|
Date: Fri, 16 Jul 2004 13:30:22 -0400 From: Jason Neyers Subject: New SCC case
Dear Colleagues: Those interested in theories of ownership, the effects of contract of this, and the law relating to oil and gas may want to read Carl Anderson, et al. v. Amoco Canada Oil and Gas, et al. (Alta.) (29370) http://www.lexum.umontreal.ca/csc-scc/en/rec/html/2004scc049.wpd.html. A
summary of the decision follows: For connecting the west coast with the rest of Canada, the Canadian Pacific Railway (CPR) was paid in money and land by the Canadian government. The CPR then entered into agreements with settlers for the transfer of title to this land. Under these agreements the CPR reserved its right to petroleum, creating "Split Title Lands". This appeal deals with contracts entered into between 1907 and 1912 and with the ownership of hydrocarbons produced from wells drilled on Split Title Lands. A natural underground reservoir ("pool") may contain hydrocarbons in both liquid and gas phases. Prior to human intervention, a pool will be under relatively stable pressure and temperature conditions, and the ratio of gas phase to liquid phase hydrocarbons will remain fairly constant. When a pool is drilled into, the pressure changes, causing phase changes which alter this ratio. Some of the hydrocarbons originally found in liquid phase will, if there is a reduction in pressure, "evolve" into gas phase. Once this evolution happens it is impossible to distinguish evolved gas from those hydrocarbons which were originally in a gas phase. Depending on the initial pool conditions and other factors including production techniques, the amount of hydrocarbons that change phase can be quite significant. In determining the respective subsurface rights of "petroleum owners" and "non-petroleum owners" under the Split Title Lands, the Alberta Court of Queen's Bench held that the "non-petroleum owners" were entitled to: (1) primary gas cap gas; (2) primary gas cap gas which migrates from adjoining lands; and (3) condensate and natural gas liquids that derive from primary gas cap gas. The court further held that the "petroleum owners" were entitled to: (1) secondary gas cap gas; (2) secondary gas cap gas which migrates from adjoining lands; (3) solution gas that emerges from connate water; and (4) condensate and natural gas liquids that derive from secondary gas cap gas. "Primary gas cap gas" refers to those hydrocarbons in gaseous phase in a pool containing an accumulation of both gaseous and liquid hydrocarbon solutions prior to human intervention, while "secondary gas cap gas" or "evolved gas" refers to gaseous hydrocarbons which were originally liquid. The Court of Appeal dismissed the appeal, except that it did not agree that the petroleum owner was entitled to the gas from connate water; that issue is not before this Court. The Supreme Court of Canada held that the appeal should be dismissed. Mr. Justice Major writes as follows: This appeal reviews the effect a reservation of petroleum rights from a sale of land that took place almost 100 years ago has on the present entitlement to oil and gas from lands encumbered by the same reservation. … The parties agree that three points were determined by Borys: 1) the petroleum owner is entitled to all liquid hydrocarbons in the pool, while the non-petroleum owner is entitled to all hydrocarbons in gas phase; 2) the determination of ownership, based on phase is to be made in the ground; and 3) the petroleum reservation included an implied right to work and produce the product. The parties disagree in their interpretation of Borys over what mistakenly appears to be a minor detail but which in fact is of significant economic importance. The dispute is over what point the Privy Council found was the appropriate time to determine what phase a molecule of hydrocarbon was in and therefore to whom it belonged. There is no doubt that the Privy Council was concerned with what was included in the reservation of petroleum at the time of the transfer. When the contracts for the transfer of land in Borys and in the current appeals were agreed to, the pools of hydrocarbons under the lands had not been disturbed. Borys should be read as indicating it is the initial conditions of the pool that govern the relative ownership between the parties to those original contracts. As Lord Porter recognized, "petroleum" can have many meanings. For the purposes of these reservations, "petroleum" includes all hydrocarbons in liquid phase under the tract of land prior to any development. Phase changes that occur once a pool is drilled into do not affect the ratio of hydrocarbons the petroleum owner and the non-petroleum owner are entitled to. The appellants submitted that Canada is not an ownership in situ jurisdiction and therefore no rights vest in hydrocarbons until they are reduced to possession. This is the type of broad ownership theory that is not required to be determined in this appeal. Irrespective of any other rights the parties may have in relation to the hydrocarbons in the ground, they chose to divide their interest by contract. It is not open to later argue that division was meaningless on the basis that no rights can attach until the substance is reduced to possession. When the substance, which was not in their possession at the time of the contract, is reduced to possession, the date and terms of the contract govern their relative entitlement. In the Split Title Lands at issue in this appeal, the reservation of petroleum divided the ownership interest in oil and gas on the basis of the phase the hydrocarbon was in under initial conditions at the time of the contract for the sale of the property. Any phase changes which occur after the well is drilled into a pool does not alter the ratio of ownership created by the reservation. This applies between the parties to the original contract and to those who derive their interest from these parties. As a result, the appeal is dismissed with costs to the respondents.
--
<<<< Previous Message ~ Index ~ Next Message >>>>>
|
»
»
»
»