Rural landowners uniting against lowered energy lease fees

By Sean Feagan, Local Journalism Initiative Reporter

Some rural landowners are finding that having gas wells on their property is not paying what it used to.

A group of 49 rural landowners met at the Crowfoot Community Centre in Wheatland County on the evening of Aug. 4 to discuss how some energy companies with gas wells on their respective properties have reduced lease fee payments without consultation.

The event was held to share perspectives, garner support and requisition leadership for collection action, explained landowner and interim organizer Spencer Hilton.

“We’re hoping that if there’s enough interest here tonight, we can get organized, get the next meeting set up and contact everybody,” he said.

Under the Surface Rights Act, when a company develops a surface lease on the property of a private landowner, they form a lease agreement. This contract outlines the amount paid to the landowner by the company, which is based on what the landowner grows and the cost of farming around a wellsite, explained Paul Vasseur, a surface land agent specializing in surface negotiations. 

Under the act, the landowner has the opportunity to review what the company pays every five years. Changes to the amount paid may be dictated by factors relating to production and market trends, said Vasseur.

“Crop prices and yields change,” he said. “If things change, then the landowner can ask for a review for additional compensation to reflect this higher productivity.”

Companies are required to send out a notice to start the negotiation process a year in advance of the expiry of the five-year lease term, explained Hilton.

In early 2020, rural landowners with gas wells on their properties started to receive letters from the surface lease holders, namely Ember Resources and Lynx Energy, two privately-owned energy producers based in Calgary, Alta., with numerous gas wells in and around Wheatland County.

The companies informed the respective landowners their payments were being reduced, without consultation or negotiation.

“Ember Resources and Lynx decided that the compensation they were paying landowners was too high,” said Vasseur. “They told them they were going to reduce the annual compensation, by roughly 40, 50, 60 per cent, which didn’t sit well with landowners,” he said.

“I was insulted,” added Ken Sauve, who has 11 Lynx sites on his property and also helped to arrange the event. “I just couldn’t believe that was what they’re doing, because that’s not the way you do business.”

Ember reduced the payments to Joe and Jean Vergouwen for the five wells on their property, said Joe. “We haven’t talked to them – they basically sent us a notice that they are cutting us back, and they sent a cheque,” he said. “It was ‘take it or leave it,’ more or less.”

Ember has provided no response to the Vergouwen’s attempts at communication with the company, said Jean. “We called them, sent an email and a letter,” she said. “We’ve been ignored.”

The companies did not negotiate in good faith as required by the Surface Rights Act, said Vasseur. “Under the Act, the two parties should be able to sit down and bargain with each other, and try to come to some mutual agreement,” he said. “The companies have unilaterally changed what they give.”

Most landowners would be happy with current payments maintained, rather than increased, said Vasseur. “They realize things are a little tough,” he said. “So they’re saying that, ‘we’ll just stay with the status quo, and we’ll be just fine.’ But Lynx is saying, ‘no, that’s not good enough for us.’”

Sauve and Hilton were involved with Wheatland Surface Rights Action Group, an organization formed in the early 2000s to address landowner concerns around the impacts of fracking on water wells, which ultimately led companies operating in the area to conduct water well testing.

“It showed us that if you’re willing to sit down and have the conversation and you represent a group, it has some impact,” said Hilton.

They are hoping to help kickstart a similar approach to address the issue of reduced lease payments, but want fresh blood leading the charge.

The landowners have three paths they can take: accept the new offer, negotiate a better deal or go to the Alberta Surface Rights Board (ASRB), a quasi-judicial tribunal that works in part to resolve disputes between landowners and operators.

The group is not looking for a fight, said Hilton. “We will give the companies the opportunity to come and sit down with us as an organized group,” he said. “Let’s talk because that’s how it should have happened in the first place, and we’ll try to reach a reasonable agreement.”

But if talks fail, the group will request an ASRB hearing, said Sauve.

The provincial government is considering reducing the tax assessment model for energy companies which, if adopted, could further increase financial pressure on rural landowners, said Vasseur.

According to an assessment by the Rural Municipalities of Alberta (RMA) announced on Aug. 10, if this change is made at the level favoured by industry stakeholders, rural municipalities would lose 12.4 per cent of their revenues on average in the first year, with 11 RMA members losing over 20 per cent of their revenue. If adopted, this change could result in up to $480 million in lost revenue for rural municipalities.

“If the companies can reduce the tax they pay to the counties, and the counties want to maintain a certain level of service, that means (the counties) are going to have to increase the taxes to the landowners and other businesses,” said Vasseur. “It’s becoming a double-edged sword right now, which is not good.”

Wheatland County has already cut its budget by about 20 per cent, said Deputy Reeve and Division 5 Councillor Scott Klassen, in an address made during the event. “We knew this oil and gas (issue) was coming in, and we thought it’s not going to hurt us by not doing some of these projects right now, (because) we can defer them to later on,” he said. “We are trying to make the best decisions without impacting the taxes as much as we can.”