Production of Oil and Gas

Overview

Companies wishing to produce oil and gas on First Nation reserve lands need a subsurface lease from Indian Oil and Gas Canada (IOGC) and the First Nation in addition to any surface agreements necessary for production.

Companies must comply with requirements relating to various aspects of production as outlined below.

Adherence to Provincial Standards and Requirements

Pursuant to subsection 4(c) of the Indian Oil and Gas Regulations, 2019 ("Regulations"), and unless otherwise specified in the contract, companies are required to comply with all provincial laws applicable to non-Indian lands that relate to:

• the environment; or
• the exploration for oil and gas; or
• the development, treatment, conservation or equitable production of oil and gas;

and that are not in conflict with the Indian Oil and Gas Act or the Regulations.

IOGC often also requires adherence to relevant provincial guidelines and directives.

Reporting and Production Assurance

Royalty payors must report oil and gas volumes to IOGC as soon as it becomes available, but no later than the third (3rd) month following production. Volumes are reported with other royalty information through IOGC's electronic data submission system. For more information, please view IOGC's Electronic Submission User Guide.

IOGC has a production assurance program to ensure that correct volumes of oil and gas are reported for First Nation reserve lands. The program has two separate processes. The first is a verification process that checks volumes reported to IOGC against those reported to provincial regulatory authorities, and also compares them to prior month's reported values.

The second process is the validation process and is conducted where warranted. The validation process checks the accuracy and appropriateness of methods used by operators to measure and allocate volumes to wells or production entities. IOGC conducts the validation process by field inspections of the production facilities and/or review of the company's records, allocation and reporting. Indian Oil and Gas Regulations, 2019 gives the First Nation or IOGC authority to conduct inspections of facilities and examine records.

IOGC maintains a cooperative relationship with provincial regulatory authorities, including reciprocal sharing of audit findings affecting First Nation oil and gas production. Where circumstances warrant, there may also be joint participation in meetings with companies.

Pooling and Unitization

Where a spacing unit for a well consists of both First Nation reserve land and non-reserve land, the lessee must apply to IOGC to pool the lease area to complete the production spacing unit. IOGC researches the mineral title within the production spacing unit and liaises with the province to determine the percent of the production spacing unit held by the First Nation, which will be the First Nation's share of production from the well. IOGC provides the lessee with approval to pool in writing and advises the First Nation. Pooling is dealt with in section 41 of the Regulations.

IOGC may, with the approval of the First Nation, authorize the inclusion of lease areas into units that are established for the development of a field or pool. The unit production allocated to the lease area is deemed to be produced from that lease area. Units are dealt with in section 42 of the Regulations.

Environmental Requirements

Companies are required to comply with the environmental terms and conditions attached to surface leases for well sites and surface facilities. Companies are required to demonstrate compliance with the environmental terms and conditions by conducting environmental audits. For a surface lease, an environmental audit is required one year after execution of the surface lease and every five years thereafter. For more information on environmental requirements, please view the Environment Section of the business cycle.

IOGC ensures that provisions of the Canadian Environmental Assessment Act are met; uses the Canadian Environmental Quality Guidelines of the Canadian Council of Ministers of the Environment; and uses standards of the Alberta Environment Upstream Oil and Gas Reclamation and Remediation Program.

Spills and Emergencies

Companies are required to notify IOGC and First Nations of spills or health-threatening emergencies on First Nation reserve lands. Companies must also notify Health Canada, Environment Canada, and the appropriate provincial government organizations as required.

Companies may be required to submit remediation plans for spills to IOGC and must undertake remediation activities to clean up spills to required standards.

Requirements relating to spills and emergencies are included in the CEAA Terms Letter attached to and forming part of a surface agreement.

Trespass

Companies require appropriate surface and subsurface agreements from IOGC prior to drilling for and producing oil and gas from First Nation reserve lands. Where necessary agreements are not in place at the time of drilling or production, the company is in a trespass situation. Trespass is taken very seriously by IOGC.

Upon discovery of a trespass situation, IOGC will notify the company and direct the operator to suspend operations if the well is on production. IOGC will also request payment of the full amount of revenues attributable to the trespass lands. Failure to pay the requested amount could result in legal action being undertaken by IOGC.

Prior to beginning or resuming production after being notified by IOGC of a trespass situation, the company will need to obtain all necessary surface and subsurface agreements.