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The world’s first commercial oil well was drilled in 1858 near the village of Oil Springs near Sarnia in South Western Ontario.

First Oil Well

Figure 1 - Site of the First Commercial Oil Well in North America


The following year, oil and natural gas were discovered in Pennsylvania.

Oil

Figure 2 - Site of 1859 Oil & Gas Discovery in Pennsylvania


The construction of a two inch wooden pipeline to transport the natural gas five miles to the village of Titusville established the first commercial use of natural gas in North America. The natural gas was used for lighting purposes.

The Pennsylvania discovery had lead to the world’s first oil boom and, in South Western Ontario, a number of primitive oil refineries had been established by the 1870’s. Furthermore, natural gas was known to have commercial value and coal had been an object of commerce for centuries. Despite this, when the terms of the Canadian Pacific Railway Company Charter were announced in Parliament in 1880, only gold and other precious minerals were excluded from the 25 million acre CPR land grant. The railway company acquired the rights to all coal, petroleum and natural gas within, upon or under the lands. Fortunately for western Canadian settlers, it took many years for the CPR to recognize how benevolent the Dominion Government been.

Railway

Figure 3 – Route of the CPR Main Line


Initially, the CPR saw its land grant solely in the context of its railway operations - by selling farm-sized portions of its grant to settlers and encouraging homesteading on the Canadian prairies, the CPR could create traffic on its rail line. CPR land sales started in 1881 and, for almost a quarter of a century, homestead lands were sold to settlers in the same form as the lands had been acquired from the Dominion Government. As a result, settlers acquiring homesteads from the CPR during this period also acquired the rights to all coal, petroleum and natural gas beneath their lands.

Ready Made Farms

Figure 4 - CPR Land Sale Ad


Potentially commercial deposits of coal had been reported in the Souris River Valley in Southern Saskatchewan and the Red Deer River Valley near Drumheller by the 1857 Palliser Expedition. Dr. George Dawson, Chief Geologist of the Geological Survey of Canada, reported similar potentially commercial deposits of coal in the Crows Nest Pass in 1878.

Drumheller

Figure 5 - Coal Seams Near Drumheller

 

Locomotive

Figure 6: CPR Steam Locomotive


Despite these reports and despite the fact that the CPR was operating a railway which depended on coal to fuel its steam locomotives, it was not until 1902 that the railway company began to reserve coal for its own account in land sales to settlers.

The CPR’s reservation of coal in land sales which granted settlers the rights to the surface and subsurface minerals, including natural gas, gave rise to the first split title problem – the ownership of natural gas in coal or coal bed methane beneath split title lands (see “The CBM Ownership Dispute”).

The world's second oil boom began in 1901 when a well drilled at Spindletop along the Texas Gulf Coast blew in at 100,000 barrels per day.

Spindletop

Figure 7 - Spindletop Blowout 1901


At about the same time, Alberta's first oil well was drilled along Cameron Creek, near Waterton.

cameron creek

Figure 8 - Cameron Creek, Drilling for Oil 



Despite these developments, it wasn't until 1906 that Sir William Shaunessy, then President of the CPR, hired a French geologist named Eugene Coste to explore for oil on CPR railway grant lands in southern Alberta. In that same year, Shaunessy ordered the deed under which the CPR sold homestead lands to settlers to be altered to reserve petroleum rights for the CPR.2

Coste found no oil in southern Alberta, but did discover commercial quantities of natural gas on CPR lands near Bow Island. This was not the first natural gas found on railway company lands. In 1883, the CPR had drilled Alberta's first gas well at Langevin Siding near Medicine Hat while boring for water. The drilling derrick subsequently caught fire and exploded destroying railway company property and seriously injuring two CPR employees. Clearly, at the turn of the 20th century, natural gas was not the valuable commodity which it is today. In fact, natural gas was considered to be a dangerous nuisance3 and, according to the CPR's successor, PanCanadian Petroleum Limited ( now "EnCana Corporation"),"Canadian Pacific was not very interested in natural gas"3.

Sir William Shaunessy was disappointed with Coste's drilling results. He told Coste that the CPR was looking for oil and not gas, and rejected Coste's "extensive project" for exploiting the gas found on CPR lands.4 Shaunessy recognized that "some day or another the gas may prove valuable" but was concerned that "We have put out a good deal of money without any practical results ..."

Coste subsequently formed a company to build a pipeline from Bow Island to Calgary, and transferred $200,000 worth of shares in this company to the CPR in return for the right to buy gas from the CPR's lands and drill wells thereon. The pipeline was completed in 1912 and the company subsequently became the Canadian Western Natural Gas Company.

Hauling Pipe

Figure 9 - Hauling Pipe for Coste's Line 1912


That same year, the CPR established a Department of Natural Resources in Western Canada and George A. Walker was hired as full time solicitor 5. According to historian W. K. Lamb, one of Walker's first acts was to insist that the CPR change its policy regarding what substances it reserved for its own account in land sales to settlers6. From 1912 onward, the CPR retained the right to both petroleum and natural gas in its land sales by virtue of its reservation of all mines and minerals.

The CPR's retention of petroleum and its failure to retain natural gas in land sales to settlers during the 1905 - 1912 period, gave rise to the second ‘split title problem’ - the ownership of natural gas on lands where the CPR had retained the rights to petroleum (see “Petroleum/Natural Gas Ownership Dispute”).

In result of the CPR’s land settlement policies during the 1902 – 1912 period, title to subsurface hydrocarbons became split on more than 2 ½ million acres of land in what is now Alberta and Saskatchewan. The CPR and its successors have spent the past century trying to recapture the natural gas which they failed to reserve in land sales to settlers.

Because the split title problem encapsulates the difficulties faced by owners of freehold mineral rights in Canada, the issues involved have been set forth in considerable detail.

 

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End Notes:

1. Land and Settlement Policies in the Prairie West, in The CPR West, Dempsey H.A., 1984, Douglas & McIntyre, Toronto, p. 174
2. The CPR and Western Petroleum, 1904 - 24, David H. Breen, in The CPR West: The Iron Road and the Making of a Nation, Hugh A. Dempsey, Douglas & McIntyre, Vancouver/Toronto, 1984, p. 231
3. Borys v. CPR and Imperial Oil Limited Alta. S.C.T.D., [1951] 4 D.L.R. 427 p. 431
4. November 22, 1909 Letter from Sir William Shaunessy to William Whyte, 2nd Vice President of the CPR, Glenbow Archives; B.B.2 C212C
5. Land and Settlement Policies in the Prairie West, in The CPR West, Dempsey H.A., 1984, Douglas & McIntyre, Toronto, p. 203
6. History of the Canadian Pacific Railway, Lamb, W. K., 1977, MacMillan Publishing Co. Inc., New York, p. 261

Freehold Petroleum & Natural Gas Owners Association

"Freehold Owners Association"

208, 1235 17th Ave SW, Calgary, AB T2T 0C2 Telephone: 403-245-4438