In most modern industrialized democracies, petroleum and natural gas were recognized as strategic commodities and nationalized before any significant deposits which might have presented political barriers to nationalization had been discovered within the jurisdiction. As a result, there is no private ownership of subsurface oil and gas in most countries.
Rock oil was first discovered in the
Perhaps because the Pennsylvania oil boom or similar oil booms in Texas and Oklahoma in the early 1900's had established subsurface hydrocarbons as a landowner's potential ‘nirvana’ before the strategic value of subsurface hydrocarbons was recognized, or perhaps because of the protection for property rights afforded to the citizens of the United States by their constitution, the United States federal government has never attempted to nationalize subsurface petroleum or natural gas. As a result, title to the vast majority of subsurface hydrocarbons within the original 48 states of the American Union is held by the owner of the surface rights.
In 1670, the King of England granted approximately 1 billion acres of land in the drainage basin of
MacDonald recognized that such a railway could only be economically viable if the vast expanse of prairie lands controlled by the HBC was colonized. Although the 1670 land grant required the Gentlemen Adventurers to colonize the land, very little colonization had occurred because colonization conflicted with the groups’ primary objective which was to profit from trading furs with natives. In 1869, the Dominion Government entered into an agreement with the HBC whereby the 1670 land grant was surrendered in return for 300,000 pounds sterling and 1/20th of the arable land in western
To encourage settlement of the
“... the Government agree to grant to the Company a subsidy in money of $25,000,000 and in land of 25,000,000 acres, for which subsidies the construction of the Canadian Pacific Railway shall be completed and the same shall be equipped, maintained and operated, ...”. 7
The Dominion Government was presumably aware of the potential value of subsurface hydrocarbons because the first successful oil well in North America had been completed near
Fortunately for western Canadian settlers, the CPR and the HBC were even more myopic than the Dominion Government. Almost a quarter of a century passed before the railway company began, in approximately 1902, to reserve coal for its own account in land sales to settlers. Another four years passed before, in approximately 1906, it began to reserve coal and petroleum. It was not until approximately 1912 that the CPR began to reserve all mines and minerals for its own account in land sales to settlers. The HBC began to reserve all mines and minerals for its own account in approximately 19089.
As a result of the foregoing, Canadian settlers who purchased homestead lands from the Dominion Government prior to 1887, from the HBC prior to 1908, or from the CPR prior to 1902, acquired title to all mines and minerals within, upon or under their lands. The term ‘all mines and minerals’ is somewhat misleading as gold, silver and other precious minerals were reserved to the Crown and did not form part of the settlers’ title. However ‘all mines and minerals’ does include all subsurface hydrocarbons - coal, the natural gas in coal or coal bed methane (“CBM”), petroleum, the natural gas in petroleum, and natural gas itself.
As a further result of the CPR’s myopia, the titles to subsurface hydrocarbons became split beneath homestead lands purchased from the railway company by settlers during the 1902 - 1912 period. In the period from 1902 - 1905, settlers purchasing CPR lands acquired the surface and all subsurface mines and minerals except coal. Those settlers purchasing during the 1906 - 1912 period acquired title to the surface and all mines and minerals except coal and petroleum (in some instances the railway company also reserved valuable stone). On these ‘split title’ lands, the railway company retained either the right to any coal or to any coal and petroleum found to exist within, upon or under the settlers’ lands. The last step in the creation of the peculiar hydrocarbon ownership regime which exists in western
Settlement of the
The fertile southwest corner of
There had been no substantial settlement in the portion of the
The CPR Charter provided for the railway company to select lands “in alternate sections of 640 acres each, extending back 24 miles deep, on each side of the railway”13. But the Charter also permitted the CPR to select lands in other areas south of the 57th parallel if lands “fairly fit for settlement” could not be located along the main line right of way14, and for the lands selected to be free from taxation for 20 years15. To maximize this tax advantage and enhance the value of its land grant, the CPR delayed selection of portions of its grant16. Although the transcontinental railway was completed in 1885, it was not until 1903 that the CPR made its final selection of lands - an approximately 3,000,000 acre block of land east of
Overall, the CPR retained 9.6 million acres of petroleum and natural gas rights from its 25 million acre land grant (8.3 million acres in Alberta, 1 million acres in Saskatchewan and 0.3 million acres in Manitoba)18. In 1971, the CPR transferred its petroleum and natural gas rights to PanCanadian Petroleum Limited ("PanCanadian"), an 87%-owned subsidiary. In a 1996 publication PanCanadian stated “the key to Canadian Pacific’s fortunes” does not lie in what was obvious in 1880 because: “To a very large extent, the railway’s payback is flowing from rich resources below the land’s surface.”19
In 2002, PanCanadian merged with the Alberta Energy Company Ltd. to become EnCana Corporation (“EnCana”).
The petroleum and natural gas ownership regime which exists in
In no other major oil and gas producing jurisdiction does a single corporate entity control such a significant portion of the petroleum and natural gas rights - EnCana owns the oil and gas beneath approximately 12% of southern Alberta (south of Township 60). Due to the wide aerial distribution of EnCana's rights and due to the nature of oil and gas industry operations, it is virtually impossible for an energy company of any significant size to operate in southern
In no other major producing jurisdiction do individually-owned petroleum and natural gas rights comprise such a small proportion of the total rights within that jurisdiction. In other major oil and gas producing jurisdictions, either the government owns all petroleum and natural gas and there is no freehold, or, as in the lower 48 states of the United States, the vast majority of petroleum and natural gas interests are owned by individual freehold owners. In these other jurisdictions there is either no freehold ownership 'problem' as there is no freehold, or freehold ownership is so widespread that legislators, regulators, and the courts have been forced to address the concerns of freehold owners.
In no other jurisdiction do ‘split title’ mineral rights exist as a separate class. The CPR's belated recognition of the value of the subsurface hydrocarbons included in its railway land grant, gave rise to two types of split title land. The first comprises approximately 1.0 million acres of land in southern Alberta in which EnCana holds title to coal and petroleum and title to all mines and all other minerals (including natural gas) is held individual freeholders who are the descendants or assigns of settlers who purchased CPR lands in the 1906 - 1912 period. There are currently an estimated 10,000 individual owners of
The unique hydrocarbon ownership regime which exists in
1. Accumulation, Ownership and Conservation of Oil and Gas, in Oil and Gas Law, Cases and Materials, 2d, West Publishing Co. St. Paul, Minnesota, 1993, p. 17, 18
2. Freehold Ownership of Oil and Gas, A. Lucas, in Introduction to Oil and Gas Law, Copyright 1983, Canadian Association of Petroleum Landmen, p. 23
3. History of the Canadian Pacific Railway, W. Kaye Lamb, 1977, MacMillan Publishing Co., Inc., New York, N.Y., Appendix A, p. 295
4. Ibid, p. 20, 30, 34 -35
5. Canada 1874 - 1896: Arduous Destiny, Peter B. Waite, 1971, 1988, McLennan & Stuart, Toronto, p. 109
6. Ibid, p. 107
8. Our Petroleum Challenge, The New Era, The Petroleum Resources Communication Foundation, Agency Press Limited, Vancouver, 1978, p. 14, 15
9. The Oil and Gas Lease in Canada, Ballem J.B., 1999, 3d, University of Toronto Press, Toronto, p. 13
10. Under the Constitution Act, 1930, (Imp.) c. 26, s. 28, lands in Indian Reserves, National Parks and lands vested in the Soldier Settlement Board were excluded from the transfer.
11. History of the Canadian Pacific Railway, W. Kaye Lamb, 1977, MacMillan Publishing Co., Inc., New York, N.Y.,p. 252
12. Oil in Manitoba, Manitoba Energy & Mines, 1985, p. 19
13. An Act Respecting the Canadian Pacific Railway, 1881, 37 Victoria, C. 14, S. 11, in A History of the Canadian Pacific Railway, Harold A. Innis, 1971, University of Toronto Press, Toronto/Buffalo, Appendix ‘B’, p. 304
15. Ibid, S. 16, p. 306
16. History of the Canadian Pacific Railway, W. Kaye Lamb, 1977, MacMillan Publishing Co., Inc., New York, N.Y.,p. 255
17. Land Settlement Policies in the Prairie West, in The CPR West: The Iron Road and the Making of a Nation, Hugh A. Dempsey, Douglas & McIntyre, Vancouver/Toronto, 1984, p. 184
18. Railways to Resources, The Evolution of PanCanadian Petroleum, Copyright 1996, PanCanadian Petroleum Limited, Calgary, p. 13
20. Province of Alberta Natural Gas Commission Report, R. J. Dinning Commisioner, March, 1949