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Alberta's Mineral Rights Holders not Getting Rich

Author: tristass

Alberta's mineral rights holders not getting rich

Editor:   From: chinamining   Click?52   Date: 2009-01-04 11:07:42

When her father died a couple of decades ago, Gloria Delisle and her sister Theresa purchased the mineral rights from his estate in the hope the rights might be worth something one day.

For years they received a few hundred dollars annually as compensation for a "shut-in" or non-operating natural gas well on the mineral play they owned six kilometres east of Alix.

Then one day a stranger called to say an energy company was drilling wells all around their play and siphoning off their natural gas.

He offered to go after the company for compensation and urged them to drill their own wells to ensure they got their share of the resource.

It took him four years, but he eventually landed the sisters a sizable cheque.

"We're very fortunate that we started looking into this when we did," said Gloria.

"We discovered there were a lot of people in the same position. A lot of them were older and they should have been getting some benefits in their old age and they weren't getting anything."While Alberta owns the mineral rights to 81 per cent of the province, about 2.5 million hectares remains in the hands of 50,000 people who acquired the "freehold" mineral rights when the land was purchased from the Dominion prior to 1889 or from the Canadian Pacific Railway or Hudson Bay Co. prior to 1908.

Most freeholders own rights adjacent to Crown-owned holdings. The Crown and freehold lands form a checkerboard pattern along the Edmonton-Calgary corridor, where the majority of the province's oil and gas production occurs.

Like the Delisles, many freeholders never earned much revenue from their rights until the last decade, and no one has struck a bonanza of black gold like the well of "bubblin' crude" that propelled the fictional Clampett family to wealth in the TV show The Beverly Hillbillies.

Freeholders say their lives are nothing like the Clampetts' - for starters, nobody is making millions.

Oilpatch consultant Bernard Goltz said the most any of his more than 400 clients made in a month was $14,000, even when oil was hitting $140 US a barrel.

"The cheques vary from a pittance to substantial dollars," he said. "I have clients that get royalties of $50 a month. It depends on how many family members have a piece of the pie."Geologist David Speirs said a decent natural gas well might produce $18,000 a month at today's prices, but a person with a freehold title to a quarter-section has to share with the oil company, any freeholders on the other three quarters and pay mineral taxes, income taxes and expenses.

"For the most part, you are not looking at Jed Clampett and the Hillbillies," he said. "That's not to say there aren't pretty nice wells and a few freeholders who have made quite a bit of money on them."Freeholder Barb Kroening, 61, said dealing with the rich and powerful oil companies can be extremely frustrating when they hold all the information about the resource.

"They work on your ignorance," she said. "A lot of time they're dealing with elderly people who don't know how it works. I don't think I am all that old, but if you are not savvy about these things, they could really take you."Lawyer Keith Wilson, who became familiar with the issues when he worked for the office of the Alberta farmers' advocate, said the situation is akin to someone having to sell a car they have never seen to a buyer who has already had mechanics check it out.

"The first difficulty owners face is they don't have an understanding of the value of what they are negotiating on," he said. "You don't know if you have a Rolls-Royce or a pile of rusted bolts."There are few lawyers with experience in oil and gas lease contracts for freeholders to turn to, because most are on retainers for energy companies, he said.

Wilson said energy companies will have researched the geological formations and output of wells on neighbouring properties, but even if they're paying thousands of dollars an acre bonus for access to Crown reserves in the same formation, many will offer freeholders a standard contract of $25 to $50 an acre.

"The offer they make on lands that are very marginal and high-risk and are non-proven reserves is identical to the offer they will make for mineral rights in the middle of a big play," he said. "They realize the mineral owner doesn't have a clue."The Crown will net royalties of 23 to 35 per cent on its holdings, while freeholders will get between six and 12 per cent net royalties "if you are lucky," he said.

Wilson sits on the board of directors of a Freehold Owners Association, which strives to provide freeholders with the information they need to negotiate their agreements with Big Oil. The decade-old group has about 4,100 members representing about half of the 50,000 freeholders.

Goltz, 70, said he launched his oil and gas consulting business in 1993 after retiring from a 36-year career in Alberta Energy, because he saw that freeholders were on the wrong side of a lopsided playing field when they negotiated with energy companies.

"When I was with the government I had people come into my office in tears because they had signed a lease and they didn't know what they were signing," he said. "I felt the freehold owners were getting ripped off. It was quite an eye opener to see how the industry treats the small people."He said once the leases were signed, they were ironclad and there wasn't much the government could do to help freeholders locked into bad deals.

Goltz said he also helps freeholders who aren't receiving the benefits they are supposed to get according to the terms of their deals. Many freeholders receive insufficient data in the statements sent out from energy companies and can't determine whether they are getting their fair share, he said.

The consultant said he doesn't know how much longer he can ride herd on the oil companies to help protect freeholders, but it's a hard job to quit.

"As long as I am healthy, I kind of enjoy the fact that I can help someone - even though I am not getting paid like the oil company people are," he said.

The consulting work he does hasn't made him very popular with energy company officials, he said.

"Now that I am on the other side of the fence, there are a lot of them that don't like me.

"They say; 'I thought you were supposed to be retired. Go away!' "

Article Source: http://www.articlesbase.com/international-business-articles/albertas-mineral-rights-holders-not-getting-rich-707994.html

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