Canada: Bill 26 - Ownership of Coalbed Methane in Alberta Finally Settled?

Bill 26 passed Third Reading in the November 24th, 2010 sitting of the Government of Alberta Legislative Assembly. We now await Royal Assent to make the Bill law. The Bill, first introduced into the assembly on October 27, 2010, amends the Mines and Minerals Act and declares coalbed methane (CBM) "to be and at all times to have been natural gas" for both Crown and freehold minerals.

Objectives of Bill 26

When introducing Bill 26 into the Assembly, Minister of Energy Ron Liepert described the amendments in Bill 26 as follows:

  1. they provide CBM ownership certainty by declaring that CBM is and always has been natural gas for both Crown and freehold minerals;
  2. they recognize that existing agreements entered into by the natural gas owner or their lessee that specifically granted CBM rights to the coal owner or coal owner's lessee will not be affected; and
  3. they protect coal owners and their lessees, surface owners, and the government from being sued by natural gas owners or their lessees for extraction, reduction, or removal of CBM prior to the Bill coming into force.

In its Government Backgrounder released the same day, the Government highlighted its view that the lack of clarity over ownership of coalbed methane was a potential barrier to resource development in Alberta. At present under the Mines and Minerals Act, CBM is only declared to be natural gas on Crown land. The Act is silent as to the nature or ownership of CBM on freehold lands. Indeed nine lawsuits are scheduled to be heard in the Spring of 2011 over ownership of coalbed methane.

By declaring CBM to be and at all times to have been natural gas, the Government believes that Bill 26 will provide certainty as to the inclusion of CBM in natural gas grants, which in turn may encourage additional development of Alberta's CBM resources.

Alberta Position Now to be Aligned with Many Other Jurisdictions

This legislation essentially gives effect to the decision of the Energy Resources Conservation Board (then the EUB) in AEUB Decision 2007-024 wherein it declared the CBM is natural gas and not an intrinsic part of the coal for regulatory purposes.

Further, the effect of this legislation is to bring Alberta's regime in line with the position taken in British Columbia (the Coalbed Gas Act, S.B.C. 2003, c. 18), the United States Supreme Court determination on the issue in Amoco Production Co. v. Southern Ute Indian Tribe, (No. 98-830, released June 7, 1999) and a number of other Commonwealth jurisdictions including the States of Queensland and New South Wales in Australia.

Coal Certainty Agreements Excluded

Of note however, its that Bill 26 expressly honours existing agreements entered into between natural gas owners and coal owners that specifically grant CBM to the coal owner. As a result, the Coal Certainty Agreements entered into by many industry participants over the years would seem to be excluded from the effect of Bill 26.

Also of note, natural gas rights holders do not have a right of action against coal owners for any CBM produced prior to this Bill becoming law. Further, Bill 26 expressly provides that its enactment does not constitute an expropriation.

The amendments to the Mines and Minerals Act as set out in Bill 26 should finally settle the CBM ownership issue in favour of the natural gas owner or rights' holder. However, as Bill 26 awaits Royal Assent to become the law in Alberta, it remains to be seen whether industry players, particularly coal owners, will accept Bill 26 as the final word on ownership of CBM in Alberta.

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