3rd edition
Authors:	Duncan Kenyon, Nikki Way, Andrew Read, Barend Dronkers, Benjamin Israel, Binnu Jeyakumar, Nina Lothian
Publisher:	Pembina Institute
Publish Date:	October 2016
PDF Download:	[Landowners' Guide]              [Landowners' Primer]
Initiation Phase
Exploration Phase
Development Phase                 Overview of Oil and Gas Wells                 Before Drilling                 Questions About Lease Agreements                 Sour Oil and Gas and Emergency Response                 Hydraulic Fracturing                 Environmental Considerations of Hydraulic                  Fracturing
Pipelines and Other Infrastructure
Environmental Impacts
Abandonment and Reclamation
Compensation, Rights, and Hearings
Appendices

Questions to Ask Before Signing a Well Lease Agreement

Besides the physical aspects of a well, there are also financial considerations. Before signing a lease, you will also want to read Before the Project Starts and Compensation and Surface Rights Access. Some landowners prefer to request a right-of-entry order from the Surface Rights Board rather than signing a surface lease agreement with the company, even though they have reached agreement on all issues and on the amount of compensation. More information on right-of-entry orders when there is agreement, and the associated consent compensation order, is given in Right-of-entry orders when landowner and company agree.

The AER provides a detailed list of “Questions you may want to use for discussion between you and a company” in EnerFAQs: Proposed Oil and Gas Wells, Pipelines, and Facilities: A Landowner’s Guide.

The following list of questions identifies additional issues, especially with respect to environmental impacts, that you may want to discuss with the land agent before you sign a lease agreement. If you negotiate any special conditions that the company must meet, ensure that they are added in writing to the lease agreement.

Compressor Stations provides information on compressors, which are sometimes located on the well site. These may be needed when the well is built or later. They may also be centrally located to serve multiple wells. Some of these facilities may have long term impacts on you and your family, so make sure to review the questions at the end of Oil Batteries and Gas Compressor Plants if they apply to you. Potential Environmental Impacts During Oil and Gas Operations, which addresses potential impacts during the operation of oil and gas wells, may help you identify additional issues that are relevant to your situation.

Legal

Have you read the Letter from the AER Chairman and AER brochure< Understanding Oil and Gas Development in Alberta, EnerFAQs

Proposed Oil and Gas Development: A Landowner’s Guide and other relevant AER FAQs?

The company’s land agent will have given you or offered you these documents together with the company’s information package and the outline surface lease agreement.

Have you read Negotiating Surface Rights?

This publication from the Farmers’ Advocate Office is available online or by calling their office.

Have you agreed how you want to settle any future issues?

Decide if you want to stipulate that the alternative dispute resolution process should be used as a first step. Ensure the agreement contains an arbitration clause that enables unresolved disputes to be settled under the Alberta Arbitration Act, without going to court.

Have you read about compensation in Compensation and Surface Rights Access of this guide?

It is important to negotiate and agree on compensation before signing the lease agreement.

Do you need to negotiate special compensation for any damage to special livestock?

If you have valuable purebred animals or breeding stock, you may want to negotiate a replacement value that is greater than the commercial value of ordinary livestock.

Is the arbitration clause in the agreement satisfactory?

You may want to negotiate that the company will pay the costs of arbitration.

Do you want to request a right-of-entry order from the Surface Rights Board rather than signing a lease?

Some landowners prefer to request a right-of-entry order from the Surface Rights Board, rather than sign a lease agreement, even if they have reached agreement with the company on all issues, including compensation. See Right-of-entry orders when landowner and company agree.

Have you taken the time to read through the agreement carefully, to ensure that all the clauses are satisfactory? Is everything that you have negotiated with the company included in the written agreement?

The Office of the Farmers’ Advocate can provide advice on wording clauses, if you need an addendum (See Farmers’ Advocate Office for more information about the Farmers’ Advocate Office).

Do you need to check with a lawyer/consultant before signing the lease agreement to ensure that it meets your needs?

A lawyer or consultant who is knowledgeable about surface rights issues may help in negotiations. It can also be helpful to discuss issues with an experienced neighbour or landowner group.

Well type and location

Are you satisfied with the location of the well and access road?

Are the well and access road located to minimize inconvenience to you or your neighbours while still ensuring the company’s ability to protect the environment? Is the well at least the minimum distance from buildings, water wells, etc.?

What type of well is being drilled?

If it is a sour gas well, read Sour Oil and Gas Developments and Emergency Response Plans.

If it is a shale gas, tight oil or coalbed methane well, read About Hydraulic Fracturing.

Water

Is your water supply protected?

Ensure that the oil or gas well is far enough from your water well and other water bodies. Ask the company to test all water wells near the lease for depth, volume and water quality, both before and after drilling. Ensure the water samples are analyzed by a laboratory accredited for those specific tests by the Canadian Association of Environmental Analytical Laboratories and that you receive a copy of the results.

Does the company want to drill a water well on site to supply water while drilling?

A water well must be drilled according to AER requirements and be properly abandoned when no longer required.

How will surface water be managed on the lease site?

The company should ensure that off-site surface waters will not enter into the drilling area. On-site waters should be captured in a containment pond and disposed of with the drilling muds or tested prior to release off-site. You may want to include a clause in the lease agreement that notes the direction of drainage and requires the company to maintain natural drainage and install culverts or other works to ensure this.

Land

How will topsoil be protected?

Find out how the topsoil will be conserved so that it can be used for reclaiming the site when the well is shut down, and where it will be stored. Ask if the subsoil will also be stripped and stored for use in reclamation (called “two-lift salvage”). Make sure that the company is not allowed to use coarse gravel or rock on the leased land unless this can be removed when the land is reclaimed.

How will weeds be controlled?

Decide if you want equipment to be steam-cleaned to remove weed seeds before entering your property, and if you want weeds on the site to be controlled by mowing rather than with herbicides. You may want to ask the company to obtain consent before using any chemical, soil sterilants, pesticides or herbicides on your land.

Is the clause in the lease agreement that relates to fencing satisfactory?

You may want to add an addendum to the lease agreement to ensure that the fences and gates are complete before construction starts on the well. You also want to make the company responsible for locking gates. If you want to use the company access road to reach your own land, you need to ensure the responsibilities are clear.

Are there any trees that you want to protect?

Tell the company what they should do with any trees that are cut down and if you want the merchantable timber, logs and firewood. You may want to include a penalty for trees that are cut or damaged without your permission.

Waste management

How will drilling wastes be managed?

Try to learn as much about the types of drilling wastes that the well may produce, as they will have different risks associated with them. Decide if you want to arrange for the company to remove drilling wastes from your land or to deal with them in a specific way. It is advisable to have a separate agreement that covers drilling waste specifically that specifies access to the land, payment for access, clauses on damages and method to solve disagreements. Request that the company use tanks instead of a sump to store drilling waste. If the company will store the waste on your property, negotiate the location so that any potential spills are less likely to affect you or your water sources. [See Drilling Wastes for more information on environmental issues with drilling wastes and AER’s document “Common Questions and Considerations for Licensees and Landowners Contemplating Directive 050 Land Application Methods”]

Do you have any requirements with respect to reclamation in addition to the AER standards? How soon will reclamation be carried out if no oil or gas is found at the site?

Specify if you want the site to be planted with native species or a certified seed to prevent erosion during use of the well site or upon reclamation. See also Conservation and Reclamation.

Does the agreement require the company to immediately notify you if there is a leak, spill or accidental release from the well and to pay compensation for damage?

The AER sets standards for dealing with leaks and spills; however, you may wish to negotiate additional provisions.

Air quality

How long will the well be tested?
Will the company flare the gas or can they test inline?

Ask the company to evaluate the alternatives to test flaring, as it may be possible for them to test a well without flaring (see Well Testing). Determine if a high-efficiency incinerator would be preferable to a flare in your location. If flare testing is necessary, find out how long the test will last and negotiate under what conditions it will be carried out. This might include air quality monitoring during the flare testing, or a collection system to capture any excess gas.

Have you told the company if you are sensitive to air pollution?

If you or your family are very sensitive, you may want to move out or ask for flaring to be conducted only when the wind is from a direction that will blow any gases away from your residence. Clarify whether the company will compensate you for the expenses during this time. You can also request additional notification for any planned flaring or venting events, so that you can make arrangements to avoid the area when you may be affected the most. Although AER requirements regulate individual facilities, there is currently a gap in regulations to manage the cumulative impacts of air pollution.

For coalbed methane wells that need dewatering, how long will flaring last?

Ask if the company can install a pilot light on the flare stack, which will allow the gas to be collected in small amounts and burned intermittently instead of being vented. Ask if a high-efficiency incinerator would result in lower air pollution at your residence than a flare. Ask how soon the well might be tied in to a pipeline.

AER Directive 060 includes requirements to eliminate or reduce the potential and observed impacts of these activities and to ensure that public safety concerns and environmental impacts are addressed before beginning to flare, incinerate, or vent.

Will there be any long-term effects on air quality?

You should try to ensure that there will be no routine flaring. Inquire whether solution gas from oil wells will be released to the air, flared or piped away (see Air Emissions). Find out if the company can pipe gas to an existing gas plant or install a microturbine instead of flaring to the air. If you and your family are sensitive to emissions, ask to be informed before the company undertakes routine flaring.

If the well contains sour gas, how high will the H₂S content will be?

Make sure you are familiar with the company’s emergency response plans (see Sour Oil and Gas Developments and Emergency Response Plans). Even with a sweet gas well or an oil well it is important to know what plans are in place to deal with an emergency.

Nuisances

How much noise will be created by the wellhead equipment and by company staff visiting the site to service it?

Ask if a compressor (see Compressor Stations and Noise) will be located at the well site and how the noise will be minimized. Find out if oil will be trucked or piped out. You may want to ask the company to avoid trucking at night.

Is the proposed compensation adequate to cover the loss of land and inconvenience the well and access road will cause?

Make sure you have considered crop loss, adverse effects, inconvenience and nuisance when estimating the appropriate level of compensation. This might include the time you have spent working on the lease agreement, etc.

Will the company provide compensation if you are evacuated from your home, farm etc?

Compensation terms for evacuation should be included in the lease agreement.

If you are in an emergency planning zone but are not a party to an agreement, evacuation costs including stay away costs and loss of business may be your responsibility.

Will the company provide compensation if your water well is damaged?

This should be covered in the lease agreement.

Construction and expansion

Where will the pipeline be located?

If the well is successful, a pipeline will be needed. Its location can affect how you use the land (Pipelines), so should be negotiated when discussing the well lease. You may want to arrange the right-of-way easement for the pipeline and compression facilities at the same time as the lease agreement.

Will the company conduct a Pre-Construction Assessment Report?

This report provides a baseline against which to measure future reclamation work. It is not mandatory, but is encouraged by AER and the industry.

Are there any plans for future expansion that could affect you?

Unless it is already specified in the lease agreement, you may want to ask the company to obtain separate permission to

• drill more than one well or expand operations beyond the initial well

• drill a water well on the lease

• construct a pipeline or above-ground powerline

• dispose of any sump fluids, toxic chemicals or other hazardous substances on the lease site

• cross your land or store any materials on land that is not included in the lease agreement.

Is the company planning on drilling any additional wells or locate other facilities such as a compressor or dehydrator on your land or nearby?

If the company plans to locate a battery or compressor or another facility, see Oil Batteries and Gas Compressor Plants for more information.

ᐸ   Previous   Next   ᐳ