This decision illustrates the interaction between contract and
legislation, and in particular, the effect on numerous petroleum
and natural gas leases of a recent amendment to Alberta's
Mines and Minerals Act (Act) which declared coalbed
methane to be natural gas.
The amendment to section 10.1 of the Act was made in December
2010. Subsection 10.1(1) provided that "coalbed methane is
hereby declared to be and at all times to have been a natural
gas." Subsection 10.1(2) stated that the declaration did not
affect any contract that specifically grants, leases, excludes,
excepts or reserves rights in respect of coalbed methane, where the
contract was entered into, prior to the amendment coming into
Encana Corporation (Encana) and others had granted petroleum and
natural gas rights to ARC Resources and others in hundreds of
leases, all entered prior to the amendment. ARC Resources claimed
that coalbed methane was a substance granted pursuant to the
leases. Encana disagreed on the basis that, for the purposes of the
leases at issue, coalbed methane could also be coal and the leases
provided for a reservation of coal.
The litigation concerning the construction of the various leases
was scheduled for trial in March 2011. When the Act was amended in
December 2010, the defendants applied for summary judgment on the
basis that the amendment provided a complete defence to the claims
made in respect of many of the leases, as a matter of statutory
The defendants' argument was straightforward. They argued
that section 10.1 declared coalbed methane to be a natural gas.
Since the plaintiffs' reservations were for coal and the leases
granted natural gas rights, the reservations did not include
coalbed methane. They also relied on comments of the minister of
energy during first and second reading of the amendment, which they
say confirmed their interpretation that the effect of the amendment
was that the owner of natural gas owned the coalbed methane.
The plaintiffs raised numerous arguments in response. Among
others, they argued that section 10.1 did not apply to private
minerals or private leases and that for the purposes of the leases
in question coalbed methane was reserved by the reservation of
coal. For the latter argument, the plaintiffs asserted, among other
things, that: (1) not all natural gas was natural gas; that is,
methane bound up in coal in situ should go with the coal,
just as solution gas goes with petroleum pursuant to a 1953
decision of the Privy Council in Borys v. Canadian Pacific
Railway,  A.C. 217; (2) common law property principles
dictated that an owner of coal has a fee simple estate in the
entire stratum containing the coal; and (3) their construction of
the leases was supported by the realities of coal mining, which
require control over the gases from coal for safety and
Despite the creative arguments raised by the plaintiffs, the
Court found the interpretation of section 10.1 to require only an
application of the principles of statutory interpretation. The
Court rejected the need to determine what coalbed methane was from
a scientific or etymological perspective. The Court noted that,
even if it accepted that coalbed methane was coal, it was
irrelevant because the legislature had declared it to be natural
gas and the defendants were granted natural gas pursuant to the
leases. In accordance with section 10.1(2), only those parties who
had turned their minds specifically to coalbed methane would be
protected from the operation of section 10.1(1) and only to the
extent that the contracts dealt specifically with coalbed methane
itself. This had not been done in any of the leases in the instant
litigation. In the result, the application for summary judgment was
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Canada is a constitutional monarchy, a parliamentary democracy and a federation comprised of ten provinces and three territories. Canada's judiciary is independent of the legislative and executive branches of Government.
The Government of Alberta recently announced a number of policy changes that will impact the Alberta Electricity Market, composed of its generators, transmitters, distributors, retailers, electricity consumers and wholesale electricity market.
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