Disposition of Oil and Gas Rights Policy
Effective Date: September 22, 2001
This policy is in furtherance of IOGC's statutory and fiduciary obligations and is intended to:
- Describe the criteria used in evaluating dispositions (permits and leases) of oil and gas rights on surrendered or designated reserve lands.
- Assist First Nations in negotiating agreements.
- Further First Nations participation in the disposition of oil and gas assets.
- Increase First Nation capacity to manage oil and gas assets.
The Indian Oil and Gas Regulations, 1995 (section 10) provides for three methods for the disposition of oil and gas rights; call for proposals, public tenders and direct negotiations.
Two methods, a call for proposals or a public tender require the band council and the Executive Director to consult, agree on the parameters of the disposition and jointly issue the call or tender. In a public tender all the terms and conditions of the agreement are set and the highest bonus is chosen or all bids are rejected. In a call for proposals certain terms and conditions are set while companies are requested to address other factors which are not set.
Direct negotiations allow the flexibility to negotiate all the terms and conditions of an agreement and allows for interaction and relationship building with the company.
The Indian Oil and Gas Act (section 4(2)) provides for a variation in royalties from those prescribed in the Regulations, 1995. This allows for the use of competitive royalty rates in relation to current market conditions.
3. Authorities and References:
This policy applies to all dispositions (permits and leases) of oil and gas rights, including public tenders, call for proposals and direct negotiations.
5. Fair Return:
Each disposition must give a fair return. Fair return is a value that is within a range that could reasonably be achieved in a competitive market, taking into account the criteria that are unique to the exploration and development of oil and gas on reserve lands.
6. Indian Moneys:
Pursuant to Section 62 of the Indian Act, all moneys derived from the sale of oil and gas rights are capital moneys, for example, bonus and royalties. Other moneys are revenue, such as rents and surface compensation. All such moneys are to be directed to IOGC.
7. The Criteria:
All offers submitted to IOGC should address the following criteria in order for IOGC to evaluate the offer.
Indian lands are in competition for development with provincial lands. As a result, IOGC will look to the provincial royalty on comparable lands, at the same time taking into account criteria unique to the development of oil and gas on reserve lands. These factors include for example, the tax deductibility of royalties on reserve lands, as well as, the Alberta Resource Tax Credit, the Saskatchewan Corporate Capital Tax, provincial royalty incentives, and others.
Lessor royalty means the share of production reserved by the lessor (IOGC) out of the interests granted to the lessee under a lease. Working interests will not be accepted as a substitute for, or in addition to lessor royalties. Net profits may be allowed under certain circumstances, such as where the relevant provincial regime has a similar royalty structure.
Indian lands are in competition for development with provincial lands. As a result IOGC will look to bonuses paid recently on provincial lands in the vicinity of the reserve lands to be leased.
A lease will be issued for a maximum of five years. A permit will normally be issued for up to three years, but may be issued to a maximum of five years. Permit terms longer than three years may be approved depending on such factors as commitments, amount of land and location. Moneys paid for an amendment to a term are capital moneys.
7.4 Commitments (seismic and drilling):
Seismic and drilling commitments are required in a disposition but may be waived in exceptional circumstances.
7.5 Lease Selection (from a permit):
The area earned for lease selection from a permit shall normally not be greater than that allowed in each province in which the reserve is located.
Rents for subsurface dispositions and for any surface dispositions described therein shall be as per the Regulations, 1995 and in any event shall not be less than the rents for similar agreements in the applicable province.
7.7 Surface Compensation:
Surface rates shall be comparable to that paid recently on lands adjacent to the reserve lands to be disposed of.
7.8 Seismic Data:
Provisions for seismic data are as stated in sections 6 to 9 of the Regulations, 1995.
Provisions for employment are as stated in section 54 of the Regulations, 1995.
IOGC requires companies doing business on reserve lands to be registered and to have filed their current annual return with the applicable provincial authority.
IOGC may require a performance bond for reclamation and remediation from a company depending on their record of environmental compliance.
7.11 First Nation Criteria:
The express wishes and desires of the Band Council will be taken into account in a disposition.
7.12 Other Criteria:
IOGC requires a grantee to disclose in writing all agreements collateral to a disposition in which additional consideration is given to the First Nation. Collateral agreements will be limited to employment and training, road use, or contracting agreements with the First Nation, at fair market value. Where appropriate, collateral agreements will be taken into account in the evaluation of an offer. A sample officer's certificate is attached as Appendix A.
IOGC's responsibilities include:
- facilitating negotiations or when requested by the band council participate in the negotiation process;
- evaluating offers in accordance with the criteria described in this policy directive; and
- approving and issuing disposition agreements that satisfy the requirement for fair return.
The Band Council has the responsibility to:
- consider offers in accordance with the criteria described in this policy directive; and
- approve the terms and conditions of a disposition by providing IOGC with a BCR.
IOGC and the band council have the responsibility to:
- grant a disposition including the issuance of a public tender or call for proposals on such terms and conditions as the band council and the Executive Director jointly consider advisable.
9. Service Standards
Following receipt of an offer IOGC will review the offer and provide a response within 15 working days.
Enquiries related to this policy should be addressed to the Manager, Negotiations, Land Division, IOGC.
Appendix A: Sample Officer's Certificate.
COLLATERAL AGREEMENTS AND OFFICER'S CERTIFICATE
OFFICER'S CERTIFICATE (format)
I, the undersigned, being an officer of ____ _(the "Company"), do hereby certify for and on behalf of the Company and not in my personal capacity, after due enquiry, that the representation and warranty made by the Company, in clause 17.01 of Appendix "C" to oil and gas Permit # OP _____ between the Company as Grantee and Her Majesty the Queen in Right of Canada, as Grantor, and dated the _____day of _____, _____is true and correct to the best of my knowledge and belief.
Dated this _____day of _____, _____.
Officer of the Company