Shallow Rights Reversion: Uncertainty and Disputes

Volume 48, No 2 ISSN: 1925-8356   |   Courtesy of Canadian Energy Law Edition   |    View Original

Authors: Allan Ingelson and Will Randall

To encourage shallow gas production from up-hole non-producing zones on provincial lands and increase Crown royalty revenues, the Government of Alberta has adopted a shallow rights reversion (SRR) scheme for oil and gas mineral rights holders. Under SRR the rights to natural gas above the top of the shallowest productive zone are to be severed at the time of lease continuation and revert to the Crown, but the rights from the top of the shallowest productive zone to the base of the deepest productive zone will continue to be held by the Crown lessee.

In 2007 the British Columbia government amended the Petroleum and Natural Gas Act to establish a zone specific retention (ZSR) scheme. Under the ZSR system the Crown lessee need only establish the mere presence of oil or gas in a standard Zone Designation layer in order to continue the lease.

Unlike British Columbia, the SRR system in Alberta applies to all existing Crown leases, and is therefore more controversial than the ZSR regime. In April 2011, Alberta Energy intends to start serving SRR notices. The department has recently changed its policy regarding the consolidation of petroleum and natural gas agreements. The more complicated SRR system, which facilitates an increased number of oil and gas developers, may prompt additional trespass and commingling disputes.

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