Decision Date:  September 27, 2012

Panel:  David Searle, C.M., Q.C.

Keywords: Oil and Gas Activities Act – ss. 1(1), 1(2) – definition of “oil and gas activity”, 24(4), 72(2); Petroleum and Natural Gas Act – definition of “water source well”; permit; land owner; ground water; jurisdiction

Ken and Arlene Boon (the “Appellants”) appealed two determinations issued by the Oil and Gas Commission (“Commission”). The first was a permit amendment authorizing Terra Energy Corp. (“Terra”) to reactivate a pipeline located on the Appellants’ property. The second was a permit authorizing Terra to reactivate a water source well and access road located on the Appellants’ property. Terra sought to use the pipeline to convey fresh water from the water source well to an oilfield injection facility some distance away from the Appellants’ property.

The pipeline, water source well and access road were constructed on the Appellants’ property in or about early 2001 by a previous operator. At that time, the operator was not required to obtain a permit for the water source well or the access road. Subsequently, the water source well was shut-in. In 2004, Terra purchased assets that included the water source well and pipeline.

In 2011, Terra decided to reactivate the pipeline, water source well and access road, and it applied for a permit amendment to operate the pipeline, and a permit to operate the water source well and access road, as required by the Oil and Gas Activities Act (“OGAA”). Terra notified the Appellants of its plans to apply for the amended permit and the permit, and the Appellants expressed a number of concerns to the Commission. In September 2011, the Commission issued the amended permit to operate the pipeline. However, as a result of the Appellants’ comments about the permit for the water source well and access road, the Commission wrote to Terra requesting further information. In response, Terra hired a consultant to conduct an impact assessment, but the Appellants refused to answer written questions about their domestic water source or to let Terra or its consultant onto their property. Nevertheless, Terra’s consultant prepared an impact assessment report with several recommendations. In January 2012, the Commission issued the permit subject to a number of conditions.

The Appellants appealed on the basis that the Commission made several errors in issuing the amended permit and the permit. In particular, the Appellants submitted that the Commission lacked the statutory authority to issue the permit for the water source well, because the OGAA was not meant to regulate ground water, and Terra did not meet the requirements of section 24(4) of the OGAA in relation to the water source well. The Appellants also argued that the Commission showed bias in favour of Terra by failing to fully consider the history of the water source well. The Tribunal found that the Appellants’ other concerns were beyond section 72(2) of the OGAA, which limits the grounds on which land owners may appeal.

The Tribunal considered whether the permit and the amended permit were issued without due regard for the concerns expressed by the Appellants to the Commission. In considering that main issue, the Tribunal also decided a number of sub-issues.

The Tribunal found that the OGAA, together with the Petroleum and Natural Gas Act, contemplate the use of ground water in oil and gas activities, and the issuance of permits to use ground water.

The Tribunal also found that the requirement in section 24(4) of the OGAA that an applicant for a permit to drill or operate “a well” must have an agreement with “the owner or the holder of the location” in respect of the well, authorizing the drilling or operation, did not apply. Specifically, the Tribunal held that the OGAA distinguishes between a “land owner”, “an owner of petroleum or natural gas rights”, and a “holder of a location”. In section 24(4), “owner” means the owner of the petroleum or natural gas rights, and not a land owner. Similarly, in section 24(4), “holder of the location” in respect of a well does not mean a land owner. Consequently, the Tribunal concluded that section 24(4) did not require Terra to have an agreement with the Appellants authorizing the operation of the water source well before Terra applied for the permit.

However, this did not resolve the jurisdictional issue, which was whether the word “well” in section 24(4) includes water source wells, and therefore, whether the Commission had jurisdiction to consider Terra’s application for a permit to operate the water source well. The Appellants argued that water source wells may only be permitted where the well is in, or contiguous to, a designated oil or gas resource for which the permit applicant holds title, and Terra did not meet that criteria. In contrast, the Commission and Terra argued that the word “well” in section 24(4) means wells other than water source wells. The Tribunal held section 24(4) does not apply to water source wells, because it would lead to an absurd result if a person who wanted to use water had to hold petroleum or natural gas rights in the same or adjacent location.

Turning to the main issue, the Tribunal found that the Commission gave due regard to the Appellants’ concerns before it issued the permit and the amended permit. In particular, the Tribunal found that the Commission requested further information from Terra in response to the Appellants’ concerns about potential impacts on their domestic water supply and fields on their property. Terra responded by hiring a consultant to conduct further analysis, and the consultant provided a credible report with recommendations, but the consultant’s conclusions were limited due to the Appellants’ refusal to cooperate. The Commission adopted the consultant’s recommendations and imposed conditions on Terra to protect the Appellants’ interests. The Tribunal also found that there was no indication that the Commission was biased in favour of Terra. Finally, the Tribunal found that the Commission took an integrated approach in reviewing Terra’s permit application for the water source well and access road, and any short comings in the Commission’s determination to issue the amended permit for the pipeline, which did not specifically reference the Appellant’s concerns, were addressed in the Commission’s determination with respect to the permit.

Accordingly, the appeals were dismissed.