Indian Oil and Gas Canada (IOGC) Modernization - First Nations' and Industry Information Guide

Table of contents

Section 1: Document Information

1.1 Document Change Control

Revision Number Date of Issue Author(s) Brief Description of Change
0.1 2016-09-29 Peter Tsang Creation of the document
0.9 2019-07-10 Peter Tsang First full draft for circulation and review
1.0 2019-07-16 Peter Tsang Version prepared for MARS Steering Cmte & French translation
1.1 2019-07-18 Peter Tsang Updated post-MARS Steering Cmte
1.2 2019-07-24 Peter Tsang First version to be distributed to clients and stakeholders

1.2 Reference Documents

Reference documents for IOGC First Nations' and Industry Information Guide include:

  • Public Notice – Coming into Force of the Indian Oil and Gas Act, 2009
  • Regulatory Impact Analysis Statement – Indian Oil and Gas Regulations, 2019
  • Modern Act, Regulations, and Systems (MARS) Project – Quarterly Newsletters

1.3 Purpose of the Document

This document lays out the main features of the new legislative and regulatory regime governing oil and gas activity on First Nations lands. It describes what is new and what changes have taken place and what IOGC's clients and contacts need to know to ensure a smooth transition from the old rules to the new rules.

This current document forms just one part of the communications strategy and plan for the Modernization of Act, Regulations, and Systems (MARS) Project. Communications are a significant part of any project. A comprehensive Communications Strategy and Plan is important for any project of complexity, size and scope such as the MARS Project. The purpose of the Communications Strategy and Plan will be to ensure that appropriate project information is disseminated to the proper audience in a timely fashion. It will outline the information and communication needs by IOGC contact and client. It will also identify who needs what information, when they will need it and how best to provide it to them.

1.4 How this Document is Organized

This current document is organized roughly along a typical oil and gas project's lifecycle on First Nations lands and groups together related topics.

1.5 Authorization

This document sets forth the information required by IOGC's clients and contacts to transition, with minimal disruption, from the existing 1974 Act and its 1995 Regulations to the 2009 Act and its 2019 Regulations.

 

_____________________________
Strater Crowfoot
Executive Director and CEO
Indian Oil and Gas Canada

_____________________________
Date

Section 2: Executive Summary

Indian Oil and Gas Canada (IOGC), a special operating agency, reports to Indigenous Services Canada via its Lands and Economic Development sector. IOGC administers, monitors, and enforces the Indian Oil and Gas Act and the Indian Oil and Gas Regulations as the oil and gas regulator on First Nations lands. There are approximately 50 First Nations with active oil and gas exploration or production, mainly in Alberta and Saskatchewan and also in BC and Manitoba.

Since about 1999, Canada has been working in partnership with oil and gas producing-First Nations to modernize the legislative and regulatory regime for oil and gas activity on First Nations lands. A major milestone was achieved when the Indian Oil and Gas Act, 2009 received Royal Assent in May 2009. With the promulgation of the Indian Oil and Gas Regulations, 2019, the 2009 Act and its 2019 Regulations will both come into force and become law on August 1, 2019.

The First Nations' and Industry Information Guide is intended to inform IOGC clients and contacts about, "What is New?" and "What has changed?" beginning August 1, 2019 and should facilitate an orderly transition, with minimal disruption, from the old ruleset to the new one.

To optimize the time of IOGC clients and contacts, this Guide is organized as follows – it is not necessary to read the Guide from beginning to end and IOGC clients and contacts may want to go directly to the section that most interests them:

History, Background, and Context:

Areas Containing Substantive Changes:

Areas Containing Less-Substantive Changes:

Enquiries:

  1. IOGC Internet Website
  2. By Email: aadnc.contactiogc.aandc@canada.ca
  3. By Telephone: 403-292-5625

Section 3: Oil and Gas Activity on First Nations' Lands – Overview

The Government of Canada fulfills the Crown's fiduciary and statutory obligations to First Nations, regarding their oil and natural gas resources, as the regulator of oil and gas exploration and development on First Nations lands. Indian Oil and Gas Canada (IOGC), a special operating agency of Indigenous Services Canada, administers, monitors, and enforces the Indian Oil and Gas Act and the Indian Oil and Gas Regulations as the on-reserve oil and gas regulator.

Oil and gas may be present in approximately 300 First Nation reserves in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario and the Northwest Territories. There are approximately 50 First Nations with active oil and gas exploration or production, mainly in Alberta and Saskatchewan. In fiscal year 2018–19, $55 million in royalties, bonuses and rentals were collected by IOGC on behalf of First Nations while industry invested by drilling and completing 51 wells on First Nations lands.

Section 4: Indian Oil and Gas Act, 2009

4.1 Objective

Canada is challenged to keep up with managing and regulating, on First Nation lands, the advancing technology in oil and gas activities due to its limited authorities and regulatory mechanisms.

The 2009 Act provides:

  • legislative and regulatory clarity;
  • a robust and flexible monitoring and enforcement regime; and
  • enhanced environmental protection, including better protection of First Nations sites of cultural importance.

4.2 Background

The Indian Oil and Gas Act, 1974 (1974 Act) was quickly drafted and enacted in response to the first world oil crisis in 1973. However, the 1974 Act does not provide all necessary authorities to operate in a heavily-regulated industry.

Since 1999, numerous efforts to modernize the regime have been attempted. In 2006, a partnership between IOGC and the Indian Resource Council (IRC – an Indigenous organization advocates on behalf of some 189 member First Nations with oil and gas or the potential for such resources) was formed which resulted in the 2009 Act receiving Royal Assent in May 2009. It was agreed that the Act would not come into force until the corresponding regulations were made.

Regulatory development has proven complex and in 2013, it was agreed, in consultation with oil and gas producing First Nations, that an incremental approach to the development of regulations would be adopted. Both the 2009 Act and the Phase I Regulations will come into force on August 1, 2019.

The 2009 Act will provide clear authorities for IOGC to:

  1. audit companies operating on First Nations reserve lands to ensure compliance with the Act or regulations;
  2. establish federal inspectors to inspect operations;
  3. establish federal enforcement officers for search and seizure purposes;
  4. establish a federal limitation period of 10 years (i.e., period for records to be maintained for auditing purposes);
  5. address surface and subsurface trespass;
  6. protect First Nation sites of cultural importance;
  7. order companies to suspend operations or to take remedial action;
  8. establish an administrative monetary penalty scheme for the Minister to issue penalties for violations of up to $10,000;
  9. establish the authority to issue fines, upon summary conviction, for offences of up to $100,000 per day; and,
  10. provide the ability to enter into agreements with provinces regarding the administration of provincial laws that have been referentially incorporated.

4.3 Compliance and Enforcement under the 2009 Act

IOGC's compliance and enforcement framework principles are to educate, promote and protect. These principles, especially the principle of education, are being used to assist industry in adjusting to the new oil and gas regime on First Nation lands. The Act pro-vides the authority to inspect operations/records; conduct search and seizures; issue shutdown and/or remedial action orders; all in response to non-compliance. This framework ensures that the companies are aware of their rights and obligations as well as being aware of possible action that may be taken by IOGC.

Section 5: Indian Oil and Gas Regulations, 2019

5.1 Objective

While provincial acts and regulations governing the conservation and development of oil and gas resources have been, over the past 20 years, enhanced and adapted to industry and technological developments, the federal regulatory regime for oil and gas development activities on First Nation lands has not. A modern federal regulatory framework has been developed for the oil and gas regime on First Nation lands that is closer aligned with the provincial regime to support resource development.

5.2 Background

On May 14, 2009, amendments modernizing the Indian Oil and Gas Act, 1974 received Royal Assent, resulting in a new Indian Oil and Gas Act, 2009. The coming into force of the 2009 Act required the development of new regulations to replace the Indian Oil and Gas Regulations, 1995.

Under the current federal regime, the lack of a consistent set of rules that are different from rules off reserves has made investment in oil and gas projects on reserves less attractive, as industry has had to employ duplicative processes and systems — one for their on-reserve projects and another for their projects in the rest of the province. It has been challenging to regulate the full range of modern oil and gas development activities on First Nation lands due to limited regulatory enforcement mechanisms.

This new federal regulatory regime will lift barriers to industry investment on First Nation lands while providing the federal government with modern tools to efficiently and effectively encourage industry compliance and to take appropriate action to address non-compliance.

The development of the regulations began in parallel with the IOGA, 2009 undergoing the parliamentary review and approval processes. Just as with the legislative development process, regulatory development has been done in partnership with oil- and gas-producing First Nations, and their level of participation has been unprecedented. First Nations were funded and were provided with opportunities to review and provide feedback on the policy intent behind the regulations, on the regulatory drafting instructions, and on drafts of the proposed regulations. First Nations' funding included provisions to obtain independent legal and technical expertise and advice.

To facilitate the regulatory drafting process, given that oil and gas is a highly complex and technical industry, the regulations were subdivided into nine themes:

  1. Drainage and compensatory royalty
  2. Subsurface tenure
  3. Surface tenure
  4. Exploration
  5. Environment
  6. Enforcement
  7. Conservation
  8. Moneys management
  9. Royalty

The completion of regulatory drafting instructions resulted in a set of documents of more than 6,600 pages. This presented two challenges: 1) the sheer volume, plus technical complexity, would overload First Nations and present a significant obstacle to the conduct of meaningful consultations; and, 2) it would have taken many years to fulfill the commitment to oil and gas-producing First Nations to bring the 2009 Act into force with a full set of entirely new regulations.

To bring the 2009 Act into force in the shortest time possible, the Department proposed, and oil- and gas-producing First Nations agreed, that regulatory development would occur incrementally and that the 2009 Act would be brought into force once a set of "Core" or "Phase I" Regulations had been completed.

The present Indian Oil and Gas Regulations, 2019 consist of "new" provisions in the areas of:

  1. subsurface tenure;
  2. drainage and compensatory royalty;
  3. First Nations' audit; and,
  4. royalty reporting requirements to facilitate royalty verification.

In addition, to cover the whole range of oil and gas activities on First Nation lands and to ensure that there will be no regulatory gaps once brought into force, the provisions pertaining to the other themes are carried over from the 1995 Regulations with only minor changes:

  • To ensure compatibility with the 2009 Act;
  • To reflect modern regulatory drafting conventions;
  • To reflect current practices and procedures that have evolved over years of working in partnership among IOGC, First Nations, industry, and the provinces and that have proven beneficial to regulating oil and gas activity on First Nations lands, such as the environmental review process; and,
  • To address recommendations made by the Standing Joint Committee for the Scrutiny of Regulations.

Phase II Regulations will address the remaining areas of: 1) surface tenure; 2) exploration (seismic); 3) environment; 4) royalty; 5) moneys management; and, 6) conservation. The Government of Canada will continue to work with First Nations' clients and contacts on the development of new, proposed regulations that will progressively replace sections of the regulations carried over from the 1995 Regulations until the 1995 Regulations have been entirely replaced by new, modern regulations.

Section 6: Consultation and Engagement – First Nations

Initiated in 2008, regulatory development under this initiative was undertaken in close collaboration with the IRC. IOGC and the IRC established the Joint Technical Com-mittee, made up of departmental subject matter experts and oil and gas technicians from some of the major oil-and gas-producing First Nations, to review and provide input during the development of the Regulations. Funding was provided to the Joint Technical Committee so that they could obtain independent technical and legal advice in order to review and provide feedback on the policy intent behind the regulations, on the regulatory drafting instructions, and on drafts of proposed regulations.

Consultations on modernizing the on-reserve oil and gas regime have been among the most comprehensive ever conducted by the Department. First Nations were consulted directly during the development of the proposed regulations to ensure that they were informed, meaningfully involved and had every opportunity to participate in the development of the proposed regulations. Also, IOGC held 10 information symposiums to discuss the proposed changes and answer questions, engaged and distributed information packages to more than 250 clients and contacts, conducted over 80 one-on-one meetings, and held 6 technical workshops. Letters reporting on regulatory development progress were provided regularly, and annual updates were presented at the IRC's general meetings. IOGC continues to provide quarterly newsletters for First Nations and industry with active oil and gas interests on reserve.

In 2015, the Department provided funding to three First Nations, namely Loon River First Nation, White Bear First Nation and Frog Lake First Nation, so that they could obtain independent technical and legal reviews of the draft regulations. These First Nations were chosen based on their differing locations and commodities. This was done to complement and confirm similar reviews conducted by the Joint Technical Committee.

The proposed regulations were distributed three times as consultation drafts, in March 2014, in May 2015, and in September 2017 to different groups of clients and contacts, including the IRC, all oil- and gas-producing First Nations, other First Nation organizations, oil and gas companies, the Canadian Association of Petroleum Producers, and provincial oil and gas regulators. An advance copy of the prepublication draft was provided at two symposiums held in early 2016 for Chiefs of oil- and gas-producing First Nations from British Columbia, Alberta and Saskatchewan. Approximately 150 attendees participated in these symposiums that reviewed the draft regulations clause by clause. The May 2015, early 2016, and September 2017 versions were also published in the First Nations Gazette for public review and feedback.

Additional consultation activities were conducted in late 2016 and into spring of 2017 which resulted in several changes being brought to the draft regulations to accommodate the desire of oil- and gas-producing First Nations for increased participation in the management of their oil and gas resources. These changes provide First Nations with additional flexibility, provided in regulations, for approving continuances, amending drilling commitments, and an opportunity to form relationships with new companies coming onto their lands via assignments.

As a result of the pre-publication of draft regulations in the Canada Gazette, Part I, in May 2018, as well as the simultaneous publication of the draft regulations in the First Nations Gazette, a total of 17 IOGC contacts or clients submitted comments and feed-back: the IRC, six First Nations, four oil and gas companies, one industry organization, four provinces and a member of the public. IOGC made accommodations in the regulations, where appropriate, and responded to all comments and feedback either verbally or in writing.

While there is general support for the need for a modern regulatory regime, over the course of the legislative and regulatory development process, some First Nations raised broader jurisdictional aspirations related to management and control of their oil and gas resources. These aspirations were not accommodated at this time to the extent desired; these regulations strike a balance between the flexibility that First Nations have requested and the requirements of a modern regime that is more closely aligned with the regulatory environment off reserve.

In response to feedback related to First Nation governance and consultation, and the jurisdictional aspirations of First Nations, the Government of Canada has committed to explore, in partnership with oil and gas First Nations, potential options for greater First Nation jurisdiction and control over oil and gas management on reserve. The Government is working with the IRC, who in turn will be consulting its membership on potential options.

Initiated in 1999 by the IOGC Co-Management Board, this process to update the Act and its regulations has taken a number of years and has involved extensive consultations. These consultations led to the development of a modern federal oil and gas legislative framework on First Nations land that incorporates the views of First Nations and creates a regime that is closer aligned with the provincial regime to support resource development. A complete list of the consultations can be found on the IOGC website.

Section 7: Outreach and Engagement – Oil and Gas Industry

IOGC engaged and distributed information packages to more than 250 clients and contacts, including those from the oil and gas industry. This engagement included:

IOGC held "Industry Information Sessions" on November 7th and 8th, 2018 in Calgary. Industry was provided with the proposed Regulations and had an opportunity to ask questions. The areas of greatest interest included: questions related to implementation; Continuance, and Assignment. Industry advised that it would like to be engaged at an earlier stage for the Phase II Regulations. The results of these sessions were developed into Frequently-Asked Questions (FAQs) and posted in both Official Languages on IOGC's Internet Website.

Section 8: Subsurface Contracts

Q1. What is new with respect to the Approval of Subsurface Contracts?

A1. The criteria used to evaluate proposed contracts is now clearly stipulated.


Q2. What has changed with respect to the Approval of Subsurface Contracts?

A2. Under the 2019 Regulations, the Minister and Band Council must approve contracts. There is a requirement for both the company and the First Nation to sign the contract and the company must return all documents to IOGC within 90 days – otherwise, the contract will be null / void and any moneys paid to the First Nation will be returned to the company.


Q3. How is "Fair Value" for bonuses evaluated?

A3. Fair value for bonuses is based upon:

  1. Size and proximity of other lands;
  2. Date of when rights in other lands granted;
  3. Current oil and gas prices;
  4. Recent drilling operations in the vicinity;
  5. Similarities and differences in geological features; and,
  6. Other factors

Q4. What is new with respect to the Granting of Subsurface Contracts?

A4. Contracts may be granted by:

  1. Public Tender
  2. Council will have fifteen (15) days after the day on which the tender closes to notify the Minister that they are rejecting the highest bid
  3. Call for proposals
  4. Direct Negotiation

Q5. What is changed with respect to the Granting of Subsurface Contracts?

A5. Oil and gas rights are granted by:

  1. Permit – initial term determined by province/region where the lands are located (as per Schedule 2)
    • Production can now occur under a permit (and thus eliminate the lease selection process)
    • Intermediate Terms of Permits:
      • Earning provisions;
      • Limits on earned zones set out in Schedule 3; and,
      • Intermediate Term is three years – a land selection application is required. Contract holder must submit application before end of initial term, or within 15 days of expiry, or else pay a late application fee of $5000.00
  2. Lease – initial term of 3 years
  3. Initial terms can be negotiated with Chief and Council for terms up to five years

Q6. Could a summary of What's New and What's Changed be provided including references to both the 1995 and 2019 Regulations?

A6. See following table

Area of Regulations Affected Description of Change 1995 Regulations 2019 Regulations
IOGC grants IOGC may grant a permit or lease. The "option to acquire a permit or lease" is no longer available. s. 10(1) s. 35.(1)
Public Tender Public Tender process is not new but the steps are defined s.10(3) s. 39-42
Call for Proposal Call for Proposal process is not new but the steps are more defined s.10(5) s. 43
Negotiation Negotiation is not new but process is more defined s.10 s. 44-46
Application Process Application for subsurface contract requires
  • $250 application fee
  • contract is terminated either party does not meet 90 day response deadline
s.10 s. 44-46
Lease Initial Lease term 3 year initial lease term s. 24(1) s. 49
Permit Production is permitted under a permit s.15 & 23 s. 47
Permit Initial Permit term
  • AB, SK, BC, MB, NB or NS, determined by Schedule 2 - Regulations
  • Otherwise 5 years
s. 16 s. 48
Permit At end of initial Permit term
  • application for land selection
  • all unselected lands are terminated
s. 20 s. 52(1)
Permit
  • rights for selected lands as per Schedule 3 based on depth drilled
n/a s. 52(3)
Permit
  • 15 days grace for late land selection application requires $5000 fee
n/a s. 54(2)
Permit
  • Intermediate term 3 years
n/a s. 48(3)
Permit Permit require continuation application at end of Intermediate term s. 24(2) s. 64(1)
Continuance Lands that qualify for continuation are continued indefinitely s. 24(1) s. 68(1)
Continuance Lands that qualify for continuation are continued with respect to the zones identified in accordance with Schedule 4 n/a s. 63(1)
Continuance Lands that are not eligible for continuation may be continued for max 5 years, if requested by the Council n/a s. 66(1)
Continuance Application lands determined to be
  • capable of production via mapping or
  • potentially productive
will be considered for 1 year extension

Subject to additional bonus payment
n/a




n/a
s. 68(2)




s. 63(5)
Non-Productivity Notice Lands continued indefinitely will be subject to notice of non-productivity n/a s. 69(1)
Non-Productivity Notice Non-productivity notice extends tenure for 1 year n/a s. 69(2)
Non-Productivity Notice Continuation application is required at the end of 1 year n/a s. 69(3)
Pooling & First Nation Interest
  • IOGC consent for pooling no longer required (i.e., industry application no longer needed)
  • First Nation interest communicated via notice
s. 41 s. 106,107
Service Wells No longer qualify for continuation of productive rights s. 24(2) s. 63(1)

Q7. Where can IOGC clients and contacts find more information?

A7. Contract application will be found on-line on the IOGC Internet Website.

Section 9: Surface Tenure

Note:

Full surface tenure regulations are planned for the Phase II Regulations. The present surface tenure regulations build upon those from the 1995 Regulations plus any adaptations required to make them compatible with, among other factors, the 2009 Act.


Q1. What is new with respect to Surface Tenure?

A1. Surface Tenure has been mostly brought forward, with minor adaptations, from the 1995 Regulations.


Q2. What has changed with respect to Surface Tenure?

A2. Minor changes include:

Other changes include:

Section 10: Assignments

Q1. What is new with respect to the Assignment of Contracts?

A1. Rules for Minister to reject application including:

  1. Assignee must meet with the Council at its request:
    • Meeting between Assignee and First Nation to occur before submission of Assignment application
    • Onus on the Assignee to offer to meet with Council
    • New prescribed form contains a clause to indicate the date of the meeting or if it was waived
  2. Financial ability (carried over from 1995 Regulations):
    • Assignments to Assignees who cannot demonstrate ability to meet financial obligations of the contract relating to end of life remediation and reclamation, will be rejected
    • An asset management retirement plan may be required in order to validate that the assignee has an end of life asset management plan to fulfill its obligations, or the assignment will be rejected

Section 11: Subsurface Contract Continuance

Q1. What has changed with respect to Subsurface Contract Continuance?

A1. Key changes to Subsurface Contract Continuance under the 2009 Act and the 2019 Regulations include:

  1. Subsurface contract rights qualifying for continuation can be continued indefinitely (deemed productive) or for a one-year term (deemed potentially productive);
  2. In turn, once the continuance has been determined, IOGC must send a notice to the holder and to the appropriate First Nation Council describing the rights and lands will be continued, why the contract qualifies and for how long it will be continued. Unlike the current process, notification of continuance reviews will not be sent to First Nations before the decision letters have been issued;
  3. The applicant is not limited to the contract holder;
  4. The zones that will be continued are in Schedule 4; and,
  5. Service Wells can no longer be used as a basis to continue lands.

Q2. Under what circumstances may drilling over expiry be allowed?

A2. A contract may qualify for a short-term extension if a well that has been spudded, or re-entered for deepening, can't be rig-released before the contract expiry date. Under such circumstances, the application for an extension to drill over expiry MUST:

  1. be received after the well has been spudded / re-entered but before the contract expiry date;
  2. contain the Well ID and the spud / re-entry date; and,
  3. include the rental payment for the following year.

If these conditions are fulfilled, the contract may be extended for 30 days after the rig release date of the well. No other wells can be spudded or re-entered on the contract lands during this extension period.


Q3. How does an applicant apply for continuation?

A3. A subsurface oil or gas contract issued under the regulations will expire in whole or in part after the primary term unless it qualifies for a continuance. An applicant will be required to follow these steps (i.e., follow steps in the application checklist and guide, which can be found on IOGC's Internet Website):


Q4. What factors are assessed in determining whether rights qualify for continuation?

A4. The determination of rights qualifying for continuation is based on whether or not the drainage spacing unit (DSU):

  1. contains a productive well;
  2. is subject, in whole or in part, to a unit agreement that includes lands in which a productive well is located, or to an oil or gas storage agreement that has been approved by a provincial authority;
  3. is subject to a bitumen recovery project that has been approved by the Minister;
  4. is subject to a project, other than a bitumen recovery project, that has been approved by the provincial authority and includes lands in which a productive well is located;
  5. has had an offset notice assigned to it in the six months before the day on which the application for continuation is submitted or in respect of which a compensatory royalty is being paid;
  6. is not producing but is shown by mapping to be potentially capable of producing from the same pool from which a well on an adjoining spacing unit is productive; or
  7. is potentially productive.

Rights qualifying for continuance pursuant to (a) to (e) above are continued indefinitely. Rights qualifying pursuant to (f) and (g), that is, are deemed to be potentially productive, are offered to the contract holder for a one-year term.

Contract holders will be given notice of IOGCs determination of rights qualifying for continuation.


Q5. Under what circumstances might an Offer of Potentially Productive Rights (Subsection 65(2)) be issued by IOGC?

A5. Rights deemed potentially productive (i.e., conditions (f) or (g) above) will receive an offer of continuation for a one-year term. The contract holder will have 30 days to respond to that offer with either a refusal, a partial acceptance, or a complete acceptance. A letter of acceptance of offered rights must be accompanied by the required payment of bonus ($400 per full or partial LSD per zone or $2,000, whichever is greater). At any time in the ensuing year, the contract holder may apply for indefinite continuation of these rights pursuant to sections 63(1)(a) to(e) in the regulations.


Q6. How could a contract qualify for indeterminate continuance?

A6. A drainage spacing unit (DSU) that is part of the contract qualifies for an indeterminate continuance as long as there is production or the equivalent (i.e., compensatory royalty payments) associated with it (as per Sections 63(1)(a) to (e) of the regulations). The DSU will be continued indefinitely if:


Q7. How could a contract qualify for term continuance?

A7. If the subsurface contract doesn't have production or the equivalent, it may still qualify for a one-year continuance if it is shown by the applicant, through geological and other relevant technical information, to be potentially productive (as per Section 63(1)(f) to (g) of the 2019 Regulations. Such a determination would result in a one-year continuance.

However, within 30 days of being notified by IOGC that the drainage spacing qualifies for continuance as potentially productive, the contract holder must pay a minimum bonus of the greater amount of:

  1. $2,000; or
  2. $400 per LSD or equivalent (16 ha rounded up to nearest whole number) if the land hasn't been surveyed into LSDs.

Q8. What happens if a contract holder does not apply for continuation?

A8. As per Section 67 of the regulations, if there is no application for continuation received by the end of the term of the contract, IOGC will review the contract for possible indefinite continuation, pursuant to the qualifying criteria in sections 63(1)(a) to (e) of the regulations. Note that the failure to submit a continuance application excludes the possibility of continuing rights based on mapping or potentially productive rights (Subsections 63(1)(f) and (g)).

Rights determined by IOGC as qualifying for indefinite continuation will be offered to the contract holder for acceptance.

The contract holder will have 30 days to respond to the offer of indefinite continuation with a refusal, a partial acceptance, or a complete acceptance. A letter of acceptance from the contract holder must be accompanied by any annual subsurface rentals due as well as a $5,000 late application fee.


Q9. What happens if a First Nation does not agree with a continuance determination by IOGC?

A9. If it has been determined by IOGC that all, or any part, of the subsurface contract does not qualify for any continuance or, upon the expiry of a contract that was continued for one year (i.e., by being determined to be potentially productive), a First Nation Council may request a special continuance of up to five years by:


Q10. Under what conditions would IOGC issue Non-productivity Notices?

A10. Oil and gas rights in a subsurface contract that qualify for an indefinite continuation will be monitored. As per Section 69 of the regulations, if at any time IOGC determines that the rights no longer qualify for indeterminate continuance, a Notice of Non-Productivity (or Inadequate Productivity, in the case of Bitumen Recovery Projects) may be served to the contract holder with the following implications:


Q11. What happens if there is a change in the fair value of lands under contract?

A11. As per Section 66(2) of the regulations, if the fair value of the lands under a contract has been reviewed and it has been determined that an additional bonus is required to reflect the updated valuation, the additional fair value bonus must be paid by the contract holder before the lands and rights can be continued.

Section 12: Service Wells

Q1. What is new with respect to Service Wells?

A1. The following provisions regarding Service Wells are new:

Section 13: Royalty Reporting

Notes:

  1. Full royalty regulations are planned for the Phase II Regulations. The 2019 Regulations build upon the 1995 Regulations plus any adaptations required to make them compatible with, among other factors, the 2009 Act.
  2. Informatics enhancements supporting Royalty Reporting will be implemented some time after August 1, 2019. IOGC will advise industry stakeholders when these changes will come into effect.

Q1. What is unchanged with respect to Royalty Reporting?

A1. The provisions for Fair Value from the 1995 Regulations have been brought forward into the 2019 Regulations.


Q2. What is new with respect to Royalty Reporting?

A2. The following new provisions apply for Royalty Reporting:


Q3. What is new with respect to Royalty Reporting yet will be implemented only when informatics enhancements are completed?

A3. The following new provisions apply for Royalty Reporting:


Q4. What has changed, with respect to Royalty Reporting?

A4. The following has changed, regarding Royalty Reporting:


Q5. What enhancements have been made, with respect to Royalty Reporting?

A5. The following informatics enhancements have been made to Royalty Reporting:


Q6. What enhancements have been made, with respect to Royalty Reporting yet will be implemented only when informatics enhancements are completed?

A6. The following informatics enhancements have been made to Royalty Reporting:

Section 14: Equitable Production of Oil and Gas

Compensatory royalty is owed to ensure equitable production where oil and gas production is occurring in areas adjoining First Nations' lands. This change is rooted in existing provincial laws for equitable production, thus ensuring consistency with the off-reserve system, but also including modifications to address concerns regarding the uniqueness of First Nation land boundaries.

Under the 2019 Regulations, Offset Notices must be issued by IOGC for all First Nation lands under contract that are adjacent to off-reserve lands with producing wells. However, the obligation to pay a compensatory royalty does not begin if a contract holder submitted information, within a specific period, to successfully establish various circumstances such as where First Nation lands have a well producing from the same zone as an off-reserve well.


Q1. What has changed with respect to Equitable Production of Oil and Gas?

A1. See table below.

Issue Addressed 1974 Act & 1995 Regulations 2009 Act and New Regulations
Modern terminology Use of Drainage Notices Use of Offset Notices
Basis for determining issuance of Notices Drainage Notices are based on joint determination by Council and IOGC. Offset Notices are proximity-based.
Non-confidential Wells – Notice Period Notice Period is 90 days or longer, as specified in the Notice. Offset Period for Non-confidential Wells is normally 180 days. If the Offset Period was extended, the last day would be the day on which the extension expired.
Confidential Wells – Notice Period Notices are not issued until after the confidential period. Offset Period for Confidential Wells ends 90 days after an Offset Notice is sent following the confidential period.
Compensatory Royalty calculation Compensatory royalty obligations begin after the Notice Period, and ends after an Offset Well is placed on production or the portion of the contract is surrendered. During the first year, compensatory royalties are half of normal calculations. Thereafter, they are normal royalty calculations. Compensatory royalty obligations begin after the Offset Period as noted above. The Compensatory Royalty calculations in the first year are the same as the following years. No deductions are allowed. Compensatory royalty obligations resume when Offset Well ceases production after three consecutive months.
Horizontal wells There are no specific references to horizontal wells. Production allocation and compensatory royalty calculations are applied through practice. Multiple spacing unit production allocation is referenced. A compensatory royalty calculation methodology for horizontal Trigger Wells is specified.
Notice response options Three options: produce a well from the trigger zone, surrender portion of lease, or pay compensatory royalty May elect to pay compensatory royalty, surrender portion of lease, or establish one of six circumstances in section 96(1) to avoid compensatory royalty obligations. If no option is elected, the default option is to pay compensatory royalty.

Q2. What new Notices may be issued by IOGC to manage Equitable Production of Oil and Gas?

A2. New notices that may be issued by IOGC to contract holders include:

New notices issued by IOGC to First Nations include:


Q3. What new Processes and Tools will be employed by IOGC to manage Equitable Production of Oil and Gas?

A3. Monitor cessation of production for three or more consecutive month periods from Offset Wells because the compensatory royalty obligation is not terminated after an Offset Well is placed on production.


Q4. When does the obligation to pay compensatory royalty begin for a Contract Holder that receives an Offset Notice?

A4. The obligation to pay compensatory royalty begins on the first day of the month following the end of the Offset Period. Payment of the compensatory royalty is due by 25th day of the third month following the month for which the obligation applies.


Q5. What is the first month for which Compensatory Royalty will be calculated?

A5. For wells where a Notice of Existence of Confidential Trigger Well pursuant to section 94(3)(a) was not issued, the first month for which Compensatory Royalty will be calculated is the same as the month in which the obligation to pay Compensatory Royalty begins.

For wells where a Notice of Existence of Confidential Trigger Well pursuant to section 94(3)(a) was issued, the first month for which Compensatory Royalty will be calculated begins on the first day of the month following 180 days from when the Contract Holder received the Notice of Existence of Confidential Trigger Well.


Q6. What happens if a Contract Holder does not respond to an Offset Notice?

A6. If IOGC does not receive a response from a Contract Holder, the default action for IOGC would be to assess a compensatory royalty.


Q7. Are there exceptional conditions / requirements related to Equitable Production of Oil and Gas?

A7. The obligation to pay compensatory royalty will not begin following the end of the Offset Period if, during the offset period, a Contract Holder is able to establish certain circumstances as per Section 96 of the New Regulations.

Section 15: Bitumen Recovery Projects

Q1. What rules apply to Bitumen Recovery Projects?

A1. For Bitumen Recovery Projects:

Section 16: Environment

Note:

Full environmental regulations are planned for the Phase II Regulations. The present environmental regulations build upon those from the 1995 Regulations plus any adaptations required to make them compatible with, among other factors, the 2009 Act.

Environmental regulations ensure all applications for oil and gas surface activities include an environmental review to ensure activities are undertaken without causing irremediable damage to First Nation lands. Providing that environmental reviews are performed prior to any project construction is a key aspect of ensuring the Government of Canada establishes a regulatory environmental regime that is consistent and compatible with the regulatory environmental regime off reserves, and that First Nation sites of cultural, historical and ceremonial significance are preserved.


Q1. How do the 2009 Act and regulations enhance protection of the environment?

A1. An important theme of the new legislative and regulatory regime is enhancing environmental protection. Under the 1974 Act, the only remedies available for non-compliance with environmental laws were the cancelling of a lease or court action. The 2009 Act and its regulations will provide a more comprehensive suite of enforcement options so IOGC can respond more appropriately.


Q2. What is new, with respect to the environment?

A2. There are two significant areas:


Q3. What has changed with respect to the environment?

A3. See table below.

Issue Addressed 1974 Act & 1995 Regulations 2009 Act and New Regulations
Limited tools to address instances of non-compliance Only remedies available to address continued non-compliance with environmental laws are: 1) the cancelling of a lease; or, 2) court action. New "Compliance and Enforcement" framework with an enforcement ladder and suite of tools for IOGC to respond more appropriately to encourage industry compliance and to provide a measured response to non-compliance.
Compliance and Enforcement of Environmental Protection Terms Environmental Protection Terms letter included as Appendix in surface lease contract. Environmental Protection Terms letter will still be included as Appendix in surface lease contract. However, those terms are now regulations and non-compliance has associated Administrative Monetary Penalties.
Environmental Audit process Environmental Audit process developed by internal policy. Revised Environmental Audit process to ensure compatibility with regulations.
Non-compliance notices A two-step process of a "Direction to Comply Letter" followed by a "CEO-to-CEO Letter." Notifications process for non-compliance remains largely unchanged. Current letters will be replaced by a "1st followed by a 2nd Non-compliance Notice." The timeframes for certain actions may be adjusted. This change was made to ensure consistency with other Compliance and Enforcement elements at IOGC. What has changed is that if non-compliance issues are not addressed, IOGC's Compliance and Enforcement process may be engaged.
Removal of Administrative BCR BCR required prior to issuing a memorandum of surrender. All sites will continue to be inspected jointly by the First Nation, IOGC, and the company to ensure all criteria are met and any issues addressed. An administrative BCR is no longer required prior to issuing a memorandum of surrender. However, a BCR for any facilities left in place is still required.

Q4. How will the Phase II environment regulations differ from the 1995 Regulations?

A4. The environment module within the Phase II Regulations provides additional protection beyond those contained within the 1995 Regulations. Specifically, the environmental regulations more clearly identify IOGC's environmental requirements. The Phase II Regulations will continue to ensure existing federal laws and referentially-incorporated provincial environmental laws apply.


Q5. When will all the environment changes be implemented?

A5. Although there are some environment-related changes in the Phase I Regulations, the majority of the proposed environmental regulations will be in the Phase II Regulations. IOGC will be communicating Phase II in late fall 2019 and early 2020.

Section 17: Annual Meeting Request

An important new provision contained within the Indian Oil and Gas Act, 2009 and its 2019 Regulations is the ability for First Nations to make a request to the Minister for a meeting with existing contract holders to discuss operations that have been carried out, or are planned to be carried out, in the contract areas.


Q1. Is a separate meeting still required at subsurface continuance review?

A1. No, this provision replaces that meeting.


Q2. Can a First Nation request more than one meeting with the same contract holder per year?

A2. First Nations and contract holders can meet as often as they deem necessary, however the request for an annual meeting can be submitted to the Minister no more than once a year per section 15(1) of the 2019 Regulations.


Q3. Must a separate meeting request be submitted for each contract held by the same company?

A3. No, as per section 15(4) of the 2019 Regulations if the holder has more than one contract on the respective First Nation's lands, operations carried out under all the contracts may be discussed at the same meeting.


Q4. What happens if the meeting doesn't take place?

A4. Per section 15(3) of the 2019 Regulations the holder must organize the meeting and ensure that it takes place within 90 days after the day on which the Minister's notice is received. If the meeting doesn't take place, the assignment may be rejected.


Q5. Who pays for the meeting?

A5. Per section 15(5) of the 2019 Regulations any expense related to the request for, preparation for or attendance at a meeting must be borne by the party that incurs the expense.


Q6. If there are multiple contract holders in a single contract, do all of them need to attend the meeting?

A6. Per section 15(3) of the 2019 Regulations in the case of multiple contract holders, they may designate one of their number to attend as their representative.

Section 18: First Nation Audits and Examinations

Two very important improvements contained within the Indian Oil and Gas Act, 2009 and its Phase I regulations are: 1) the Minister now has explicit powers to conduct audits and examinations of documents and activities with respect to oil and gas production on First Nations lands; and, 2) First Nations themselves now have the same authority to conduct similar audits and examinations with respect to companies operating on their respective First Nation lands. Under the 1974 Act and the 1995 Regulations, courts had ruled that the Minister had the power to inspect, but not to audit activities and documents.

To secure these explicit audit and examination powers required legislative and regulatory renewal. Though other options were considered, both Canada and oil and gas-producing First Nations agreed that legislative and regulatory modernization, though time and resource-intensive, provided the most beneficial option.

IOGC secured the necessary authority from Cabinet to proceed with legislative and regulatory change along with the required authority from Treasury Board to expend funds to bring about, implement, and administer this change. The authorities secured by IOGC included the umbrella power to "audit" companies. After consultation with oil and gas-producing First Nations, the ability of First Nations to request audits of companies active on their lands was included in the resulting Act and its supporting regulations.


Q1. Can First Nations now request authority to conduct audits and examinations of documents, data, and facilities with respect to companies conducting oil and gas activities on their respective designated lands?

A1. Yes, as per section 10 of the Indian Oil and Gas Act, 2009 and section 85 of the Indian Oil and Gas Regulations, 2019, First Nations may request the authority to conduct audits and examinations with respect to oil and gas production from their lands, to verify the royalties payable to them.


Q2. What are some of the basic rules regarding First Nations-initiated audits and examinations?

A2. A new feature of the 2009 Act and the 2019 Regulations that provides for:


Q3. Who would pay for First Nations-initiated audits and examinations?

A3. At least once per year, IOGC generates a list of priority candidates to be audited or examined within the existing year and the next two years, according to risk-based analyses. IOGC informally calls it a "rolling three-year plan" because risk factors and priorities may change. Via this process, it is IOGC's intention that eventually all companies would be audited at least once, though it may take a number of years before a company might be selected for audit while some companies may be audited multiple times during the same period.

During the development of the new Act and its regulations, IOGC initially intended that:

  1. An audit or examination requested and self-funded by a First Nation would be approved, if all required application criteria are met;

  2. If a First Nation requested that company documents or activities with respect to production from their lands be audited or examined;

    AND

  3. If such an audit or examination of that company's documents and activities on that particular First Nation's lands were already included in IOGC's three-year plan;

    THEN

  4. IOGC would fund the audit or examination – which makes sense as funding had already been earmarked for this activity.

    YET

  5. If such an audit or examination of that company's operations on that First Nations lands was not included in IOGC's three-year plan, then IOGC intended that the only way that such an audit or examination could be conducted was if the First Nation would pay for it themselves (i.e., "self-fund").

Q4. What happens if a First Nation is unwilling or unable to self-fund their requested audit?

A4. At the time when IOGC secured the proper authorities to proceed with the appropriate legislative and regulatory amendments, funding for First Nations-initiated audits had not been considered. Now that it is certain that the Act and its regulations will become law on August 1, 2019, IOGC is exploring options to fund First Nations-initiated audits and examinations where a First Nation is unwilling or unable to self-fund.

Section 19: Compliance and Enforcement

A comprehensive compliance and enforcement structure has been provided for within the 2009 Act and the 2019 Regulations have been developed to support that structure. In implementing its new legislative and regulatory tools for compliance and enforcement, IOGC will be following principle of:

Educate, Promote, Protect

A Compliance and Enforcement framework, Policies, procedures, and information bulletin have been developed to ensure contract holders understand their responsibilities under the new legislative and regulatory regime. Working with First Nations, IOGC will ensure contract holders understand the wishes and long-term goals of First Nations.


Q1. What are some of the new features for compliance and enforcement?

A1. The IOGA, 2009 provides IOGC with the authority to:

Regulated entities will be provided with the opportunity to comply before escalation to the enforcement ladder. This ensures that the companies are aware of their rights and obligations as well as being aware of possible action that may be taken by IOGC.

To provide a more robust and flexible compliance and enforcement regime, rules are clearly articulated regarding:

One important feature is to align data reporting and gathering with that of the provinces including:

Once supporting informatics enhancements have been completed, the Government of Canada will use the same system as the provinces and will be able to automatically extract the data it needs and industry will no longer need to maintain duplicate processes and systems for their on- and off-reserve projects.


Q2. What are some of the new compliance and enforcement tools now available for IOGC to encourage compliance and to act appropriately to address any instances of non-compliance?

A2. Examples of new compliance and enforcement tools available to IOGC include:

Section 20: Finance

Q1. What has changed with respect to finance?

A1. See table below.

1974 Act & 1995 Regulations 2009 Act and New Regulations
Delivery of decisions, directions, notices or other documents are made "at the addressee's last known address." An "Address for Service" is now required
Royalties are paid on the 25th of the month following the month in which the oil or gas was obtained from the lease (i.e., payment would be due on February 25th for oil and gas obtained in January, the preceding month). Royalties are paid on or before the 25th day of the third month after which the oil or gas is produced (i.e., payment would be due on or before April 25th for oil and gas produced in January).
No Application Fees Two "Late Application Fees" added if applications are late for:
  1. Land Selection
  2. Continuance
"Direction to Comply" notices "Direction to Comply" notices replaced with Invoices and Reminder Letters (past due notices).

Section 21: Administration – Authorities and Decision-Making

1974 Act & 1995 Regulations 2009 Act and New Regulations
Authorities granted to (IOGC) Executive Director. Authorities granted to the Minister (no direct authorities granted to (IOGC) Executive Director).
Discretion in some areas for decision-making. New Act and regulations are prescriptive. Discretion has been removed for decisions.

Section 22: Administration – Dispute Resolution

The provision whereby decisions of the Executive Director of IOGC may be reviewed by the Minister has largely been removed as, under the IOGA, 2009, all decisions are made by the Minister. The increasing complexity of regulating industry activities means that redress mechanisms also require updating and modernization. The Ministerial Review of Executive Director decisions has proven to be an unnecessary step, since these disputes are usually taken to the courts. This particular change ensures that, when an IOGC contact or client is not in agreement with a decision of the Minister, the issue can be addressed by a court of competent jurisdiction in a more timely manner.


Q1. Will the 2009 Act and regulations provide for an informal dispute resolution process?

A1. IOGC currently employs an informal type of dispute resolution by way of direct and continual contact with both industry and First Nations. To complement the new enforcement mechanisms, IOGC is looking at incorporating a dispute resolution process into its policies and practices.

1974 Act & 1995 Regulations 2009 Act and New Regulations
Decisions by the Executive Director can be subjected to Ministerial Review. Ministerial Reviews are replaced by a federal court process.

Q2. Why have Ministerial Reviews been removed and replaced by a federal court process?

A2. It is expected that replacing the existing Ministerial Review process (which goes to the Minister of Indian Affairs and Northern Development) with a process to federal court will lower the costs for all parties and expedite the process itself. Past requests for formal Ministerial Reviews have shown that they are very technical in nature and ultimately require the Minister to obtain independent professional oil and gas advice to make a decision. This is a very time-consuming exercise and, typically, the results end up being appealed to the federal court in any event. The proposed change removes the federal government from the dispute resolution process and sends the issue directly to the courts for determination.


Q3. What if a company does not agree with the imposition of an Administrative Monetary Penalty?

A3. Canada has a responsibility to regulate industry companies and enforce compliance on behalf of all First Nation band members (this includes regulating the activities of a company owned by a First Nation – also known as a Band-owned Company. If a situation arises where Canada has to encourage compliance, whether or not the company is First Nation-owned, that company would be treated the same as any other company).

The new penalty provisions are designed to establish a more flexible enforcement regime and to give IOGC additional options for remedying a situation before more severe steps are taken. Generally speaking, if a situation arises where a company refuses to pay a penalty levied by IOGC, then IOGC would move along the enforcement ladder to the next step. In this case, it may include the registration of a certificate of default in Federal Court, or court action to recover the monies owing.

Implicit within the new penalty provisions is the ability to appeal decisions respecting the imposition of Administrative Monetary Penalties to the federal court. It is also possible to judicially review other ministerial decisions. The rules for judicial review (such as who can be a party, limitation periods, remedies available and their grounds) are set out in the Federal Courts Act.

Judicial oversight is required and necessary in high risk areas such as levying of significant fines and the conduct of searches and seizures.


Q4. What role, if any, will be fulfilled by Provincial Courts?

A4. This applies to future Phase II Regulations and not to the new Phase I Regulations – When provincial laws have been referentially incorporated, provincial courts will be utilized to take advantage of their expertise. Provincial courts can also issue search warrants when necessary. Similarly under the 2009 Act, a provincial superior court or the Federal Court can issue orders compelling persons to disclose information or grant the Minister or an inspector access to a place. Finally, offences under the 2009 Act may be prosecuted by a summary conviction procedure before the provincial courts.

Section 23: Federal Jurisdiction

Q. What, if any, role do the provinces fulfill? Will the 2009 Act and its regulations download or offload responsibilities to the provinces?

A. Provincial governments have no jurisdiction over First Nations for either oil and gas development or leasing of oil and gas rights on First Nations lands. Nothing in the 2009 Act or its regulations affect or extend the jurisdiction of the provinces over oil and gas resources on First Nation lands. It is the Government of Canada, and not provincial authorities, that is responsible for managing First Nation lands and resources.

Provinces do, however, have significant authority over oil and gas companies operating on First Nations lands. The province oversees operations and establishes technical standards for oil and gas installations. As examples: 1) a company must obtain a provincial well licence before any well can be drilled; or, 2) a company must have special spacing units approved by the province.

Additionally, there are activities for which IOGC relies on provincial regulators, including establishing drilling spacing units and production databases. In the area of environmental protection, IOGC also relies on the province to establish most standards such as venting and flaring standards and well control standards.

The 2009 Act and its regulations provide for a formal agreement between the Minister and the province to clearly identify roles of both parties. While these will not modify provincial jurisdiction, they will certainly clarify any grey areas of responsibilities.

Section 24: Federal Crown Relationship with First Nations

Q1. Will the 2009 Act and its regulations affect the Crown's fiduciary relationship with First Nations?

A1. The federal government has committed that the fiduciary relationship between the Crown and First Nations in the area of oil and gas management will not diminish and will continue unchanged. In fact, the new regime strengthens IOGC's specific legislative & regulatory capacity, enhancing its ability to fulfill its obligations to First Nations.


Q2. Will the 2009 Act and its regulations impact Treaty rights?

A2. The Aboriginal and Treaty Rights of First Nations are not affected by the 2009 Act and regulations enabled under that statute.


Q3. What does the 2009 Act and its regulations stipulate regarding First Nations' consultation?

A3. The regulations clearly spell out the Minister's obligations with respect to notice and consultation including when consultations should occur and the form and manner of such consultations.


Q4. Does Canada take a portion of First Nations oil and gas revenues to cover the cost of administration?

A4. No. IOGC is fully funded from appropriations from Parliament. 100% of the moneys derived from oil and gas operations on First Nation lands are collected and held for each respective First Nation.

Section 25: Litigation Management and Avoidance

Q. How will the 2009 Act and its regulations affect on-going or pending oil and gas-related litigation?

A. None of the legislative and regulatory changes directly relate to any current or pending litigation.

IOGC is a business-focussed agency which also regulates the operations of the oil and gas industry. In performing these functions IOGC is a necessary and integral part of the industry itself which, unfortunately, is very litigious in nature. When lawsuits are filed against IOGC operations, it triggers IOGC to re-examine its operations to see if there is a problem.

Section 26: Further Information

Q. How can IOGC's clients and contacts get more information?

A. IOGC is committed to providing its clients and contacts with the most up-to-date information possible. Information is available:

  1. IOGC Internet Website
  2. By Email: aadnc.contactiogc.aandc@canada.ca
  3. By Telephone: 403-292-5625
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