2017 Harvest

2017 Harvest

Monday, November 4, 2013

Court of Appeal confirms gas storage rights expired - farm still owns rights

The Ontario Court of Appeal recently confirmed that a farm operation (through a related company) owns the right to inject and store gas into and under its lands.  As a result, the gas storage company that wishes to commence storage operations is going to have to pay compensation for those rights.  In most cases, landowners have already transferred the storage rights to an oil and gas extraction company for less than the current market value of those rights. 

In this case, the Court of Appeal confirmed a lower court decision that found a 1998 gas storage lease between Tribute Resources Inc. and the landowner had expired because Tribute had not taken the issue of designation of the lands as a Gas Storage Area had not been taken to the Ontario Energy Board within 10 years of the date of the agreement:
This Gas Storage Lease Agreement shall terminate on the tenth anniversary date, if an only if, the Lessee or some other person has not applied to the Ontario Energy Board to have the said lands or any part thereof designated as a Gas Storage area on or before the tenth anniversary date hereof.
In spite of that clause, Tribute had argued at first instance and on appeal that its gas storage rights were not limited to the 1998 agreement.  There were earlier agreements (an Oil and Gas Lease and a Unit Operation Agreement) that mentioned gas storage rights.  However, both levels of court ruled that the 1998 agreement was intended to and did replace the earlier agreements.  When that agreement expired, Tribute retained no gas storage rights.

The issue of compensation for the storage rights will be determined by further agreement or by the Ontario Energy Board pursuant to the Ontario Energy Board Act.

Read the Court of Appeal decision at: 2195002 Ontario Inc. v. Tribute Resources Inc.