February 16, 2012

Urban Decisions

Updated May 27, 2015 (See Publications and 2015 Alberta Election pages)

RESIDENTIAL AND OIL AND GAS DEVELOPMENT CAN CO-EXIST

Urban Surface Rights Board Decisions   

This page provides links below to various urban Surface Rights Board (“Board”) Decisions as well as decisions related to country residential development.

Until recently, the Board had rendered relatively few urban decisions in comparison to countless rural decisions.  Some urban decisions would appear to be at odds with other decisions.  The decisions facing an urban landowner in developing land and obtaining fair surface rights compensation are not easy to make by any means.

The Board issued several urban decisions in December 2014 and January 2015, largely featuring Penn West Petroleum Ltd.  How much guidance do such decisions provide?

We’ll be commenting soon and putting up links to surveys, satellite photos, and other details important to fully understanding the nature and impact of urban decisions, which do not set out the background facts sufficiently for practical purposes, to allow other operators or landowners to consider if published Board decisions are applicable to their own circumstances.

Except in some towns like Drayton Valley, the oil company may have less urban surface rights experience than the landowner.  The operator can change countless times.

“Starting over” with new operators can cause delays, losses, nuisance and inconvenience, and numerous other barriers to development of urban land.  The ability to sell land to a land developer at a reasonable price can be drastically hampered.

We were recently shocked by an appraisal report, provided by an operator, which concluded the value of Alberta land is enhanced by surface rights takings involving surface equipment.  If such is sometimes the case, which one might reasonably argue in relation to rural farm or ranch land, the owners of which are overpaid pursuant to terms of private agreements and advertise surface lease income as a benefit when listing land for sale, such is absolutely not the case in respect of urban lands.

We see trends emerging:

  • A cast of leading characters repeatedly star as witnesses and legal counsel for operators in urban cases more complex than on agricultural rural land.
  • Repeatedly landowners or their advisors fail to prove their losses, overlook the most important elements of their cases, or fail to specifically request the Board for relief they may well be entitled to.
  • Far too many assumptions are made.  The main assumption consistently made-but-not-stated is that operational risks have been identified and mitigated by the operator, and that operations are regulatory compliant and safe, which is far too often simply not the case on urban lands.
  • We find the reasoning behind some Board decisions to be set out far better than we feel has been the case in the past.
  • The overall statutory scheme (particularly how regulatory matters impact urban land development decisions and losses) has been all but ignored for decades, where few if any signs of improvement are present.
  • The battle being waged against Alberta land rights by operators on the less-than-reasonably-responsible end of the spectrum is escalating.

To the credit of Surface Rights Board members, the Board deals with applications related to urban lands, makes decisions, and sets them out in writing.

Urban Alberta Energy Regulator Decisions

In stark contrast the Alberta Energy Regulator refuses to address, let alone decide or arbitrate as to, many critical matters most reasonably raised by urban landowners.  Such situation is shocking and appalling to say the very least in a province that puts itself forward as a world leader in environmental and regulatory matters.

Comprehensive safety regulations exist in Alberta on paper only where irresponsible licensees of wells, pipelines and facilities are concerned.  Those charged with investigation and regulatory compliance are somehow and inexplicably paralyzed.

Irresponsible Alberta licensees and operators mislead the Surface Rights Board, Alberta landowners, and the Regulator because they have gotten away with doing so.

The concept of oil company entitlement – that an irresponsible licensee of a well, pipeline, or facility may enter upon private lands without a legal right of entry, or may operate illegally or unsafely, is widespread in Alberta, and puts our way of life, and  rights to be safe in our homes, and while traveling our roads, in serious jeopardy.

Our Guiding Principles

We are not against oil and gas development.  Our slogan promotes co-existence of residential and oil and gas development, which simply cannot occur absent operator cooperation or intervention by Alberta’s regulatory bodies.

We are firmly against illegal and unsafe oil and gas development, and will continue to be, until illegal and unsafe operations, particularly in urban areas where countless lives are callously and needlessly being put at risk, ends.

We are not afraid or ashamed to say so, or to promote legal means of repairing Alberta’s widespread properly rights and safety problems.

Most Confusing Urban Compensation Cases

In our opinion, the first two cases listed below, in particular, should have provided useful guidance on urban compensation issues, but have not.   They easily win first and second prize for being the worst and most confusing.  They were both appealed to the Court of Queen’s Bench of Alberta:

1.  Dorin and Dorin v. Dyco Petroleum Corp., [1980] A.J. No. 814

2.  Muntean v. GNE Resources Ltd., [1993] A.J. No. 545

Third prize in the category of “Worst and Confusing” is awarded simply because the decision contains so many errors of fact, and conflicts with Energy Resources Conservation Board Decision No. 2005-085 dated July 28, 2005 before it:

3.  Penn West Petroleum v. Saraswati Prasad Singh, Board Decision No. 2007/0140.

In Dorin and Dorin v. Dyco Petroleum Corp., numerous regulations such as the regulated minimum setback or separation distances between the well, an oil storage tank dyke, and a flare pit to surface improvements (surveyed roads and houses) were overlooked.  Such serious errors of fact and law, plus many others, have still not been recognized by the Surface Rights Board (other than to say errors may exist).  The Board may review the compensation retroactively to date of right of entry order issuance (some 37 years).  See the related decisions below (Didsbury).

Annual compensation has never been paid for the single-well, tank battery site where solution gas was flared and, as recorded by the former ERCB, illegally vented to atmosphere in a highly unsafe manner.

Just one result is that applicable setback or separation distance regulations, which have been regulated since 1971, are still not properly applied in determination of surface rights compensation related to developable lands.  While Board members have recognized minimum regulated setback distances apply to wells in written reasons for decision, similar regulations applicable to oil storage tanks, flare and incinerator stacks or flare pits have been consistently overlooked.  See the following sections of the Oil and Gas Conservation Rules , AR 151/1971, for applicable setback or separation distance regulations:  Sections 2.110, 8.030, and 8.080.

The statutory scheme governing what constitutes a reasonable surface area for oil tank battery operations (primarily Section 8.090 of the Oil and Gas Conservation Rules) appears to also have been overlooked.   We have been unable to find a single case which indicates a sufficiently thorough understanding of all applicable laws and regulations by finders of fact.  Our first article to be published shall be on such subject.

The outcome of this case, related to an urban site in the Town of Didsbury, Alberta, has the potential to open the door for all operators to argue no annual compensation is required for oil and gas sites with surface facilities and access roads.   Any landowner not prepared to potentially lose their annual compensation should watch this case closely.  The most recent decisions as to reconsideration of the compensation awarded by the Board in 1978, upheld by the courts in 1980, are listed below.

The often-cited Muntean v. GNE Resources Ltd. related to an site with an abandoned well in an urban industrial area of Red Deer.  In our view, because the abandoned status of the subject well was not mentioned, the case can be misleading if the findings are applied to active well sites.  The court understandably saw little difference between the former oil well site and a nearby industrial lot used for other purposes, and awarded an annual payment similar to rent being paid for the nearby industrial Fracmaster site.

Penn West Petroleum v. Saraswati Prasad Singh:  Numerous errors of fact exist as to the agreed acreage of the “original” site, and in relation to the acreage and circumstances of several sites combined into one site that is “Comparable W” in the decision.

That is to say, in relation to very important urban decisions, the actual facts have yet to be considered by the finders of fact, and those referencing these decisions appear to be unaware of the actual facts.

Most Helpful Urban Compensation Case

The most helpful and well-reasoned case in our opinion, notwithstanding that many urban land development issues (particularly land development setback or separation distances) were not addressed, is the following decision of the Board:

3.  Nexen Inc. v. Farm Air Properties Inc., 2008 CanLII 88572 (AB SRB).  Or Board Decision No. 2008/0182.

Nexen is also instructive as to how retroactive compensation should be addressed – on a backward-looking year-by-year basis  (as opposed to on a forward-looking five-year basis as per Jorsvick v. Pennzoil Petroleums Ltd., 1988 ABCA 108)

Most Recent Urban Compensation Decisions

Penn West Petroleum Ltd. v. Parkland Industrial Estates, 2015 ABRSB 4.  Annual compensation decision related to a surface lease.  Industrial development has occurred on all adjacent lots around a well site said to be comprised of a shut in well with a flare pit.  Accordingly, the Board panel based its decision to use an “urban rental rate” method to determine the annual rate adjustment ordered.

A 2.5% rate of return (annually) on the value “but for the wellsite” of the 3.5 acre site was the basis of the award, plus an adverse effect award (for nuisance and inconvenience, which was not requested by the landowner).

“In the absence of significant evidence on Parkland’s opportunity cost/return on capital and in the absence of persuasive evidence of significant risk, the Panel determines that a reasonable rate of compensation is 2.5 percent of the value, but for the wellsite, of the 3.5 acres.”

Unfortunately the decision is silent on how the lot that is the well site and adjacent lots were approved for subdivision, the status of the well (active, suspended, abandoned etc.) giving rise to any applicable setback regulations, what the applicable subdivision regulations were and if they were considered, or all manner of issues inquiring minds might like to have known.

At page 8 of this most recent Parkland Decision, the Board panel discussed the “prior knowledge” argument (concept of “buyer beware”) in some detail, and stated the following:

“It is the view of this Panel that landowners should be able to confidently view annual compensation as a “patch” that keeps the landowners (and the land) whole.  This metaphorical patch gets larger or smaller as loss of use and adverse effect increases or decreases—hence the provision for five-year review in s.27.  It is our view that annual compensation—both loss of use and adverse effect—must evolve as land ownership and land use evolves, and as circumstances change.  There should be no need for landowners to consider the presence of wellsites when negotiating land prices, because they should be confident that s.25(1)(c) and (d) of the Surface Rights Act are there to offset any future loss of use and adverse effect they will experience.  The anticipated present value of the income stream from the annual payments should provide the offset.”

All we can say is that the “patch” concept the Board panel quoted above referred to has never been applied by the Board itself in relation to its own Right of Entry Order No. C263/77.  The Didsbury land affected and its owners have not been kept whole – there is no annual compensation income stream to offset real losses.

Soon the Didsbury landowners’ costs related to a 37-year struggle to obtain what other surface owners take for granted (a right to be compensated for loss of use of the area granted by the order, adverse effect, nuisance and inconvenience) shall exceed the present value of all Board-awarded compensation.  It will not be long until the Didsbury landowners will have paid for the “privileges” of having their rights taken by force for unsafe and illegal operations that have always adversely impacted their land, lives, and livelihood, not to mention their very safety, and that of their neighbors.

Land developers do consider well sites and do offer far less than market value accordingly.  In reality there is confidence in the minds of Albertans most affected (urban landowners we work with) that Section 25(1) of the Surface Rights Act is there to offset any future loss.  However, there is no confidence whatsoever that those charged with ensuring Alberta landowners are made whole for surface rights takings are willing to actually do so, whereby irresponsible operators might get the message they need to act far more responsibly.

In fact there has never been a five-year review of annual compensation for the rights taken from Didsbury landowners by Order No. C263/77 dated August 5, 1977 and granted to the operator.  The subject operator drilled an oil well and constructed and operated un-licenced oil storage tanks and a flare pit partially off-site.  A 1978 Board panel failed to consider or mention the concept of ongoing annual compensation, as did Justice Moore upon appeal of the original compensation decision the Board has more recently found may be flawed (see the matters of Dyco Petroleum Corporation v. Dorin, Camino Industries v. Dorin, Midway Energy Ltd. v. Dorin and Whitecap Resources Inc. v. Dorin, to which links have been provided on this page).

Penn West Petroleum Ltd. v. Parkland Industrial Estates Ltd, 2014 ABSRB 135 is related and deals with issues preliminary to the more recent 2015 decision.

Penn West Petroleum Ltd. v. Singh, 2014 ABSRB 901.  The sequel to a previous Board Decision (No. 2007/0140 link above) is out for viewing.  The parties have yet to ask the Board to consider several highly-important critical facts in this sad matter (details known to the authors).  There is little question that the operator knows the facts but the surface owners does not, and no question whatsoever that the Board was misled in 2007.  The 2007 Board Panel had a very different view as to the “prior knowledge” or “buyer beware” concept the Parkland Board panel discussed more thoroughly in Decision No.  2015/0042 at page 8.

Whitecap Resources v. Dorin, 2014 ABSRB 0890 (Decision No. 2014/0890).  Decision on an application to partially terminate a right of entry order related to urban land as to the access road, for which a reclamation certificate exists.  Related to Dorin and Dorin v. Dyco above.

Camino Industries Inc. v. Dorin, 2014 ABSRB 802  (Decision No. 2014/0802).  Decision on several preliminary issues related to a reconsideration of the Right of Entry Order and Compensation Decisions of the Board related to Dorin and Dorin v. Dyco above.  The landowners filed an application for Judicial Review as to the Decision on sealed documents in “Binder 12”.

AltaLink Management v. Royal West Property Corp., 2014 ABRSB 221.  This is a power line decision as to compensation for a right of entry order.  Whether or not land is devalued by a power line taking, giving rise to adverse effect compensation payable in the first year (injurious affection), is addressed.

TAQA North Ltd. v. SL Developments Inc. 2013 ABSRB 580 (Decision No. 2013/0580).  Urban Sylvan Lake residential development decision.  The related cost decision is also relevant:  TAQA North Ltd. v. SL Developments Inc. 2013 ABSRB 989 (Decision No. 2013/0989)

Camino Industries Inc. and Midway Energy Ltd v. Dorin, Decision No. 2012/0468.  Related to Dorin v. Dyco above.  Decision that the right of entry order and original compensation decisions of the Board shall be reconsidered.

Alberta Oilsands Inc. v, Hi-Way 39 Industrial Park IncDecision No. 2012/0517.  Calmar, Industrial Land

1369900 Alberta Ltd. v. Penn West Petroleum Ltd., Decision 2012/0258, through 2012/0262,  Industrial land, Acheson.

URBAN COMPENSATION DECISIONS IN CHRONOLOGICAL ORDER

Board Decision No.     Location                      Comment

C10/78                          Calgary                         Industrial land, still undeveloped.

E25/78                          Edmonton                     Residential land, still undeveloped

C46/78                          Didsbury                       Residential land, partially developed

Decision C46/78 and the related compensation order was appealed as Dorin and Dorin v. Dyco Petroleum Corportion

E63/78                           Edmonton                     Residential land, still undeveloped

99/0080                       Edmonton     Edmonton, Industrial land.

2003/0020                  Drayton Valley              Residential land, 2 sites, one developed

2003/0023                  Drayton Valley              Industrial land, undeveloped

2003/0142                      Didsbury                       Residential land, development imminent

2005/0120                    Pigeon Lake                 Country residential

2006/0001                    Cold Lake                     Industrial land

2006/0067                    Drayton Valley              Country subject to development

Appealed as True Energy Ltd. v. Kitching

2007 0106                       Red Deer                      Industrial land

2007/0140                       Edmonton                     Residential, still undeveloped

2008/0182                       Calgary                         Residential, retroactive annuals

2008/0377                       LaCorey                        Residental

2008/0485                       Grande Prairie              Country residential

2011/0203                        Ponoka                         Country residential

2011/0470                     Grande Prairie              Subdivided country industrial land

 

Urban Surface Rights Board Decision Appeals

Appeal Reference                                            Location                     Comment

True Energy Ltd. v. Kitching                           currently have no copy