Lease that is written for mineral right owners

Don't let the oil companies push you around.

This is a quote from the websight I ascribe to. So as not to plagerize, I am letting you know. My hope is the words will act as keywords to attract looks at this group. Lori.

"To date, Canadian freehold owners who wished to have their resources developed have had no effective choice other than to lease their mineral rights to oil and gas companies under freehold lease agreements drafted by oil and gas company lawyers for purposes of protecting their industry clients.

Most Canadian oil and gas exploration and development in the decades immediately following the 1947 Leduc discovery was conducted by ‘the majors’ - large corporations with established production in the United States. Individual freehold ownership is the rule rather than the exception in the United States and, prior to Leduc, each of the majors had developed its own form of freehold lease agreement based on years of judicial lease battering by American courts. The majors brought their existing freehold lease forms with them when they descended upon western Canada in the late 1940's. All of these early lease forms were based on the ‘Producers 88' lease - a so called ‘unless’ lease form which terminates on its own terms ‘unless’ the oil company-lessee does certain things (see “Development of the Freehold Lease”).

During the 1950's and 1960's, Canadian courts were generally sympathetic to the plight of individual freehold owners and a number of freehold lease agreements were terminated by the courts, much to the consternation of the industry. CAPL (Canadian Association of Petroleum Landmen) leases essentially arose in reaction to Canadian judicial decisions. CAPL leases are not the product of a single company’s legal department, but of the collective business experience of the landmen who comprise the CAPL and the collective legal experience of the lawyers who comprise the Natural Resources Section of the Canadian Bar Association. Mr. John B. Ballem, Q.C., who is the principal architect of CAPL leases and has been described as the dean of Canada’s energy bar, considers CAPL lease forms to be “bullet proof” - no matter what an oil company-lessee does or doesn’t do, it is impossible for a freehold owner-lessor to terminate a CAPL lease, through the courts or otherwise, without the oil company-lessee’s consent.

Whereas many freeholders have succeeded in negotiating some of the amendments to CAPL leases which FHOA recommends (see “CAPL 91 Suggested Modifications” and “CAPL 99 Suggested Modifications”), few freehold owners have succeeded in amending the fundamental bullet proof structure of the CAPL lease.

In FHOA’s view, bullet proof leases are not just unfair, they are offensive.

The FHOA lease is not bullet proof and, in certain circumstances, the lease terminates on its own terms. The lease has been designed to address each of the many concerns raised by freeholders with respect to existing freehold lease agreements in a manner which fairly balance the rights of the owner of the resource with the rights of the oil company developing the resource (see “The FHOA Lease v. CAPL Leases - Comparitive Summary”).

In the early 1980's, the Office of the Farmers’ Advocate of Alberta drafted a lease agreement for freeholders. The industry stonewalled and very few freehold owners succeeded in leasing their mineral rights under the Farmers’ Advocate lease form. In order to avoid a similar fate for the FHOA lease, the Freehold Owners Association has entered into a relationship agreement with Just Freehold Energy Corporation (“JFEC”) (see “The FHOA/JFEC Relationship Agreement”). JFEC is a for-profit energy company formed by a number of FHOA’s directors for the specific purpose of developing freehold mineral rights in a just manner and leading the oil and gas industry by example. Under terms of the Relationship Agreement, JFEC assisted in developing the FHOA lease and has committed to using the FHOA lease in all of its dealings with freehold owners. Just Freehold Energy Corp. intends to become the freeholders’ developer of choice (see “Just Freehold Energy Corp.”).

In the short term, the FHOA lease and the existence of a company willing to use this lease form should improve the bargaining position of all freeholders. In the longer term, as the industry recognizes that JFEC is capturing the best freehold leasing opportunities using a fair form of freehold lease, more industry operators can be expected to adopt the FHOA lease for use or to amend existing CAPL leases to provide greater fairness for freeholders.

The FHOA lease may be purchased from the association by any member in good standing for the sum of twenty-five dollars ($25.00). FHOA intends to track usage of the FHOA lease and all companies, including JFEC, who use the FHOA lease will be required to pay FHOA a fee of one hundred dollars ($100.00) for each freehold title leased using the FHOA lease. "

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End Notes:

  1. Berkheiser v. Berkheiser and Glaister, S.C.C. [1957] S.C.R. 387
  2. Cherry v. Petch, Ont. H.C. [1948] O.W.N. 378
  3. Langlois v. Canadian Superior Oil Man. C.A., [1958] 23 W.W.R.401
  4. The Oil and Gas Lease in Canada, [1999] Ballem J.B., University of Toronto Press, p. 158
  5. Working with the Oil and Gas Lease, [1998] Hughes, N.T., Insight Press, p. 164

This document compares the typical lease CAPL and a lease that is friendly for mineral owners.