When the canary stopped singing, early coal miners knew it was time to get out of the mine. It meant methane and carbon dioxide was seeping out of the black rock and they were at risk of suffocation or an explosion. In protecting themselves, they were not interested in whether their employer owned the lethal gas nor did coal production cease until the ownership issue was determined.

Moving forward to 1880, we find the Government of Canada granting the Canadian Pacific Railway (“CPR”), among other incentives, 25 million acres of land to build a railway to the Pacific. The grant included surface to basement rights and was parceled as a checkerboard belt 20 miles wide on each side of the railway. This land, including the mineral rights, was later sold to homesteaders for $2.50 per acre. A good deal if you could get it. You had to be married; have at least two children; and live on the land for five years.

Prior to 1902, the CPR did not reserve any mineral rights in a disposition of land. They granted everything to the happy homesteaders. By 1904 the CPR, in its discretion, was excluding coal and petroleum and later excluded coal, petroleum, and valuable stone. Natural gas was not specifically excluded because everyone, at the time, knew that natural gas was a worthless gas that could kill canaries and miners. It wasn’t until 1912 that the CPR routinely excluded all mines and minerals from a disposition of lands.

In 1906, the CPR sold and transferred land to Simon Borys reserving to the CPR all coal, petroleum and valuable stone in an area of Alberta that later became the Leduc D-3 field. In 1949, the CPR granted Imperial Oil Limited a lease of its petroleum rights and Imperial commenced the drilling of a well which became contentious when Simon’s successor in title and son, Michael, brought an action seeking a declaration that natural gas and petroleum were separate substances and that he owned the natural gas underlying the lands and formations that Imperial was drilling into. The case went to the Privy Council.

The Privy Council decided in Borys v. Canadian Pacific Railway and Imperial Oil Ltd.[1] that, “ownership of hydrocarbons produced from a well on split title lands was to be based on the phase condition of the hydrocarbons as they emerged from a subsurface reservoir at the bottom of the well bore from time to time” such that the gas produced in association with petroleum was not owned by Borys as it was the nature of the gas in its initial reservoir condition which determined ownership. This case was reaffirmed by the Supreme Court of Canada in 2004 in Anderson v. Amoco Canada Oil and Gas[2], a case that began in the Alberta Court of Queen’s Bench in 1998.

In the first part of the new millennium contentious split title issues again appeared among the fee simple owner of the coal title, the fee simple owner of the natural gas title and oil and gas companies having the rights to win, take and remove natural gas granted under leases from the fee simple owner. At issue was certainty as to who owned the gas found in the coal seam and potential sterilization of production of such gas. Alberta Energy estimates that this split title issue affects about 500 owners of coal rights and 30,000 owners of natural gas rights and a study by the Alberta Geological Survey, suggest that gas generated from coal seams could contain approximately 500 trillion cubic feet of coalbed methane ("CBM")[3]. Certainty in the industry was needed and historically the government and regulatory bodies have been working toward resolution of the issue.

As early as 1991, the Energy Resources Conservation Board (“ERCB”) produced Information Letter 91-11 which stated that the ERCB and Alberta Energy consider CBM to be a form of natural gas. The Alberta Government amended the Mines and Minerals Act in 2003 to clarify that a Crown coal lease does not grant rights to natural gas, including CBM, unless the Minister deems it necessary for safety or conservation reasons, in which case, the lessee may be authorized to recover natural gas, including CBM, contained in a coal seam in the location of the coal lease. The Petroleum and Natural Gas Tenure Regulation[4] recognized that, generally, a Crown petroleum and/or natural gas lease or license did not grant the right to CBM in coal. Bearspaw Petroleum Ltd., Devon Canada Corporation, and Fairborne Energy Ltd. [5] made application to the Alberta Energy Utilities Board ("Board") for, inter alia, well licenses to produce CBM which was opposed by the coal title owners, EnCana Corporation and Luscar Ltd., on grounds that the applicants were not entitled to produce CBM under their natural gas leases as the coal title owners owned the CBM. In its decision, the Board confirmed that the applicant had the right to apply for well licenses within the governing legislation as they demonstrated to the Board's satisfaction entitlement to the CBM for the purposes of issuing well licenses, but did not determine ownership of the CBM which the Board clearly recognized was the jurisdiction of the courts. The Board acknowledged that its decision could be appealed. An appeal was commenced by the coal owners, but later abandoned and court applications were commenced in the Alberta Court of Queen’s Bench by EnCana Corporation v. Devon Canada Corporation[6] and EnCana Corporation v. Devon Canada Corporation[7] to have the issue of CBM ownership judicially determined.

Although there are cases before the Alberta courts to determine the issue of CBM ownership, the Government of Alberta, to deal with the issue and promote development of CBM, introduced on October 27, 2010 Bill 26, Mines and Minerals (Coalbed Methane) Amendment Act 2010 (“Bill 26”), to clarify who owns the rights to CBM in these split title situations. Bill 26 received its third and final reading in late November, finally getting Royal Assent on December 2, 2010.

Bill 26 amends the Alberta Mines and Minerals Act[8] to declare that CBM is, and always has been, natural gas for both Crown and freehold minerals (emphasis added). The Bill also states that it will not affect any contract or agreement made after the original Crown grant of natural gas rights in any land by a holder of natural gas rights which grants rights in respect of CBM to a holder of coal rights in that land. It also states that an owner of natural gas rights has no right of action against the Crown, or a holder of coal rights, for compensation or other damages because of extraction, production or removal of CBM that occurred before the coming into force of Bill 26.

Bill 26 is similar to legislative changes made in British Columbia ("BC"). In 2003, BC enacted the Coalbed Gas Act[9], which stipulates that CBM is natural gas owned by the party who holds the natural gas rights. This resolved the split title issue in BC and, like Bill 26, it applied retroactively to prohibit litigation for any rights that may be lost as a result of the Act coming into force.

Although Bill 26 declares that CBM is, and always has been, natural gas for both Crown and freehold minerals, we understand the litigation, referred to above, is proceeding to push the split title issue forward, the result of which is unknown. However, we may get some useful hints from similar legislation that the Alberta Government enacted in the past.

In 1951, the Alberta Government passed the Sand and Gravel Act[10] which declared that mineral rights did not include sand and gravel, and surface rights owners were, therefore, the owners of all sand and gravel on the surface of the land. This was done in response to an Alberta court decision in Western Minerals v. Gaumont[11] that had deemed sand and gravel to be included in the definition of “mineral”. At trial the court decided in favour of the plaintiff, Western Minerals, that sand and gravel was a mineral. Along came the Sand and Gravel Act and the defendant, Gaumont, supported by the Attorney General for Alberta, appealed to the Alberta Court of Appeal arguing that the legislation had flipped everything on its ear by defining sand and gravel as not being a mineral. The Court of Appeal agreed and reversed the lower court’s decision. This created great consternation for Western Minerals and it appealed to the Supreme Court of Canada arguing that the new Sand and Gravel Act couldn’t undo a court judgment that had been made before the legislation was enacted. However, the Supreme Court of Canada ruled that the province was acting within its jurisdiction when it enacted the Sand and Gravel Act and that, because the legislation said it applied retroactively, it agreed with the Court of Appeal. Sand and gravel was therefore not a mineral, and had never been a mineral and Western Minerals was out of luck.

The Alberta Government had every right to enact Bill 26 and any CBM litigation may be fruitless, but could involve constitutional issues that may make the legal landscape a little bit murky. Until the pending litigation works its way through the Court system, it appears that Bill 26 has resolved the issue of CBM ownership in split title situations.