begins with “yielding and paying unto the lessor” and sets out the compensation payable to the landowner by the company. the compensation factors are derived directly from section 25 of the Surface Rights Act: • market value of land leased (per-acre land value); • general disturbance (first-year nuisance, inconvenience and noise); • adverse effect (including, but not limited to, nuisance, noise and inconvenience); and • loss of use (per-acre crop loss or pasture loss). the first-year compensation includes all four compensation factors. the annual compensation is defined in section 27(1) of the Surface Rights Act and includes: • loss of use; and • adverse effect. the annual compensation must be paid yearly in advance of the lease anniversary until a reclamation certificate is obtained by the company.

nOn-EnTRy OR nOn-EXERCiSE OF RighTS if the company has not entered the leased area except for survey purposes or the first year compensation has not been paid within xxx days (typically 365 days), the company pays the landowner $xxx for the right to survey and other inconveniences, and the lease terminates.

LESSOR’S COVEnAnTS this clause is identified by “the lessor hereby covenants and agrees to and with the lessee” and outlines the landowner’s obligations: • Quiet enjoyment: The landowner warrants that he or she has the right to lease the leased area to the company. the company has the right to occupy and use the leased area without interruption or disturbance from the landowner or any other parties for the duration of the lease.

• Renewal: This provides for automatic renewal of the term for an additional 25 years assuming the company is not in default.

LESSEE’S COVEnAnTS this clause is identified by “the lessee hereby covenants and agrees to and with the lessor” and outlines what the company’s obligations are: • Indemnification: The company agrees to protect the landowner from any liability to third parties that results from the company’s operations. energy & AgriculturAl ConneCtion | 2012

9

• Fencing and roadways are addressed in the lease, and the landowner should ensure that these clauses meet his or her specific needs. Special conditions should be added to Schedule “A.” • The company is required by Alberta Environment and Sustainable Resource Development (ERSD) to install culverts to allow natural drainage, to control weeds without using soil sterilents, and to conserve and preserve the topsoil using good soil conservation practices. These are further described in the lease.

• Compensation for damages: The company will pay for damages done by its employees, agents and contractors off lease, including, but not limited to, damages to crops, machinery, livestock, fences, buildings or other improvements.

Quiet enjoyment: The company has the right to occupy and use the leased area without interruption or disturbance from the landowner or any other parties for the duration of the lease.

Mutual covenants This clause is identified by “the lessor and the lessee do hereby mutually covenant and agree with the other as follows” and includes the commitments made by the company and the landowner: • Repair, removal or replacement of equipment: The company owns the equipment, buildings and materials it has on the lease and can replace, remove or repair them as it wishes.

• Taxes: Each party is responsible for its share of municipal taxes.

• Compliance with laws and regulations: Both parties agree to obey the laws that affect their activities regarding the leased area.

• Force Majeure: Neither party shall be in default in performance of its obligations if circumstances that are beyond the reasonable control of the landowner or company prevents the completion of the obligations.

• Additional terms: Any additional terms must be in writing and signed by the landowner and company.

• Review of annual compensation: The annual compensation is reviewed according to Section 27 of the Surface Rights Act. If an agreement for increase in annual compensation cannot be reached, the Surface Rights Board will determine the amount and who it is payable to.

• Surrender and reclamation: Upon receipt of a reclamation certificate (partial or full), all or part of the lease may be surrendered back to the landowner. The company must give written notice to the landowner of its intention to surrender the leased area. If the company has paid compensation in advance, the landowner does not have to pay it back to the company.

• Discharge of encumbrances: The company may direct any money owed to the landowner toward the landowner’s mortgage, agreement for sale, lien or taxes if they are in arrears, if so directed by the mortgage company or certain other lenders.

10

Energy & Agricultural ConnectioN | 2012

— from the Alberta Surface Lease

• Assignment: Either the landowner or company may assign the lease to a third party. However, assignments are not valid until the other party has received notice of the assignment and the address of the assignee.

• Default: The landowner must give the company notice of any default of the lease. The company is in default of the lease if the company has not commenced action to remedy the default within 30 days of having received the notice.

• Dispute resolution: This clause allows for arbitration of disputes between the parties and lays out the steps for arbitration.

• Notices: All notices must be in writing.

• Enurement: This clause ensures that the lease will survive the death of either party, the termination of the company or the assignment of the lease. It makes the lease binding on the legal successors of the party.

• Personal information consent: By providing personal information to the company, the landowner consents to the company’s collection, use, retention, and disclosure of that information for any and all purposes and uses as permitted or contemplated under the agreement and as needed in regulatory proceedings or to comply with any legal requirements.

• Non-resident status: If the landowner is a non-resident, the company needs to be aware of this so they can ensure that withholding tax is paid to the Canada Revenue Agency.

Signature clause This clause is identified by “signed” and by the signatures it is confirmed that the landowner and company are bound by the

SEC.26(c)

APPENDIX “B”

SEC.32

SCHEDULE “B” provisions of the surface lease. the lessor is the landowner and lessee is the company.

AFFiDAViT OF EXECuTiOn the commissioner for oaths, usually the land agent, swears that the person signing the surface lease is who he or she says and that the person is 18 years old.

PhoTo: joey PoDLuBny

ThE DOWER ACT if there is only one name on the certificate of title, a dower affidavit must be signed. the registered owner swears either that they are not married or that neither that person nor his or her spouse has lived on the land (not homestead). if the landowner cannot swear to either item, the consent of spouse Form must be signed. there is an affidavit of execution for the dower affidavit as well. the commissioner for oaths, usually the land agent, swears that the person signing the surface lease is who he or she says and that the person is 18 years old. the spouse not named on the certificate of title is required to sign a completed consent of spouse Form if the land being leased is on the homestead. by signing the consent of spouse form, the spouse is consenting to the disposition of land and is waiving his or her dower rights relating to the surface lease. the registered landowner must leave the room when this form is signed by the spouse. the certificate of Acknowledgement by spouse Form is completed by a commissioner for oaths, usually the land agent. this form is sworn after the land agent explains the consent of spouse

document to the spouse. the commissioner swears that the husband or wife has acknowledged his or her understanding of the Dower Act, the consequences of the agreement and the consent of spouse Form.

COnSEnT By OThER inTERESTED PARTy if the land is being rented out and ranged or farmed by a person other than the landowner, this person is known as the occupant and he or she must sign the consent by Other interested Party Form. An affidavit of execution is filled out by the land agent in conjunction with this consent.

SChEDuLE “A” if there are additional conditions required by the landowner, they are added to schedule “A.” Additional documents required in conjunction with the surface lease:

SECTiOn 17 WAiVER section 17 of the Land Agents Licensing Act requires that the land agent leave a copy of the surface lease filled out, except for the date and signatures, with the landowner or occupant for a period of 48 hours without interruption from the land agent. this requirement ensures that the landowner or occupant is provided with adequate time to review the proposed agreement. if the landowner wishes to waive the 48-hour period outlined in section 17 of the Land Agents Licensing Act, a two-part form must energy & AgriculturAl ConneCtion | 2012

11

Quiet enjoyment: The landowner cannot disturb or encroach on the company’s rights and the company must limit its activities to the right-of-way and cannot infringe on the landowner’s peaceful possession of the land.

— from the Alberta Right-of-Way Agreement

be filled out and signed. In the first part of the form, the landowner swears that the land agent has explained section 17 and that he or she waives these rights. The land agent commissions the landowner’s signature. In the second part of the form, the land agent swears it again before a second commissioner for oaths.

Entry fee form After the lease is signed, the land agent leaves the entry fee form with the landowner. This form lays out the compensation payable under Section 19 of the Surface Rights Act. The amount payable is legislated at $500 per acre (minimum $250 and maximum $5,000 per titled unit) and is in addition to the compensation on the Surface Lease.

Alberta Right-of-Way Agreement (2012 version) The Alberta Right-of-Way Agreement is a private agreement negotiated between the landowner, the occupant and the company for a pipeline or pipelines. Similar to the Surface Lease, there are many different versions of the Alberta Right-of-Way Agreement that are used but most of the clauses are similar.

The CAPL issues two different versions of their standard agreement: 1992 and 2012. Many companies use either one of these agreements or a modified version of one.

Defining the “said lands” Said lands are defined in the same way as they are for Surface Lease agreements.

Granting Clause This is the formal grant of the land to the company and is identified by “now therefore.” This clause grants, conveys, transfers 12

Energy & Agricultural ConnectioN | 2012

and sets over to the company a right-of-way across, over, under, on or through the said lands to construct, operate and maintain a pipeline or pipelines including accessories and appurtenances, and for any other purpose preparatory or incidental thereto including the right to repair or replace the said pipeline or pipelines.

Construction of more than one pipeline in the right-of-way is limited to pipelines constructed during one construction operation, without prior written consent of the landowner.

Grantor’s and grantee’s covenants These clauses outline the obligations and commitments that both parties agree to: • Filing a plan of survey: The company agrees to file a survey plan at the land titles office, which shows the right-of-way is substantially the same location as shown on the sketch or survey plan initialled by the parties and attached to the agreement.

This is a requirement of the Surveys Act. Upon registration of the plan, the company agrees to partially withdraw its Utility Right-of-Way restricting its claim to the area covered by the registered plan.

• Additional payment: Prior to entering the said lands, except for survey purposes, compensation is payable to the landowner by the company. Section 25 of the Surface Rights Act states that the market value of the land (per-acre value) is used to calculate the compensation.

If compensation is not paid within a specified amount of time (typically one year), the company must pay the landowner a specified dollar amount (typically $250–$500) for the right to survey and all other inconveniences, and the agreement terminates. Upon termination, the company must remove its registration of the agreement from the title.

Any payment above the initial and additional payment, for example additional working space, would be dealt with on a separate agreement such as a Damage Release, or Temporary Work Space Agreement.

• Protection of right-of-way: The landowner can use the right-ofway for farming purposes as long as it does not interfere with the company’s rights. For example, the landowner cannot build a permanent structure on the right-of-way without the company’s written consent. The landowner is liable for the impacts of its operations on the company. The company shall be responsible for and compensate the landowner for reasonable additional costs incurred by the landowner, which may be caused by the existence of the said pipeline and right-of-way.

• Removal of property: The pipeline remains the property of the company and may be removed by the company at its discretion.

• Damages: The company must pay the landowner for damages resulting from the company’s operations. Typical damages include crop or pasture loss and rock removal.

• Liability: The company is liable to the landowner for damages, claims, suits, or actions caused by or resulting from the construction,

•

•

•

Over 30 years strong

•

operation, maintenance or repairs of the said pipeline, other than through wilful damage or gross negligence by the landowner.

Topsoil: The company agrees to strip topsoil from the rightof-way before construction and to replace the soil as nearly as possible to its original condition after construction and in compliance with existing regulations (ESRD regulations).

Taxes: The company agrees to pay all municipal taxes levied against the pipeline. The landowner is responsible for paying his or her municipal taxes.

Discontinuance or abandonment: The company may abandon the pipeline in place when the line is no longer being used. The company agrees to withdraw and discharge any encumbrance registered in the Land Titles Office pertaining to this agreement upon abandonment of the pipeline or pipelines.

The discharge of encumbrances, default, force majeure, additional terms, assignment, enurement, personal information

consent, notices, and non-resident status clauses are the same as Surface Lease.

• Dispute resolution: This clause allows for arbitration of a dispute and lays out the steps for arbitration.

• Quiet enjoyment: The landowner cannot disturb or encroach on the company’s rights and the company must limit its activities to the right-of-way and cannot infringe on the landowner’s peaceful possession of the land.

Signature clause This clause is identified by “signed” and confirms that the landowner and company are bound by the provisions of the Alberta Right-of-Way Agreement.

The clauses for affidavit of execution, the Dower Act, consent by other interested party, Schedule “A,” Section 17 Waiver, and entry fee form are the same as the Surface Lease clauses.

There’s more than a pipeline at risk.

Offering consistent, dependable land services across western Canada.

Canada West Land Services Ltd. has experience in brokering and management in a variety of land-related industries including oil and gas, transmission, telecommunications, pipelines and mineral acquisitions; providing a full spectrum of land services.

Strengthening relationships between stakeholders.

Keep those who live or work near a pipeline safe. If you’re doing work deeper than 30 centimetres, ALWAYS call before you dig.

www.canadawestland.com 403.250.7240

Sask First Call (Saskatchewan) (866) 828-4888 www.sask1stcall.com Alberta One Call Corporation (800) 242-3447 www.alberta1call.com

For more information contact Alliance Pipeline at: 1-800-717-9017 or visit www.alliancepipeline.com/digsafe

BC One Call (British Columbia) (800) 474-6886 www.bconecall.bc.ca

101, 1933 18th Ave NE, Calgary, Alberta T2E 7T8

Energy & Agricultural ConnectioN | 2012

13

As gas prices have faltered, “wet” gas has become the focus for drillers

By Jasone Blazevic, PSL

O

ver the past several years there has been a shift in focus for natural gas producers, from traditional natural gas (containing high concentrations of methane, and often referred to as dry gas), to liquid-rich “wet” gas. In this context, the term wet has nothing to do with water; rather, it is used to reference specific types of gas such as ethane, propane and butane. Depending on which types of gas are present in specific formations, wet and dry gas can be produced together, and then separated during processing.

Encyclopedia Britannica defines wet gas as “natural gas that contains an appreciable proportion of hydrocarbon compounds heavier than methane (e.g. ethane, propane, and butane).” Simply put, hydrocarbons consist of a combination of carbon and hydrogen molecules in varying quantities, with the basic composition of methane consisting of one carbon molecule and four hydrogen molecules. Lower numbers of molecules make up the drier spectrum of natural gas, and as more carbon and hydrogen atoms are added, the gas becomes wetter. As the chemical makeup becomes increasingly complex, the substances transition from the natural gas spectrum to the oil spectrum of hydrocarbons.

14

Energy & Agricultural ConnectioN | 2012

illustration jenna o’flahert y

The science behind the gas

Given the current value of natural gas and NGLs,

in other industries, NGL prices have detached themselves from the cost of oil and will continue to be a viable alternative for producers as markets continue to be driven by the search for cheaper fuels.

Producing natural gas

With the presence of the basic components of carbon and hydrogen, it is the varying degrees of pressure and temperature at depth in rock formations that form the bonds between molecules. As organic matter is compressed at depth, heat is generated. It is also believed that temperature and pressure help to explain the age of a formation. What’s known as the thermal maturity of gas varies based upon how much temperature and pressure a geological formation was exposed to over time. Dry gas is said to have greater thermal maturity than gases with liquids prevalent in them.

The natural gas used to heat homes is highly regulated and must meet specific parameters to be sent down sales pipelines once the refining process has been completed. In addition to being sweet (free of hydrogen sulphide), it must be stripped of water, impurities and any associated NGLs. Some basic processing for any type of hydrocarbon can be accomplished at the lease site with scrubbers (to remove larger particles), separators or heaters (to help avoid ice particles forming blockages called hydrates in the pipeline).

The bulk of refining is done at nearby plant sites. The specific process and accompanied infrastructure needed is dependent on the composition of the gas being produced. In instances where oil and condensates are present within the gas stream, on-site facilities will likely include separators. Dehydration equipment is another way to remove water found within the gas stream, and is used on leases as well as in plants.

Dehydration is also an efficient process for separating NGLs from natural gas, but this process requires more processing and will usually occur at a processing facility. Once the NGLs have been removed from the natural gas stream, they can be further separated into individual components, increasing their value.

Market changes

Landowner impacts

The increased emphasis on liquids emerged as technological advances in exploration of hydrocarbons led to increased natural gas production. The resulting supply glut has driven down commodity values for dry gas, motivating a shift in investment and resources from dry gas plays to those rich in natural gas liquids (NGLs). Because NGLs such as propane and butane fetch higher commodity prices once separated into their individual components, companies can extract liquids and offset the cost of producing lower valued dry gas. While there are additional processing costs for producers in separating NGLs from the dry gas stream, liquid values make the extra up-front costs worthwhile.

Historically, the value of NGLs has fluctuated in tandem with oil prices, since products such as propane are key fuel alternatives to heating oil. However, last year’s warm winter coupled with the increasing supply of NGLs caused NGL prices to drop, even as oil prices have risen. In the summer of 2011, propane prices were in the $64-per-barrel range—a sharp contrast to the June 2012 prices of roughly $33 per barrel. However, there is a belief in the markets that due to the widespread use of NGLs

The volatile nature of commodity prices in the oil and gas sector dictates that there will undoubtedly be other shifts in market prices that will cause companies to change focus again. Given the current value of natural gas and NGLs, companies have reduced drilling numbers from the high levels seen a few years ago. This decrease in activity allows for greater flexibility in where wells are planned to be drilled, and could also mean that planned wells with signed leases may be deferred to accommodate lower drilling numbers. In some cases, wells in dry gas areas have been shelved until gas prices return to a point where they are economical to produce.

Another change for landowners that has resulted from drilling for wet gas is the addition of on-site facilities, such as those previously mentioned. Along with the potential aesthetic impact, the amount of original lease space that could be cleaned up and potentially turned back over to landowners once a production pad is in place could decrease. This is significant, as many companies will allow landowners to use this reclaimed land depending on the structure of the original deal reached.

companies have reduced drilling numbers from the high levels seen a few years ago.

Energy & Agricultural ConnectioN | 2012

15

reClamation: a landowner’s Guide

by Andrew Fulford, Psl and Jarvis nicoll, Psl

PhoTo: A ARon PARKeR

hen a landowner grants energy companies access to land for drilling wells and installing facilities and pipelines, he or she often does so with the understanding that one day the well will no longer be producing or the pipe no longer needed and at that time, the lands that were leased or granted will be returned—reclaimed and ready for use. While this is essentially accurate, it is important that landowners understand that there are restrictions that need to be considered when planning future land use and development.

16

energy & AgriculturAl ConneCtion | 2012

PiPELinE ABAnDOnMEnT AnD RECLAMATiOn in ALBERTA When a company abandons a pipeline, the pipe itself is usually left in place in the ground. steps are taken to ensure that the pipeline is left in a permanently safe and secure condition, including disconnecting it from any wells, pipelines or facilities, cutting and capping the ends of the pipe, removing all surface valves, and purging the line with fresh water, air or an inert gas. each end of the pipeline is also tagged, indicating the company, licence information, start and end points, date of abandonment, and whether any freshwater, air or inert gas was left inside the pipeline. the abandonment is recorded with the energy resources conservation board (ercb), which retains a record of all pipelines and their status in the province of Alberta. Once abandoned, land disturbed by pipelines must be restored to an equivalent land capability to the surrounding lands to meet the reclamation criteria set forth by Alberta environment and sustainable resource development (esrd) and a reclamation certificate must be obtained. the practice of leaving the abandoned pipeline in the ground, as opposed to removing it, has been a contentious and much-debated issue. When signing a new right-of-way agreement, many landowners request that a clause be included requiring the company to remove the pipe when the line is to be abandoned and reclaimed. companies have typically resisted this condition for numerous reasons, including the cost of removal and concerns that removal of the pipeline could cause more serious environmental impacts than leaving it alone. new materials, such as plastic pipe that is plowed in, may be difficult to remove, and older steel lines may be deteriorated to the point where they would fall apart if removal were attempted. natural areas

and native grassland areas containing pipelines are certainly best left without a second disturbance, and areas that have been cultivated for crops may also fare better if left as is. the fact is that energy companies are not able to agree to a pipeline removal any more than they are able to insist that the pipe remain in the ground. this decision falls to the ercb, which regulates pipeline activity in Alberta and ensures that the best interests of the public are balanced with safety, the environment and the liabilities associated with abandonment of industry facilities. to ensure that everyone’s interests are represented, a company that is abandoning a pipeline is required to conduct a notification program with landowners and other affected parties along the entire pipeline right-ofway. the program must be completed prior to any abandonment procedures taking place, and must contain a description of the abandonment process, including whether the pipe is to be removed or remain in place. Any party that can show that it is directly affected by the proposed project can raise concerns, and the company is required to resolve these concerns before it may proceed with the abandonment. in circumstances where the company is unable to resolve the concerns of a party through consultation, the ercb recommends mediation through facilitation and an appropriate dispute resolution. if the parties fail to find a mutually acceptable outcome through these processes, a public hearing is held and a decision rendered by the ercb.

As the regulator, the ercb has the final say on how a pipeline should be abandoned. even if both the landowner and company agree on removing a pipeline or there is a clause in the agreement requiring the pipeline be removed, the ercb can rule differently based on its

To ensure everyone’s interests are represented, a company that is abandoning a pipeline is required to conduct a notification program with landowners and other affected parties along the entire pipeline right-of-way.

energy & AgriculturAl ConneCtion | 2012

17

ABAnDOnMEnT AnD RECLAMATiOn OF WELLSiTES in ALBERTA Along with pipelines, the ercb also regulates, issues licences for and maintains the current statuses for wells in Alberta. When a company drills an unsuccessful well or determines that a producing well is no longer economical to produce, there is a process for decommissioning the operations. First, the company is required to abandon the well, which involves removing the wellhead and per forming downhole and sur face abandonment operations on the wellbore. secondly, the site where the well was located must be reclaimed and a reclamation certificate needs to be obtained from Alberta environment. reclamation requires that the site is free of any contamination and is restored to an equivalent land capability as prior to the disturbance. this includes topography, drainage, vegetation, soil types and productive capability.

18

energy & AgriculturAl ConneCtion | 2012

Once a well is abandoned, the company will register the status change with the ercb. the well abandonment process is relatively straightforward and can be completed in a short period of time; however, depending on the type of well and how developed the wellsite was, the site reclamation process can take much longer. roads and gravel pads need to be removed, topsoil needs to be replaced and the area needs to be re-vegetated. it may take several years to ensure that equivalent land capacity has been restored. until this is accomplished, a company cannot apply for a reclamation certificate and is not legally able to surrender its surface lease. until the surface lease can be surrendered or right-of-entry order removed, the company is responsible for paying annual compensation. reclamation can be costly, and in the past some companies have opted to leave a surface lease in place and pay the annual compensation rather than start the remediation process. this has resulted in a large number of “orphan wells� in the province. these are wells owned by companies that are either defunct or otherwise unable to perform or pay for the reclamation, and the province is left with the bill to clean up the wells. to reduce the potential costs and liabilities the province is responsible for, several initiatives have recently been implemented. First, the Orphan Well Fund was created, into which active companies pay fees that are then used to clean up old sites. second, new regulations were installed by the ercb that limit the number of inactive wells a company is permitted. under these regulations, a company must reclaim a certain number of wells each year in order to maintain its ratio of active to inactive wells.

Failure to maintain this ratio prohibits a company from obtaining new licences to drill wells, construct pipe or install facilities. this is important to note, because a company cannot choose to avoid reclamation by continuing to pay the surface rental forever.

PhoTo: joey PoDLuBny

mandate of safety, the environment, and protection of the public interest. thus, when signing a new pipeline agreement, it is best to avoid any clauses respecting pipeline removal, as they may not be enforceable in the end. in situations where a pipeline is left in the ground after abandonment, the landowner is still afforded some protection and rights. the Pipeline Act states that a company will remain liable for issues related to the pipeline even after it has been abandoned and reclaimed. As well, the Alberta Environmental Protection and Enhancement Act, which deals with reclamation, states that a company remains responsible for deficiencies for 25 years after a reclamation certificate has been issued and permanently in situations where there is contamination. long after a pipeline has been abandoned, if a landowner’s circumstances change and they have a valid reason for a pipeline or a portion of a pipeline to be removed, they can still request that the licencee remove the line.

Upon receipt of a reclamation certificate, a formal notice of termination of surface lease is sent to the landowner.

In the case of a right-of-entry order, the company will apply to the Surface Rights Board for termination of the order. The caveat that was registered on the land title will be removed and the company will have no further obligations to the landowner. A confirmation of caveat removal will be sent from the land titles office to the landowner and the company will cease annual rental payments.

During the reclamation process, the company may propose a reduced annual compensation amount. This is common once a site has been restored and a vegetation assessment is complete, and it may take several crop cycles. If the landowner and the company mutually agree to a reduced rental based on the fact that the loss of production of the area is minimal and the nuisance and inconvenience of the well and facilities have been eliminated. If the landowner is not receptive to this proposal, a company may still be able make an application for a review of rental through the Surface Rights Board.

Part of the reclamation certificate application process involves a discussion with the landowner and receiving confirmation that the lands have been returned to a satisfactory condition. If the landowner is not in agreement, the company may apply to ESRD for a non-routine reclamation certificate. ESRD conducts a review, performs a site visit, and consults with the company and the landowner. Upon completion of the review, ESRD will issue their decision.

There are situations in which a landowner may wish to retain some portion of the lease development despite the company’s need for reclamation. This could include access roads, approaches off a public roadway, a constructed creek crossing or water wells. A reclamation certificate can exclude portions of the leased area that a landowner may want to keep.

The landowner will need to sign a release for facilities or features, and the company will apply for the reclamation certificate

outlining these areas. ESRD may review the entire area to ensure that the area excluded does not pose any immediate or long-term concerns to the landowners or the public in general.

After the reclamation After a company has abandoned a well, obtained a reclamation certificate and surrendered the surface lease, the leased area is returned to the landowner to use as they wish. Most often this means that it is reincorporated into the surrounding cropland and farmed. If the landowner’s intention is to continue farming, the land generally doesn’t conflict with the land’s former use; however, there are still restrictions that will remain in place forever.

Under the Alber ta Environmental Protection and Enhancement Act, a company remains responsible for 25 years after a reclamation certificate has been issued for any unforeseen reclamation deficiencies that may appear, such as drainage, topography, vegetation and soil texture issues. In addition, the company will permanently remain responsible for any contamination issues. In the event that a deficiency is identified after the reclamation certificate has been issued the company is required to re-enter the site and conduct further reclamation work. The reclamation certificate can also be cancelled by ESRD, in which case the company must re-apply for a reclamation certificate once the deficiency has been addressed.

As the company has surrendered its surface lease agreement, it no longer has any rights to access the property. The company must negotiate a new access agreement with the current landowner. Sometimes the remediation issue is minor and can be solved within a short period of time. In this instance, most companies will propose a temporary access or work space agreement, which provides a one-time compensation amount for the right to access and conduct the reclamation work. For issues that require a longer remediation period, such as contamination remediation, a new surface lease agreement is advisable,

Energy & Agricultural ConnectioN | 2012

19

Alberta is a world leader when it comes to policies governing

as it contains a provision for both an initial payment and annual compensation payments for subsequent years. In rare occasions where the landowner and the company are unable to come to an agreement, the company can apply to the Surface Rights Board for a Right of Entry Order. This order specifies the area of land the company has the rights to access and the amount of compensation that it must pay to the landowner.

reclamation and

Abandoned well setback restrictions

land-use regulations

Landowners should be aware that there are development restrictions that will remain in place permanently for the area immediately around the abandoned wellbore. These can present a challenge for parties interested in subdividing or developing land because there is no visible evidence of the location of the abandoned well and any record of a well that was registered on the land title has been removed.

Alberta Municipal Affairs is currently working to amend the regulations to make it mandatory for parties applying for a subdivision or a development permit to conduct a search for abandoned wells in the vicinity of their development.

The ERCB maintains a record of all wells both drilled and abandoned in Alberta.

This information is available to the public and can be obtained by contacting ERCB Information Services. If any abandoned wells exist within the application area, the applicant will need to provide a list of the abandoned well locations, show the locations on a sketch accompanying the application. If construction is proposed, confirm that the locations will be marked with on-site identification.

The ERCB is also developing a new directive titled Surface Development in Proximity to Abandoned Wells, which will provide important information on identifying the location of abandoned oil and gas wells and the setback area and application requirements where development, subdivision or construction may occur.

This setback area will reduce the risk of

post oil and gas developments.

20

Energy & Agricultural ConnectioN | 2012

construction equipment accidentally striking the buried wellbore and will provide the necessary space for equipment to set up and repair a leak in the old wellbore, should one occur in the future.

The setback area recommended by the ERCB is a 10- by 15-metre work area surrounding the abandoned well. The wellbore can be no closer than five metres to any of the boundaries. Equipment must also be able to access the site from public roadways, so an eight-metre-wide access area must also remain undeveloped.

Recent consideration has been given to increasing this area to a 20- by 30-metre area, which would provide a larger working area for the equipment required to repair a leaking well.

For individuals proposing a single lot subdivision, this usually does not present much of a problem, as there is often flexibility on the location of structures within the subdivision. The greater challenge is for parties proposing larger-scale multi-lot developments, industrial developments and intensive agriculture operations. It is important that developers be aware of the locations of the abandoned wells and account for the development restrictions in their development plans.

The area affected by the development restriction may still be included in a proposed development, such as roadways, green spaces, parks or other open areas, as long as considerations are made in the initial planning stage. For further information on development setbacks and acceptable developments where abandoned wells are located, contact your local municipality or the Alberta Municipal Affairs Planning and Coordination Unit in Edmonton.

Alberta is a world leader when it comes to policies governing reclamation and land-use regulations post oil and gas developments. Landowner involvement is a key component of the reclamation process, and companies look to work with landowners to return the land in a timely fashion. Understanding the long-term impacts of development is key for both parties when planning oil and gas development.

Planning Your Estate The new Alberta Wills and Succession Act

By Glen Nazaruk, LLB

lberta’s laws have seen a number of recent changes that could have an effect on your assets and how they will be shared among your family members and dependents when you die. Freehold mineral rights, as opposed to Crown mineral rights, devolve with the estate when a person dies.

Because these types of assets can be very valuable and often result in disputes and litigation, it is important to note how these changes will affect your estate.

The new Wills and Succession Act, a consolidation and amendment of several existing laws (see sidebar), came into effect in February 2012 and attempts to modernize estate planning and administration legislation to allow for circumstances like successive marriages, children from more than one relationship and common-law relationships.

Changes affecting your spouse or partner The first change to note is that the new Wills and Succession Act has abolished the law that getting re-married revokes a will. Prior to the Act, a marriage would void the will in regard to the previous beneficiaries, unless there was evidence of a contrary intention. The Act now states that divorce or the ending of a relationship will revoke gifts to the ex-spouse only.

In the event of divorce, a former spouse is now deemed to have predeceased the deceased, or testator, for the purposes

of any gifts or appointments under a will. The former spouse can no longer act as the estate trustee or receive a gift under the will.

In the new laws, marriage or the introduction of an adult interdependent partner (AIP) will no longer revoke a will, unless a contrary intention is expressed in the will. To qualify as an AIP you must either have co-habited for three years, co-habited with some permanence with a child of the relationship, or enter into an AIP Agreement—an agreement where two people specifically agree that they will become interdependent partners for the purposes of family, estate and spousal legislation. A one-year separation is normally required to end an AIP relationship.

The new law also ensures that spouses or AIPs have a temporary place to live when their spouse/AIP dies, even if they did not share ownership of the property. In the event that the deceased had full ownership of the property, the spouse/AIP is permitted to remain in the property for up to 90 days, and not have to vacate the premises immediately.

A surviving spouse may now also claim the value of matrimonial property from the estate of the deceased spouse. The surviving spouse and the deceased do not have to have been separated or divorced at the time of death for the surviving spouse to make this claim. The Act provides that when there is no will and the deceased leaves a spouse/AIP and a child of

Energy & Agricultural ConnectioN | 2012

21

The Wills and Succession Act The Act consolidates: • the Wills Act • the Intestate Succession Act • the Survivorship Act • the Dependents Relief Act • Section 47 of the Trustee Act The Act amends: • the Matrimonial Property Act • the Administration of Estates Act • the Family Law Act

SIGNATURES

that relationship, everything goes to the spouse/AIP instead of being shared between the spouse/AIP and the child. However, this might not be consistent with the intention of a deceased who, for example, had been widowed and then remarried, in which case it would be wise to opt out of this section of the new legislation and state in the will that the deceased would like the estate to be shared by the spouse and children of the previous marriage.

These proposed changes to matrimonial property rights have a far-reaching effect. A surviving spouse is entitled to claim a share of the matrimonial property from the deceased’s estate in addition to any family support claim that has been made. Essentially, under the new law a spouse can receive gifts under a deceased’s will, as well as a matrimonial property claim, unless the will provides otherwise. The danger here is that a spouse may be entitled to receive a portion of the estate granted by the will and at the same time make a matrimonial property claim, thus reducing the value of the estate available to any adult children.

Changes affecting your family The Act has also expanded the right of family members to apply for support from the deceased’s estate. The definition

22

Energy & Agricultural ConnectioN | 2012

of family members previously included spouses, partners, children under 18, and children over 18 with infirmities or mental disabilities. The Wills and Succession Act now expands that definition to include two more categories of dependents: children of the deceased under 22 who are full-time students, and grandchildren and great-grandchildren who are minors and who were supported by the deceased at the time of his or her death.

The laws of intestacy have also been fine-tuned so that if a person dies without a will and leaves behind a spouse/AIP and all of the children of the deceased are from that relationship, the spouse/AIP takes the entire estate to the exclusion of the children. If the deceased has children from another relationship, the spouse/AIP receives a preferential share, which is the greater of half of the estate of $150,000, with the children sharing the rest.

Changes affecting administration of your estate The first change the Act makes to administration of estates is that outside, or extrinsic, evidence will now be admissible to prove the true intention of the deceased when a will is challenged. This was previously prevented by the Parole Evidence Rule, which did not allow outside evidence to assist in the interpretation of a written document. The Act has made it possible for courts to rectify mistakes in wills, such as the will not

being signed, and can admit wills for probate that do not meet formal requirements.

The law of commorientes (Latin for “those who die at the same time�), or when both spouses decease at or around the same time, has also changed. The old legislation presumed that the youngest person died last. In the new Act, both estates will be distributed as if each person died prior to the other.

The new legislation also abolishes certain presumptions and rules relating to gifts made to beneficiaries during the deceased’s life. Now, such gifts will not be taken into account when dividing the estate. It has become important to clearly state in a will if such advances are to be taken into account when dividing the estate.

In regards to the operation of designations under RRSPs, RRIFs and other investment vehicles, the new legislation does not make any changes. As before, the beneficiaries of bank, trading, security, investment and insurance accounts need to be considered, and if a person wants to change these beneficiaries they have to change the designations to prevent a former spouse from claiming the asset.

Those considering their financial legacy and the support of their loved ones after death should consider whether these legislation changes will have an effect. If there are any uncertainties, do some additional research or contact a reputable professional prior to making any decisions.

The Act has made it possible for courts to rectify mistakes in a will, such as the will not being signed, and can admit wills for probate that do not meet formal requirements.

Energy & Agricultural ConnectioN | 2012

23

Surface rental payments: Who to pay and when

By Janet Harren, PSL and Jason Tweten, PSL

This article is intended as general information only and should not be construed or relied upon as legal advice to be applied to any specific factual situation. Readers should consult with a lawyer for legal advice.

Rental payments are intended to compensate landowners for the loss of use of land...and possible damage to the land.

Alberta: Prior to October 1, 1985

Saskatchewan: Prior to April 1, 1995

During this period the Alberta Courts concluded that rental payments under a surface lease are not an interest in land. This meant that the rentals could not be “owned” or protected on title with a caveat in the same way a mortgage for a bank or a roadway for a county is.

The assignments or retentions of rentals were a mere contractual right, or a bargaining tool for subsequent sales of the land to another party. The owner (Owner A) who agreed to the surface lease was only able to withhold the annual rental amounts (if so agreed to by the new owner) as long as the new owner (Owner B) kept the land. Once Owner B sold the land to another person, that new owner (Owner C) would then receive the annual rental, and Owner A would no longer be entitled to any annual rentals.

In conclusion, since a person was not able to register an interest or caveat on the title to indicate the direction of the annual rental, the annual rental would be transferred to the new owner.

Unlike a lease for a wellsite that an oil company registered and would then transfer in a sale to another oil company, the annual rental was not “property” that could be registered on title.

Annual rentals have been treated somewhat differently in Saskatchewan than in Alberta.

During this period the Saskatchewan Courts had always deemed that the annual rent was an interest in land and from that people were able to register caveats to indicate to whom the annual rent payment was to be made. This is the same as in Alberta after 1985.

Alberta: After October 1, 1985 On October 1, 1985, the Law of Property Act (Alberta) was amended to include the following provision: 63(1) The following are equitable interests in land: (b) an assignment of rents payable pursuant to a lease of land.

(2) After registration of a caveat under the Land Titles Act protecting an equitable interest referred to in subsection (1), the equitable interest takes priority in accordance with section 14 of the Land Titles Act and runs with the land.

This meant that annual rentals were now considered “interests in land” and from that, owners would now be allowed to register valid caveats on the title to indicate the person to receive the payment.

Once the caveat was completed, it would indicate who would receive the annual rental, no matter the actual owner of the land.

Any new purchaser of the land would be made aware of this fact during the title transfer and review of all caveats associated with the land.

24

Energy & Agricultural ConnectioN | 2012

Saskatchewan: After April 1, 1995 On April 1, 1995, Section 144 of the Saskatchewan Land Titles Act was created, which indicates that an assignment of annual rents is deemed to be an interest in land and therefore can be protected by registered caveat.

This legislation has been held to apply to both assignments and reservations of rent, removing any doubt surrounding that they are (after April 1, 1995) interests in land capable of being protected by caveat and passed on by will, contract or otherwise.

Practical Considerations Rental payments are intended to compensate landowners for the loss of use of land, the adverse effects on the land, nuisance, inconvenience and possible damage to the land. These intentions are not met when rentals are paid to a party other than the current landowner.

The legislation surrounding rental payments does not acknowledge this problem and both landowners and oil companies have no choice but to comply with it regardless of the negative effect that it may have on the current landowner.

One suggestion to sidestep these problems in the future is to include a clause in new surface leases that would restrict the landowner from retaining or assigning the annual rental when the land is sold to a new landowner. Having the lease and the annual rental transfer to the new landowner during a sale/transfer of land will help to ensure ongoing landowner satisfaction. It would also make it less likely that the landowner will be dissatisfied and resentful of oil and gas operations taking place on his or her land when they know they are being compensated for the impact of that operation.

freshwater use in hYdrauliC fraCturinG of shale Gas by gary richardson, Psl, bA, bA, environmental Management certificate

“We know the worth of water when the well runs dry.”

H

ydraulics is the science of the conveyance of liquids (water, oil, fluids) through pipes or hoses as a source of motive power. in the oil and gas industry, operators use water in hydraulic fracturing of geological formations for development of hydrocarbon reserves (oil or gas and liquids), recompletions of older wells, and enhanced recovery schemes. in the last seven to eight years, increased attention on the shale gas industry and its water use— from sourcing to disposal—has drawn mounting criticism from environmentalists and focus from media sources.

While numerous industries use water, natural resources canada reports that the energy industry (including coal) uses the smallest portion by far—0.7 per cent; however, the nature of the use is consumptive since the water is not returned

to a surface water source. Whether warranted or not, and whether scientifically based or not, the objections and questions raised have created a storm of controversy over hydraulic fracturing, or fracking. this article is not set out to settle the controversy, but merely to apply some understanding of the principles and practice of hydrofracking.

Fracking is a technique that injects volumes of pressurized water mixed with sand (proppant) and certain other products and chemicals into a reservoir. the objective in shale formations, which have high porosity and low permeability, is to crack the rock formation open to allow gas to flow into a wellbore. For years it has been known that shale rocks contain large amounts of gas, but until development of special hydraulic fracturing techniques, the gas was unattainable. shale

— thomas Fuller, Md, 1732

gas formations and hydraulic fracturing are referred to as unconventional gas, as opposed to conventional permeable formations, which comprised the bulk of drilling in the 20th century. the idea of hydraulic fracturing is not new—it has been experimented with globally as far back as the mid-1800s.

Hydraulic fracking has been used in conventional operations prior to its application in shale rock. indeed, normal completion or secondary operations on conventional wells have used hydraulic fracturing for decades. Many westerners have seen convoys of frac trucks making their way down a highway or secondary road. the current activity in oil formations utilizes hydraulic fracturing; however, the quantities of water used are far less than in shale operations—typically about 750 cubic metres of water. energy & AgriculturAl ConneCtion | 2012

25

Slickwater fracks set technology bar By the late 20th century, success in stimulating production in shale rock was found.

In the ’80s and ’90s, Mitchell Energy, a small company from Houston, began experimenting with injecting fluids under pressure into well formations in the Barnett shale of east Texas. It took several years, but eventually Mitchell Energy achieved success with what is known as light sand fracking or “slickwater fracturing.” It was this breakthrough that allowed the development of shale formations and made copious quantities of shale gas available. It is estimated that North America’s natural gas base is now approaching 3,000 trillion cubic feet—an amount that could meet current needs for over 100 years.

Ironically, it is the shale gas revolution and the exponential increase in drilling activity that has accounted for depressed natural gas prices that producers have been 26

Energy & Agricultural ConnectioN | 2012

contending with for the past three years.

Producers have been drilling themselves into a glut or, as Daniel Yergin refers to it in The Quest, the “Shale Gale”: “In 2000 shale was just 1 percent of natural gas supply. By 2011 it was 25 percent, and within two decades it could reach 50 percent.”

An added benefit of shale is that it has lower production and refining costs than other conventional gas sources, which has put an unenviable cost load on the conventional producers.

Arguably, the development of a cheaper source of domestic energy in North America has changed the energy security landscape considerably. It has also affected the coal industry. When Barack Obama became president of the United States in 2008, he put in place a policy to not only wean the United States off of foreign energy sources, but also to start shutting down coal-fired electrical plants. With the depression in natural gas prices, this movement has taken on

Water as a lightning rod for criticism The controversy surrounding hydro­ fracking comes from concerns over three things: consumption, migration and disposal. Fracking shale gas wells requires an enormous amount of fresh water—in the millions of gallons per well. The water is hauled to a wellsite for the completions operation. The impact of trucking the water to the site has also come under criticism for causing wear and tear on local roads, increased traffic, and dust and noise complaints. U.S. sources indicate that each well requires between 1.2 million and 3.5 million U.S. gallons of fluid, and in extreme cases up to five million U.S.

illustration: Total E&P

Proper well construction isolates the frac zone from any aquifers or groundwater sources.

a momentum of its own. Numerous utilities in both the United States and Canada are looking at the opportunities that cheap natural gas will provide. For instance, a natural gas line along the north shore of the St. Lawrence River is planned to convert customers from electric furnaces to gas. This is something of a revolution to go up against Quebec Hydro.

The principle of hydraulic fracturing is simple enough, given a basic understanding of geology and fluid pressurization. In a typical operation, a well is drilled to a vertical depth of 1,500–10,000 metres.

A lateral horizontal wellbore extension is then drilled through what’s considered the pay zone of the formation, be it shale or other—e.g. Marcellus, Montney, Duvernay (shales) or Cardium, Viking, Birds Eye (conventional). The horizontal section can be up to 1,500 metres or more. Once the horizontal leg is in place, a series of completion operations frac the well in what is usually called a “plug-and-perf” operation. One section of the horizontal leg is isolated or plugged from the rest.

A charge is set off to perforate the well casing, followed by the injection of water and proppant under high pressure. The injected water and proppant flow through the perforations and fracture the formation. This process is repeated at intervals along the horizontal wellbore to result in multiple completion stages. Usually several horizontal bores are drilled from the same wellsite to reduce the surface footprint and the environmental impact. The wells are then put on production and are anticipated to produce for several years.

gallons. because water makes up about 95 per cent of the fluid injected it is easy to see why the water draw is significant, especially when some jurisdictions experience times of drought. to deal with the concerns over water use, most companies are looking at alternatives to the current method. One current solution is to recycle the returned water, which averages 30–90 per cent of water injected depending on the geological formation. Another option being considered is the use of saline water, which was not used in the past as it can inhibit the fractures and, therefore, the gas flow. chimera energy corp., working with PeMex of Mexico in the cicontepic basin, is promoting a new technology that uses no water. Alternatively, schlumberger is using a process called Hiway, which involves a dissolvable fibre glob that creates more effective channels for the gas to flow through and reduces the amount of sand and water required by 20–50 per cent.

An added bonus to any process that uses less water and sand is that fewer trucks are required, reducing the impact, and costs are reduced. Another innovation schlumberger is working on is sophisticated fracking jobs—using seismic techniques and existing area well data, the company determines the best locations

to frac and reduces the total number of fracs needed.

hyDRAuLiC FRACTuRing PRACTiCES With improved practices it will be easier to understand comments like those of bill richardson, former u.s. energy secretary, speaking at a democratic Party– sponsored renewable panel discussion in August: “natural gas is the future. it is here.” He also stressed, “if there is going to be fracking, it’s got to be done right.” david collyer, president of the canadian Association of Petroleum Producers (cAPP), echoed richardson’s sentiments in a June 2012 release: “shale gas can and is produced responsibly every day across canada and the united states with more than 175,000 wells fractured safely in western canada over the last 60 years.

Our operating practices demonstrate the canadian natural gas industry’s continued efforts to ensure responsible resource development.”

Another area of fracking controversy is the disclosure of chemical additives in fracking fluids, some of which have been identified as carcinogenic. collyer points out that legislation is quickly changing to increase public knowledge: “disclosure of fluids used in hydraulic fracturing has

been made mandatory by regulators in british columbia. in Alberta, companies are required to disclose fluids to the provincial regulator and public disclosure is expected to be mandatory later this year. the new brunswick government recently announced plans to require disclosure of hydraulic fracturing fluids. it is within the remit of other provincial governments to enact similar regulation as they see fit.”

Another concern, driven on the heels of a series of problems in the western united states during the coal methane boom, is the fear that recycled water will be disposed of into natural water pathways; however, canadian regulations restrict the entry of waste water with known contaminants into freshwater sources, preventing this from happening. Historically, companies who are cAPP members have shown a reluctance to introduce treated waste water back into the hydrological cycle, preferring to dispose of waste and saline water into disposal wells thousands of feet below groundwater levels.

Frac operations require significant fluid storage capabilities.

Regina Surface Land Manager, Chad Morris working with landowner, Gord Ell of the Kronau area.

PhoTo: j. henRy fAiR

Good People.

Solid Relationships.

Professional Land Services.

Calgary Edmonton Grande Prairie Lloydminster Regina Fort St. John

403 261 1000 780 428 2212 780 513 8540 780 875 7201 306 359 9000 250 787 2722

www.scottland.ca

energy & AgriculturAl ConneCtion | 2012

27

OPEning ThE DOOR Possibly the most significant concern over fracking is that the process not only opens pathways for gas to flow into the wellbore, but also creates channels for gas and residual contaminants to migrate into groundwater and water wells. this is of particular concern to the agricultural community, and the discussion surrounding this controversy has involved nongovernment organizations, universities, regulators, governments at all levels and industry. the fact that some chemicals used have been proven as carcinogenic has not helped the industry’s assertion that hydraulic fracturing is safe. these concerns have affected shale gas production in other countries as well: some countries have discovered shale gas formations that could potentially make them independent from foreign energy sources, only to have hydraulic fracking suspended or banned, as in the case of France. in north America, where we have been working with fracking for a longer period of time, research

has been conducted and continues to be done. initially, there was little scientific evidence to support fracking opponents or proponents, but research is beginning to report that fracking is unlikely to contribute to problems with groundwater or water wells provided the well is constructed, drilled and completed using correct procedures. the requirements set in place to protect our aquifers are present in the drilling procedure. every well is drilled in three stages: First, a casing is drilled through unconsolidated material or the overburden (soil, sand and gravels) until solid rock or bedrock is encountered. the surface casing or conductor pipe is then set and cemented. A second drill string drills to a point below the base of groundwater protection, where it is set and cemented. A third string then drills the well to the desired depth and is set and cemented before the horizontal sections are drilled out. Often, cement bond logs, which involve circulating cement to surface, are run to test the integrity of

Current numbers indicate that industry is able to recyle 30–70 per cent of the flow-back water, and more in some cases.

FA R M E R S ’ A D V O C AT E O F F I C E

“Re-thinking Rural Alberta” Phone: 310-FARM (3276) Fax: (780) 427-3913 www.farmersadvocate.gov.ab.ca

28

energy & AgriculturAl ConneCtion | 2012

the cementing. the second string has to be below the base of groundwater protection to isolate the continuous operations of stimulation and production. this is not only a regulatory requirement to protect groundwater, but it is also in the interest of the operator to optimize the wells performance. the wells are at depths of 1,500–10,000 metres, which locates them well below freshwater aquifers and makes the chance of a fracking fissure reaching them unrealistic. because wellbore construction is key to preventing water contamination, seismic is used to further confirm the aquifers are not affected. An array of seismic geophones will record the vibrations from the fracking operation, which shows the extent of the fractures.

While hydraulic fracturing has generated a good deal of discussion from both opponents and proponents alike, the emergence of sound science explaining the principles, methods and practice will provide evidence that industry best practices is the way to ensure safe and productive development of a resource that has the capacity to remove dependence on foreign sources of energy. As a cleaner burning fuel than coal, it is an opportunity to lower emissions and therefore decrease the impact on global warming.

What star ted as a nor th American energy play has spread around the globe. europe, including the united Kingdom, has identified shale formations with gas potential. notably in Poland a large formation lying under most of the eastern provinces is currently being explored with the encouragement of the government, which is eager to liberate their dependence on russian gas. ironically, in the european Parliament there is considerable debate about shale gas, hydraulic fracking and the environmental consequences, and the russian lobbyists are eager to shut down the industry for fear it will affect their exports. the research into reducing and removing fresh water from hydraulic operations is ongoing. current numbers indicate that industry is able to recycle 30–70 per cent of the flow-back water, and more in some cases. As well, new technologies are making their way into the market. the old saying that “necessity is the mother of invention” has real meaning in the industry’s pursuit of energy sources.

neGotiator’s noteBooK: neGotiation suCCess CheCKlist by david b. savage, P.land

iLLuSTRATion: jennA o’fL AheRT y

n

egotiating with an organization wishing to use a portion of your lands for oil, natural gas, electric, wind or other energy can be a challenge or opportunity, depending on how you approach it. to prepare for a successful negotiation, consider the following:

3)

gETTing READy TO nEgOTiATE

AT ThE TABLE

1)

1

understand that negotiation starts when the relationship starts—at the first hello.

1)

1

Money should be the last thing you talk about. deal with the interests, issues, effects and commitments first. the money will then be a far more accurate compensation.

2)

2

clarify your positions, interests, vision and boundaries. think about the organization’s positions, interests, vision and boundaries. What is most important? What is it you seek? What are your fears? For example: • Your position: I want you to move the access road away from my home.

• Your goal: I want to minimize the disturbance on my operation and my family while opening access to a part of my land.

• Your interests: I want a quiet, safe and healthy place for my family.

2)

2

Make time to meet face to face and fully engage with the agent. While you are very busy and it may seem like calls or emails can get the deal done, unless you take the time to meet with the agent you may miss important issues and opportunities. it takes time to make a good deal for both parties, and the keys to getting that are respect, trust and accountability from both parties.

3)

3

design the negotiation together early on, including authority, resources, goals, timing and accountability.

3

Prepare and fully evaluate, estimate and measure. collect as much data and relevant information as you can. Often an agent is representing the company and may not have all the answers or fully understand the project. ensure you and the agent get the answers you need.

energy & AgriculturAl ConneCtion | 2012

29

this step is often overlooked. Make certain you share expectations and understanding, otherwise you may become frustrated.

4) 5)

6)

4

be persistent. And say no until you are ready to agree.

5

bring a wide range of wisdoms, personalities and possibilities together. this may mean bringing a trusted family member or professional adviser to observe and participate. landmen know that their personal reputations and the reputations of their companies rest on each negotiation. listen and ask questions if things are not clear. Ask “stupid” questions.

Make sure you understand anything that is not clear and communicate your concerns and wishes to the company.

Work with neutral experts when you have issues that you do not have the resources to evaluate.

6

7)

8)

get introduced to and collect contact information for the company people you will communicate with after the deal is done (i.e. operations and land).

7

take care to serve the other party’s interests. your job is to also work their side of the deal and build trust. doing that will encourage them to serve your interests as best they can.

8

embrace conflict and diversity, and positively engage challenge. At times, getting along or being nice leads to disappointment for all parties. conflict is a sign that interests are not being understood or honoured.

9)

9

create larger possibilities. What else can be achieved beyond the immediate short-term objectives? How will our next negotiation go? Whose interests are being affected but not represented?

10)

evaluate the deal and create mutual accountabilities. if a party fails to perform, the consequences should be agreed upon up front on both sides. ensure both parties commit to meeting again once the operation is underway and once more when it is complete.

11)

document the deal properly. if there are items that are not in the prepared document, add them.

10

11

AFTER ThE nEgOTiATiOn 1)

1

review what you learned, gained, lost and the status of the relationship.

2)

2

reconnect with the other parties to review and improve the process and its outcomes.

3)

3

Prepare for the next deal.

4)

4

understand that your negotiations are a complete circle—a relationship—and not an event.

For more information and advice on negotiating, go to www.savagemanage.com.

Alliance Pipeline ltd ............................................................13 Arc resources ltd ............................................................... 6 canada West land services ltd ..........................................13 canadian Association of Petroleum landmen ..................... 4 conocoPhillips canada............................... inside back cover devon canada corporation ....................... inside front cover

30

energy & AgriculturAl ConneCtion | 2012

Farmers’ Advocate of Alberta ............................................ 28 Midwest surveys inc ............................................................. 6 roy northern land service ltd .......................................... 19 scott land & lease ltd ....................................................... 27 suncor energy services inc...................... outside back cover synergy land services ltd.................................................... 3

PhoTo: joey PoDLuBny

AD INDEX

Perspectives:

Creating our energy future together

The debate around our energy future has never been as polarized as it is today. For Suncor, sustainable development guides our decision-making. We believe resources should be produced and used in ways that generate economic growth, create social benefits and minimize the impact on the environment. Our approach is to engage with a variety of stakeholders to help us see different perspectives. Together we can build the energy future we all desire.

Find out more about how Suncor is collaborating to responsibly develop North America’s energy supply. www.suncor.com/sustainability