Holders of natural gas rights in PNG leases in Alberta are applauding the July 7, 2011 decision of Madam Justice Kent of the Alberta Court of Queen's Bench in the well-known series of cases involving coal rights owners and natural gas rights holders (the "CBM Actions").

In late May and early June, 2011, Justice Kent heard applications brought by natural gas rights holders seeking summary judgment for a declaration that, for leases which specifically grant natural gas to the lessee, the lessees of natural gas are entitled to produce coalbed methane ("CBM") from the subject lands.  At issue was the meaning of the newly amended Alberta Mines and Minerals Act ("MMA"), and specifically, Section 10.1 which provides, among other things, that CBM is and has always been "natural gas."

The genesis of the dispute arose in the regulatory context in 2004, when natural gas rights holders applied for orders from the Alberta Energy and Utilities Board ("EUB") permitting them to produce CBM on lands where they were granted natural gas rights.  Objections from coal rights owners led to a hearing before the EUB in late 2006 and a decision in early 2007, where the EUB held that for regulatory purposes, the natural gas rights holders were entitled to produce CBM.

However, commensurate with the EUB hearing, the coal rights owners brought the CBM Actions which claimed, among other things, trespass by the natural gas rights holders, and sought damages and a declaration that the CBM is part of the coal.

In November, 2010, the Alberta legislature waded into the fray, passing amendments to the MMA to add Section 10.1 as described above.  Although the CBM Actions were set for trial in March, 2011, Justice Kent granted the natural gas rights holders leave to bring their summary judgment motions, which subsequently resulted in the adjournment of the trials sine die while the summary judgment motions were heard and disposed of by the Court.

It is unknown whether the coal rights owners will appeal this recent decision, although it seems probable.  It will likely be many more months before all appeals are exhausted.

The decision is a landmark one in the sense that it is the first from a Canadian superior court to consider the competing claims to CBM.  British Columbia passed legislation in 2003 to declare that CBM was natural gas, but those provisions have not been judicially considered.  The matter has been largely settled in the United States by the decision of the U.S. Supreme Court in Amoco v. Southern Ute which affirmed natural gas rights owners' entitlement to CBM.

The decision will undoubtedly be closely studied by the oil and gas industry in Canada, and although not likely the very last word on the issue, represents a major victory for natural gas rights owners over coal owners in the long standing dispute over what has become an unconventional natural gas resource of considerable value.