Alberta Bill 26 to clarify ownership of coalbed methane

November 5, 2010

On October 27, 2010, the government of Alberta introduced Bill 26, Mines and Minerals (Coalbed Methane) Amendment Act, 2010. Bill 26 declares coalbed methane “to be and at all times to have been natural gas” for both Crown and freehold minerals. Despite this declaration, Bill 26 expressly honours existing agreements that specifically grant coalbed methane to the coal owner and protects coal owners or their lessees, surface owners and the provincial government from being sued for damages or compensation from the extraction, production or removal of coalbed methane prior to the Bill coming into force. Under the proposed legislation read as a whole, coalbed methane is owned by the natural gas rights holder rather than the owner of coal rights.

The Alberta government views the lack of clarity regarding coalbed methane ownership as a potential barrier to resource development in the Province. Under the Mines and Minerals Act as it currently stands, coalbed methane is only declared to be natural gas on Crown land. The Act is silent as to the nature or ownership of coalbed methane on freehold lands.

This legislative silence has caused uncertainty as to ownership of coalbed methane on freehold lands where mineral title is split between the coal owner and the natural gas rights holder, and where the instruments at issue do not refer expressly to coalbed methane. In some instances, this has resulted in litigation between the coal owner and the natural gas rights holder, with both parties claiming ownership of coalbed methane.

The history of coalbed methane ownership in Alberta originates in late 1800s, when the Crown granted 25 million acres of surface and mineral land to Canadian Pacific Railway (“CPR”). The CPR subsequently sold this land to settlers, but reserved to itself an interest in “all coal”, “all coal and petroleum” or “all coal, petroleum and valuable stone”. Since natural gas was not reserved it was sold with the lands. This has resulted in the split title situation that exists today, where freehold landowners hold natural gas rights and the CPR’s successors and assigns hold the rights to coal.

Because the initial grants and subsequent instruments did not until recently speak to coalbed methane, Bill 26 aims to clarify ownership of coalbed methane in split title situations. By declaring coalbed methane to be and at all times to have been natural gas, Bill 26 provides certainty as to the inclusion of coalbed methane in initial natural gas grants.

Coalbed methane is a natural gas found in coal. Coal seams with coalbed methane potential are found underneath much of Alberta, especially in southern and central Alberta. Notably, a study by the Alberta Geological Survey found that Alberta’s coalbed resource may contain approximately 500 trillion cubic feet (Tcf) of coalbed methane. In contrast, the estimated ultimate potential of marketable conventional natural gas in Alberta is between 205-253 Tcf.

The Bill will come into force on Royal Assent. Depending on the amount of questioning from opposition, this could take anywhere from two weeks to several months.

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