Surface rights have been a topic of increasing importance in
Manitoba over the last several years. While much of this can be
attributed to increased oil and gas activity, this does not tell
the entire story. Previous oil booms did not create the level of
tension between surface holders and mineral owners that is often
seen today, largely because these two people were usually one and
the same. However, as land has been rented or sold, the dichotomy
of ownership was broken down such that the person who stands to
profit most from oil and gas exploration (i.e. the mineral owner)
is rarely the person who has to deal with the inconvenience of that
exploration (i.e. the surface owner or occupant). This is precisely
the tension that The Surface Rights Act, CCSM, c. S235 was
designed to address.
The scheme of The Surface Rights Act is relatively
simple. Mineral owners must be allowed access to their minerals
provided that they pay "just and equitable compensation".
Compensation is usually split into first year compensation and
annual compensation. "Annual compensation" will be paid
yearly until the facilities are decommissioned and the land
restored. It includes amounts to compensate the occupant for the
loss of use of the land (i.e. annual crop loss), nuisance and
inconvenience (e.g. extra turns, overlap, excessive noise, etc.),
and adverse effects. "First year compensation" includes
these amounts for the first year, as well as amounts to compensate
for the lost value of the land (typically its fair market value on
a per acre basis), losses incurred as a result of initial
development and expenses incidental to negotiations.
In fixing compensation, the Board is required to consider the
factors listed in s. 26 of the Act, including land value, loss of
use, permanent damage, increased costs, adverse effects, nuisance
and inconvenience, and "any other relevant matter that may be
peculiar to each case". The Board will also considerable
comparable orders or leases to determine if the compensation being
proposed is reasonable. This is known as the "global
A guiding rule of surface rights law is that lease agreements
negotiated between parties at arm's length are the best
indicator of fair and reasonable compensation (Siebens Oil
& Gas Ltd. v. Livingston (1978), 15 LCR 32 (Alta. SC
– App. Div.)). While this point may be debateable, occupants
before the Board must come prepared to differentiate or call into
question recent leases if they are going to have any chance of
success. This will involve showing that the land is more valuable
or more productive, that the use is more intrusive, or that the
adverse effects are more acutely felt. It could also involve
showing that past leases are out of date or were not the product of
Once compensation is agreed to, surface rights may be given
legal force by a surface lease or a board order. In Manitoba, the
vast majority of surface rights are finalized by a lease without
any involvement by the Board. This is in contrast to Alberta where
many landowners will insist on a Board order finalizing their
arrangements. While it remains to be seen whether this practice
will become more common in Manitoba, a Board order may provide more
protection for occupants than the standard form commercial leases
typically used by oil companies. For instance:
Oil companies typically use standard
form agreements that span a long period of time and may become out
of date during the lifetime of a project. Once signed, a lease
cannot be re-opened by the Board other than to review compensation
after 3 years. In contrast, a Board order may be varied by the
Board at any time;
A Board order may be terminated by
the Board if the holder has not exercised its rights within a
certain period of time. The standard terms of most leases do not
provide for termination by the occupant absent extraordinary
A Board order only permits the
company to use the land for the purpose that it was acquired at the
time. Standard lease forms are often drafted more broadly, allowing
the potential for 'use creep' over time.
An occupant is best advised to consider its legal position at
the outset of any surface lease discussions. If the process goes
too far along, it may be harder to challenge issues like well
location and mitigation that are addressed under other statutes.
Many companies will reimburse an occupant for his reasonable legal
costs in negotiating a lease or order if asked to do so, and legal
costs may be recoverable from the Board in some cases.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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In Bank of Montreal v Bumper Development Corporation Ltd, 2016 ABQB 363, the Alberta Court of Queen's Bench enforced the "immediate replacement" provision in the Canadian Association of Petroleum Landmen 2007 Operating Procedure...
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