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Be prepared when negotiating with oil and gas companies

Understand the process and gather all the evidence you can to support your claim, says expert

In the game of getting compensation for surface rights, oil and gas companies hold most of the cards.

Graham Gilchrist.
photo: Supplied

“I would liken it to a good poker game where you only get the low cards,” said Graham Gilchrist, owner of Gilchrist Consulting in Leduc.

“Sure, you could get a straight with a whole bunch of aces and threes, but there are no kings on your side of the deck.”

However, farmers can increase their odds by understanding their rights and responsibilities in compensation agreements, Gilchrist said at a recent Canadian Association of Farm Advisors event.

Despite the fact that one in four wells in Alberta are currently abandoned, suspended, or otherwise not producing, there are still more than 400,000 active wells in the Alberta Energy Regulator inventory. In many cases, companies may be looking for new compensation agreements or reviews of existing ones. In those cases, it can pay to know the process — and have the evidence to back up your claim, said Gilchrist.

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“This process is trying to drive forward (while) looking through your rear-view mirror,” he said. “These things are forward-looking discussions, but the only evidence you have is rear facing.”

When entering into an agreement about a new well, two processes typically happen in parallel — the licensing process (obtained through the Alberta Energy Regulator) and the compensation process (negotiated by the company and landowner for access to the well).

“The Alberta Energy Regulator… will issue the licence, unless it can find reason not to do it. And just because you don’t like the compensation, that’s not a valid reason,” said Gilchrist.

“They do have to consider your interests in this process, but they are non-compensation interests. So how are you going to prove you’re directly and adversely affected that’s non-compensation?”

To make matters worse, “you only get one kick at the can” within the 30-day process to file a statement of concern, he added.

“So you’ve got to be ready to file and throw everything and the kitchen sink at it in a 30-day span if you don’t like the licence application,” he said. “Even worse, you can’t throw anything in that statement of concern about compensation because the Alberta Energy Regulator will very nicely dismiss your concern.”

Written proof

More and more, companies will also arrange for surface access before they’ve applied for the licence to get a cheaper deal and a “guaranteed pipeline through the Alberta Energy Regulator.”

“That way, they already have consent from the landowner, so if you file a statement of concern, the Alberta Energy Regulator basically says, ‘Why are you filing when you already agreed to the licence in the first place?’” he said.

Gilchrist is also seeing more one-offer negotiations, which he described as, ‘Here’s my package. Thank you very much. I’ve got to leave it with you for 48 hours, but that will be the last time you’ll see me. If you don’t like it, great, we’re off to go get the licence and then to the Surface Rights Board to get the right of entry for it.’

So how can farmers make sure they’re compensated fairly?

“You get the area average unless you can prove otherwise,” said Gilchrist. “The board has a process of looking at the pattern of dealings, and you need empirical evidence to override that. That’s the challenge that you’re under as the landowner.”

With existing wells that already have a compensation agreement, farmers have a chance to review their compensation every five years, whether privately with the company or through the Surface Rights Board. Either way, farmers will have to answer whether their gross revenue has significantly changed as a result of the well and if the adverse effects around the well have changed since the agreement was first signed.

“The risk is you may have no change, you may get an award higher than what you have, but you may also get a lower amount,” said Gilchrist.

So for both existing and new wells, the first step is getting an appraisal for your land: “Not a bank appraisal, not your friendly real estate agent appraisal. Go and get an honest-to-god appraisal. Then you’ve got a third-party document that you can put on the table.”

You’ll then need to gather evidence of what’s happening in your community.

“You’ve got to go talk to your neighbours to find out the prices of the wells in your area,” he said. “Understand that the other side will bring their leases to argue their own pattern of dealing. You’re under the obligation to do that as well.”

Finally, you’ll need to document any real and potential adverse effects and increased costs with as much evidence as you can — receipts, pictures, third-party counts, basically anything that will support your claim.

“Assume you need written proof,” said Gilchrist. “Oral testimony has a little less weight. Your area or industry yields don’t hold a lot of weight. It’s your yield off your field that holds the most weight.”

About the author

Reporter

Jennifer Blair

Jennifer Blair is a Red Deer-based reporter with a post-secondary education in professional writing and nearly 10 years of experience in corporate communications, policy development, and journalism. She's spent half of her career telling stories about an industry she loves for an audience she admires--the farmers who work every day to build a better agriculture industry in Alberta.

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