Who has the right to develop Canada’s oil and natural gas resources?
In general, for onshore (land-based) resource development, there are two kinds of rights: mineral rights (also known as subsurface rights) and surface rights.
- Mineral rights determine who has the right to explore for and produce the oil or natural gas that lie beneath the land surface. Mineral rights are usually held by a provincial government (the Crown), but a small portion, called “freehold” mineral rights, may be held by others.
- Freehold mineral rights may be held by individuals, families, or businesses. In Alberta, about 19% of mineral rights are freehold. Freehold mineral rights holders also include the federal government (national parks, federal land held on behalf of First Nations), Canadian railways, the Hudson’s Bay Company, and homesteaders. (Source: Mineral ownership | Alberta.ca)
- Surface rights determine who owns the land. Surface rights holders may be farmers or other property owners, municipalities, or provinces (known as Crown land).
Companies interested in exploring and potentially developing oil and natural gas must bid for mineral rights leases. The provincial government may award a limited-time mineral rights lease (for example, 15 years in Alberta) to a company that wants to explore for and develop oil or natural gas. Within the lease period, the company must act to explore and develop the resource, otherwise the mineral rights pass back to the provincial government.
In Western Canada, mineral rights are awarded by:
- British Columbia – Ministry of Energy, Mines and Low Carbon Innovation
- Alberta – Ministry of Energy and Minerals
- Saskatchewan – Ministry of Energy and Resources
Once a company has secured a mineral rights lease, they negotiate a surface lease with the landowner to gain surface access to their mineral rights. The agreement usually covers several components:
- The proposed exploration and development activities.
- The construction and maintenance of any above-ground structures.
- Fair compensation for surface access to well sites and related infrastructure.
- A survey plan showing access, dimensions of the lease area, and location of the well and infrastructure proposed.
Offshore rights
Mineral rights differ between Western Canada and the Atlantic Canada offshore.
In the offshore, mineral rights are owned by the federal government, not the provinces. However, the Atlantic Accords, agreements signed in the mid-1980s between the Government of Canada and each of Nova Scotia and Newfoundland and Labrador, specify that the relevant provincial government will be the principal beneficiary of any offshore oil and natural gas activity. The Atlantic Accords also outline joint management regimes between Canada and the relevant provincial government. The Atlantic Accords have been updated periodically.
The Canada-Newfoundland and Labrador Atlantic Accord Implementation Act outlines the regulatory regime governing oil and natural gas activity offshore Newfoundland and Labrador, including the process for issuing offshore lands to interested companies through a Call for Bids process. Similarly, the Canada-Nova Scotia Offshore Petroleum Resources Accord Implementation Act outlines the regulatory regime governing oil and natural gas activity offshore Nova Scotia.
The Canada-Newfoundland and Labrador Offshore Petroleum Board (C-NLOPB) and Canada Nova Scotia Offshore Petroleum Board (CNSOPB) were created to regulate the petroleum resources in the offshore areas. These organizations manage the rights process on behalf of the Government of Canada and the respective provincial governments. Currently, resource development and production is only active in Newfoundland and Labrador.
Royalties
In exchange for the right to develop oil and natural gas resources, companies make royalty payments to provincial governments. Royalties are calculated by taking a percentage of revenues generated from the sale of oil and natural gas. Paying royalties is one way oil and natural gas producers contribute to government revenues.
In Newfoundland and Labrador, the provincial government receives 100% of the royalties from offshore oil and natural gas projects under the Canada-Newfoundland and Labrador Atlantic Accord Implementation Act.
Across Canada, the industry paid over $30 billion in royalties to provincial governments in 2022, and royalty payments are expected to be similar in 2023. (Link to ARC DECK Economic Impact)