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Canada Oil and Gas Land Regulations (C.R.C., c. 1518)

Regulations are current to 2022-11-16

Oil and Gas Leases (continued)

Term of Lease

 Subject to subsection 35(2), every oil and gas lease shall be granted for a term of 21 years.

 An oil and gas lease shall, upon application by the lessee, be renewed for successive terms of 21 years if

  • (a) the area under the oil and gas lease is, in the opinion of the Minister, capable of producing oil or gas; and

  • (b) the lessee has complied with the terms of the oil and gas lease and with the provisions of these Regulations in force at the date on which the oil and gas lease was granted.

 Where, during the term of an oil and gas lease, commercial exploitation begins and the lessee has complied with

  • (a) the terms of the oil and gas lease, and

  • (b) the provisions of these Regulations in force at the date on which the oil and gas lease was granted,

the Minister shall, at the request of the lessee, reissue the lease for a term of 21 years from the date of the commencement of commercial exploitation.

  •  (1) Subject to subsection (2), an oil and gas lease renewed pursuant to section 62 or reissued pursuant to section 63 shall be renewed or reissued as the case may be upon the conditions that the Minister may order and shall be subject to the provisions of these Regulations in force at the date of the renewal.

  • (2) The royalty payable under an oil and gas lease reissued pursuant to section 63 shall be the same as the royalty required to be paid under the original oil and gas lease.

Obligation to Lease

 The Chief may at any time order that a well within a permit area contains oil or gas in commercial quantity.

  •  (1) A copy of the order referred to in section 65 shall be sent by registered mail addressed to the permittee at his last known address.

  • (2) The permittee shall, within one year from the date of the mailing to him of the order made pursuant to section 65, apply for an oil and gas lease of the area within which the well is located.

  •  (1) A permittee may, within 90 days from the date of mailing the order, serve on the Minister a notice of objection setting out the reason for the objection and all relevant facts.

  • (2) A notice of objection under this section shall be served by being sent by registered mail addressed to the Minister at Ottawa.

  • (3) Upon receipt of the notice of objection, the Minister shall consider the order and vacate, confirm or vary the order and the Minister shall thereupon notify the permittee of his decision by registered mail.

 Where an order has been made pursuant to section 65 and no application has been made pursuant to section 66, no person shall drill a well in that permit area within 4 1/2 miles of the well to which the order refers.

  •  (1) Where an oil and gas lease is granted subsequent to an order made pursuant to section 65 or 67, all sections within the permit area contiguous to, but not cornering, the lease area shall be surrendered to Her Majesty.

  • (2) Where an oil and gas lease is granted subsequent to an order made under section 65 or 67, all that part of the permit area not included in the oil and gas lease and not surrendered pursuant to subsection (1) may be retained under permit by the permittee.

  • (3) Where part of the permit area is retained under permit pursuant to subsection (2), the permittee shall send the permit to the Chief for amendment.

Publication upon Surrender or Cancellation

  •  (1) Where Canada lands have been held under a permit or an oil and gas lease, which permit or oil and gas lease or any part thereof has expired, been cancelled or been surrendered, the Minister shall publish in the Canada Gazette a notice of the expiration, cancellation or surrender of that permit or oil and gas lease.

  • (2) The notice referred to in subsection (1) shall state

    • (a) the number of the permit or oil and gas lease; and

    • (b) whether the permit or oil and gas lease has expired, been cancelled or been surrendered.

Transfer of Permit or Lease

 No transfer of a permit or oil and gas lease shall pass any interest in the permit or oil and gas lease until the transfer is registered in accordance with these Regulations.

  •  (1) No oil and gas lease shall be transferred to

    • (a) a person to whom the granting of an oil and gas lease is prohibited under subsection 54(2); or

    • (b) to a corporation unless the corporation satisfies the Minister that persons who are Canadian citizens will have an opportunity of participating in the beneficial ownership of the corporation.

  • (2) A transfer made contrary to the provisions of subsection (1) is void.

 No transfer of a permit or oil and gas lease shall be registered without the approval of the Chief.

  •  (1) Subject to subsection (2), where a transfer is executed in a manner satisfactory to the Chief and is accompanied by the transfer fee set out in Schedule I, the Chief may approve the transfer of

    • (a) the whole or any sections of a lease area;

    • (b) the whole or one-half of a permit area;

    • (c) a specified undivided interest in a permit or oil and gas lease to not more than five transferees; or

    • (d) a specified undivided interest in a permit or oil and gas lease to more than five transferees upon such terms and conditions as the Chief may require.

  • (2) The Chief shall not approve the transfer of

    • (a) a lease area smaller than one section; or

    • (b) a permit area of other than one grid area or one-half of a grid area.

  • (3) Paragraph (2)(a) does not apply to an oil and gas lease that has been granted for an area smaller than one section.

  • (4) Paragraph (2)(b) does not apply to a permit that has been issued for an area smaller than one grid area or one-half of a grid area.

  •  (1) The Chief shall maintain a transfer register.

  • (2) Where the Chief has approved the transfer of a permit or oil and gas lease, he shall enter the transfer in the register.

  • (3) The Chief shall endorse on the transfer the date and time of registration.

 Subject to section 72, as soon as registered, a transfer shall become operative according to its tenor and intent.

Surrender of Oil and Gas Lease

  •  (1) A lessee may at any time surrender the whole or part of his oil and gas lease, but no lessee shall surrender a part thereof smaller than one section except in the case of an oil and gas lease that has been granted for an area smaller than one section.

  • (2) Where an oil and gas lease has been surrendered, no rental shall be refunded to the lessee.

Rental

  •  (1) Subject to sections 79 to 84, a lessee shall pay to Her Majesty

    • (a) for the first year of the oil and gas lease a rental of $0.50 for each acre of land under lease; and

    • (b) for each year after the first year of the oil and gas lease a rental of $1 for each acre of land under lease.

  • (2) The rental required by subsection (1) shall be paid before the commencement of the year for which the rental is payable.

Reduction of Rental

  •  (1) Subject to subsection (2), where, after the first year of an oil and gas lease, commercial exploitation has not begun but oil or gas has been found in commercial quantity, the Minister may order the reduction of the rental payable under that oil and gas lease.

  • (2) Notwithstanding subsection (1), the rental shall not be reduced pursuant to subsection (1) for any year following a year in which commercial exploitation begins.

 Subject to sections 81 and 82, the rental shall be reduced by,

  • (a) in the case of an oil and gas lease issued pursuant to section 54, the amount of allowable expenditure made by the lessee prior to the date of the oil and gas lease, on the permit area within which the oil and gas lease is located, in excess of the deposits set out in Schedule II for the periods prior to the date of the oil and gas lease, and

  • (b) the amount of expenditure, as determined by the Chief, that has been made by the lessee for exploratory work on the lease area after the date of the oil and gas lease and before commercial exploitation begins,

but the rental for any particular year shall not be reduced pursuant to this section by more than one-half.

  •  (1) In this section, expenditure means the amount referred to in paragraph 80(b).

  • (2) At the end of the first year of an oil and gas lease and at the end of each year of the oil and gas lease thereafter, the Chief shall determine the amount of expenditure made by the lessee that is to be credited to the rental of the oil and gas lease for the year next following.

  • (3) Every lessee shall, at least 30 days before the end of each year of his oil and gas lease, send to the Chief a statement, in triplicate, of the amount expended by the lessee for exploratory work on the lease area.

  • (4) Every statement referred to in subsection (3) shall be verified by a statutory declaration and shall include

    • (a) the items of expenditure;

    • (b) the number of the lease area on which the work was done;

    • (c) the specific purpose for which each item of expenditure was made; and

    • (d) three copies of all reports, photographs, maps and data referred to in section 53 concerning work for which expenditure is claimed.

  •  (1) Subject to subsection (2), where any part of the amount referred to in paragraph 80(a) or (b) is not or cannot be credited to the rental for the year next following, the rental for any subsequent year shall be reduced by the amount of that part.

  • (2) Notwithstanding subsection (1), the rental shall not be reduced pursuant to section 80 for any year following a year in which commercial exploitation has begun.

  •  (1) Expenditure referred to in paragraph 80(a) or (b) that is made on any lease area that has been grouped pursuant to subsection 90(1) and that is made during the period of the grouping shall, at the request of the lessee, be applied to one or more of the lease areas within the group.

  • (2) Where an expenditure is applied to a lease area pursuant to subsection (1), that expenditure shall not be transferred to any other lease area.

 The rental payable for any year shall be reduced by the amount of the royalty paid under that oil and gas lease during the preceding year.

Royalty

  •  (1) Subject to sections 86 and 87, a permittee or lessee shall pay to Her Majesty

    • (a) for each month

      • (i) prior to the end of the first five years of commercial exploitation, or

      • (ii) prior to the end of the first 36 months, in aggregate, during which oil or gas is produced,

      whichever first occurs, a royalty of five per cent of the market value at the well head or extraction plant (after production thereat) of all oil and gas obtained during that month from the permit or lease area, where

      • (iii) the permit or lease area is located north of latitude 70°, or

      • (iv) the whole or greater part of the permit or lease area is, in the opinion of the Chief, covered by seacoast water;

    • (b) for each month prior to the end of the first three years of commercial exploitation, a royalty of five per cent of the market value at the well head or extraction plant (after production thereat) of all oil and gas obtained during that month from the permit or lease area, where the whole or greater part of the permit or lease area is located south of latitude 70° and is not included in paragraph (a); and

    • (c) for each month following the period for which a royalty is payable pursuant to paragraph (a) or (b), a royalty of 10 per cent of the market value at the well head or extraction plant (after production thereat) of all oil and gas obtained during that month from the permit or lease area.

  • (2) The royalty shall be paid on or before the 25th day of the month next following the month for which the royalty is payable.

 No royalty is payable for oil or gas

  • (a) consumed by the permittee or lessee for drilling, producing, mining, quarrying, extracting or treating purposes in the permit or lease area; or

  • (b) returned to a formation or flared.

 Where, in the opinion of the Governor in Council, a reduction in the royalty would enable a lessee to continue producing oil or gas for a longer period, the Governor in Council may reduce the royalty by such amount and for such period as he considers advisable.

Drilling

 The Minister may at any time, except during the three years next following the issue of a lease, order the lessee to commence and continue the drilling of a well to the satisfaction of the Minister within 90 days from the date of the order.

 Where a well has been

  • (a) abandoned, or

  • (b) completed and has not been declared capable of producing in a commercial quantity,

the Minister may at any time, except during the year following the date of the abandonment or completion, order the lessee to commence and continue the drilling of another well to the satisfaction of the Minister within 90 days from the date of the order.

Grouping of Leases

  •  (1) For the purposes of sections 80, 88 and 89, a lessee may upon giving written notice in triplicate, in a form approved by the Chief, group lease areas that

    • (a) are within a circle having a radius of 24 miles; and

    • (b) cover an area of not more than 250,000 acres.

  • (2) The notice of grouping shall indicate the lease areas that are to be included in the group.

  • (3) Where a lessee complies with an order made pursuant to section 88 or 89 on one lease area in a group, he shall be deemed to have complied with all orders that have been or may be made pursuant to section 88 or 89 in respect of any lease area within that group for as long as that group remains in effect.

  • (4) A grouping shall commence on the day on which the notice of grouping is approved by the Chief and shall terminate upon the discovery of oil or gas in commercial quantity.

 Where a group is terminated by the discovery of oil or gas, the oil and gas leases previously included in the group shall be subject to the provisions of sections 88 and 89.

 A lessee may from time to time group or regroup any of his lease areas in accordance with section 90.

Development Drilling

 Where a lessee is producing oil or gas in commercial quantity, the Chief may order the lessee to drill further wells on the lease area and to continue producing oil or gas so long as that area continues to yield oil or gas in commercial quantity.

Entry on Lands

 Where the surface rights to the whole or any part of the Canada lands described in a permit or oil and gas lease have been disposed of by Her Majesty under a timber licence, grazing lease, coal mining lease, mining claim or other form of terminable grant, the permittee or lessee shall not enter upon such lands unless he has obtained

  • (a) the consent of the person holding the timber licence, grazing lease, coal mining lease, mining claim or other form of terminable grant;

  • (b) the consent of the occupier of the land; or

  • (c) an order for entry from the arbitrator.

 
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