The Rural Voice, 2002-12, Page 57Agrilaw
"Petroleum rights" — who owns what?
Paul G.
Vogel, a
partner in the
London law
firm of Cohen
Highley LLP.
By Paul Vogel
With increasing interest in oil and
gas production and subsurface gas
storage, questions may arise with
respect to ownership of hydrocarbon
resources. Where by reservation or
separate conveyance, "petroleum"
rights are owned separately from other
subsurface mineral resources, who
owns the liquid and gaseous
hydrocarbons which may be produced
and at what point in time should these
respective ownership interests be
determined?
The Alberta Court of Appeal
recently considered these issues in a
case where "all .... petroleum... which
may be found to exist in upon or
under" the land had been reserved at
the time of conveyance of the land by
the Canadian Pacific Railway to the
original settlers. The successors in title
of the original settlers asserted
ownership of all gas captured at the
well bore. The successors in title of the
petroleum rights maintained that such
gas included "solution gas" which,
prior to drilling, was dissolved in the
liquid hydrocarbons to which they
were entitled as owner of the
petroleum rights.
In addressing the issue of gas
ownership, the court noted that, in
"mixed reservoirs, before drilling, the
percentage of liquid and gaseous
hydrocarbons is fixed. However, after
drilling, as a result of changes in
temperature and pressure, the
proportion of liquid and gaseous
substances changes. Declining pressure
as a result of production also results in
conversion of liquid hydrocarbons into
gaseous hydrocarbons in the reservoir.
This "evolved gas" is to be
distinguished from the "free gas'''
which exists at initial reservoir
conditions before drilling.
The trial judge had concluded that
"petroleum" includes oil and any other
hydrocarbons and natural gas existing
as liquid in their natural condition and
that this "petroleum", including all
hydrocarbons in solution or contained
in the liquid before drilling, is the
property of the petroleum owners. In
upholding the trial judge's conclusion.
the Court of Appeal stated:
"In summary. the trial judge
concluded...: the reservation was to he
interpreted and title determined as at
the time of the grant at which the
hydrocarbons were at initial reservoir
conditions: solution gas belongs to the
petroleum owners: free gas or primary
gas cap gas belongs to the non -
petroleum owners: and solution gas
(evolved gas) that emerged from the
liquid hydrocarbons in the reservoir, at
the bottom of the well bore. at the
surface or anywhere in between.
belongs to the petroleum owners." She
found that condensate and natural gas
liquids. which derive from primary gas
cap gas. belong to the non -petroleum
owners: and condensate and natural gas
liquids. which derive from the evolved
gas. belong to the petroleum owners.
"...the trial judge's conclusion that
evolved gas belongs to the petroleum
owner along with solution gas that
emerges at the surface was correct...
"Although the trial judge did not
,specifically consider the meaning of
the words 'which may he found to
exist' used in the reservation. the
correctness of her decision is not
undermined. At the time the CPR
reservation was created. it was not
known if petroleum existed below the
surface of the land. Therefore. the
reservation would only attach to
petroleum which might he found to
exist through exploration or
production. Those words merely
express a limitation on the operation of
the reservation. Those words do not
mean that petroleum must be reduced
to possession before it can be subjected
to ownership."
At least based on the wording of the
reservation under consideration in this
case. the court determined that separate
ownership of "petroleum" rights
entitles the petroleum owner to
"petroleum- resources as they existed
at the time of the reservation. including
the solution gas which has emerged
from the liquid hydrocarbons after
drilling. Despite the fact that this
"evolved gas' mingles
indistinguishably with the "free gas"
within the reservoir. ownership of this
gas must be determined on the basis of
initial reservoir conditions.0
Agrilaw is a syndicated column
produced by the full .service London
law firm of Cohen Highlev LLP. Patti
G. Vogel. a partner in the ftrnm,
practices in the area of commercial
litigation and environmental law.
Agrilaw is intended to provide
information to faun operators on
topics of interest and importance.
The opinions expressed are not
intended as legal advice. Before
acting on any information contained
in this column. readers should obtain
legal advice with respect to their own
particular circumstances and
geographical area.
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DECEMBER 2002 53