Indian Oil and Gas Regulations (SOR/2019-196)

Negotiation Process

Marginal note:Application for subsurface contract

• 44 (1) A person may apply to the Minister for a subsurface contract that confers oil and gas rights or interests in one or more zones in First Nation lands.

• Marginal note:Preliminary negotiation

  (2) Before applying for a subsurface contract, an applicant and the council must agree on the following terms and conditions:

  • (a) the type of subsurface contract to be applied for;

  • (b) a description of the lands to be included in the contract area and the oil and gas rights or interests to be granted;

  • (c) the amount of the bonus to be paid;

  • (d) the initial and intermediate terms of the permit or the term of the lease, as the case may be;

  • (e) in the case of a permit, the earning provisions for the initial term, including the drilling commitment and deadline for completion, the target zone or depth to which each earning well must be drilled and a description of the lands to be earned by each; and

  • (f) the royalty to be paid, if it differs from the royalty provided for in these Regulations.

• Marginal note:Content of application

  (3) The application to the Minister must be in the prescribed form, set out the terms and conditions negotiated by the applicant and the council and be accompanied by the subsurface contract application fee set out in Schedule 1.

• Marginal note:Confidentiality

  (4) Any information that is disclosed during the negotiations referred to in subsection (2) or in an application referred to in subsection (3) must be kept confidential.

Marginal note:Conditions of approval

• 45 (1) The Minister must not approve the application unless

  • (a) the lands and oil and gas rights or interests described in the application have been surrendered or designated under section 38 of the Indian Act; and

  • (b) the proposed bonus reflects the fair value of the rights or interests to be granted, determined in accordance with section 38 of these Regulations.

• Marginal note:Approval of application

  (2) If the application is approved, the Minister must prepare the subsurface contract and send a copy to the applicant and the council. The Minister must fix and include in the contract the surface rates to be paid under any related surface contract and the seismic rates to be paid under any related exploration licence.

• Marginal note:Criteria — rates

  (3) The surface rates must be fixed in accordance with subsections 73(2) and (3). The seismic rates must be comparable to seismic rates for exploration on lands, excluding provincial Crown lands, that are similar in size, character and use.

• Marginal note:Refusal of application

  (4) If the application is not approved, the Minister must send the applicant and the council a notice of refusal that sets out the reasons for the refusal.

Marginal note:Granting of contract

• 46 (1) The Minister must grant the contract if he or she receives the following within 90 days after the day on which a copy of the contract has been received by both the applicant and the council:

  • (a) a written resolution of the council approving the terms and conditions of the contract and stating that the council has chosen to have the rights or interests described in the contract granted by way of negotiation rather than public tender;

  • (b) the bonus and first year’s rent; and

  • (c) two original copies of the contract — as well as an original copy for each future contract holder — all of which are signed by each of them.

• Marginal note:Effective date

  (2) The contract takes effect on the day on which it is granted, unless it provides otherwise.

Terms and Conditions of Subsurface Contracts

Marginal note:Rights conferred by contract

47 A subsurface contract holder has the exclusive right to exploit the oil and gas in the lands in the contract area, to treat that oil, to process that gas and to dispose of that oil and gas.

Marginal note:Initial term of permit

• 48 (1) If the lands in a permit area are located in a province set out in column 1 of the table to Schedule 2 and in a region set out in column 2, the initial term of the permit is the term set out in column 3. Otherwise, the initial term is five years.

• Marginal note:More than one region

  (2) If the lands in a permit area are located in more than one region set out in column 2 of the table to Schedule 2, the initial term is the term for the region in which the greatest portion of the lands is located. If the portion of lands in each region is the same, the initial term is the longer of the terms set out in column 3.

• Marginal note:Intermediate term of permit

  (3) The intermediate term of a permit is three years.

Marginal note:Term of lease

49 The term of an oil and gas lease is three years.

Marginal note:Term — exception

• 50 (1) Despite subsections 48(1) and (2) and section 49, with the consent of the applicant and the council, the Minister may fix the initial term of a permit or the term of a lease at a number of years that is greater than the number established by those provisions, to a maximum of five years.

• Marginal note:Amended term

  (2) With the consent of the holder, the term of a subsurface contract may be amended, in accordance with subsection 20(1), to a maximum of five years.

Marginal note:Annual rent

51 The annual rent for a subsurface contract is $5 per hectare or $100, whichever is greater.

Selection of Lands for Intermediate Term of Permit

Marginal note:Lands earned

• 52 (1) A permit holder earns lands, and may select from those lands for the intermediate term of the permit, if, during the initial term, they have, in accordance with the earning provisions of their permit,

  • (a) drilled a new well in the permit area; or

  • (b) re-entered an existing well in the permit area and drilled at least 150 m of new wellbore.

• Marginal note:Failure to comply with earning provisions

  (2) If a holder fails to meet a deadline set out in an earning provision of their permit, the permit terminates on the day of the deadline with respect to all lands that have not been earned on or before that day.

• Marginal note:Selection of lands

  (3) A holder that has earned lands may select from those lands down to the base of the deepest zone into which they have drilled, as identified in accordance with Schedule 3.

• Marginal note:Constraints on selection

  (4) The lands selected under subsection (3) must

  • (a) be contiguous, if their configuration permits; and

  • (b) include the entire spacing unit in which the earning well is located.

Marginal note:Area less than 75%

• 53 (1) A permit holder that has drilled a well in a spacing unit whose area is composed of less than 75% First Nation lands may select only lands in the section in which the well is located, down to the base of the deepest zone into which they have drilled.

• Marginal note:Reduced earnings — new well

  (2) A holder that has drilled a new well, but has not drilled to the extent required by the earning provisions of their permit, may select only lands in the section in which the well is located, down to the base of the deepest zone into which they have drilled.

• Marginal note:Reduced earnings — re-entered well

  (3) A holder that has re-entered and completed a well, but has not drilled to the extent referred to in paragraph 52(1)(b) and the earning provisions of their permit, may select only lands in the spacing unit in which the well is completed.

Marginal note:Application for approval

• 54 (1) A holder that wants a grant of oil and gas rights or interests for the intermediate term of their permit must apply to the Minister for approval of their selection of lands before the day on which the initial term of the permit expires or

  • (a) if the permit has terminated under subsection 52(2), within 15 days after the day referred to in that subsection; or

  • (b) if the deadline for applying has been extended under subsection 62(2), before the extension expires.

• Marginal note:Late application

  (2) A holder that fails to apply within the relevant deadline referred to in subsection (1) may apply for approval if the application is submitted within 15 days after the deadline and is accompanied by a late application fee of $5,000.

• Marginal note:Content of application

  (3) The application must be in the prescribed form and include

  • (a) an identification and description of each well that has been drilled and each well that has been re-entered and completed;

  • (b) a description of the lands, including the zones, selected for the intermediate term of the permit; and

  • (c) the rent for the first year of the intermediate term.

• Marginal note:Additional information

  (4) Information about a well that is drilled, or re-entered and completed, within 30 days before the relevant deadline may be submitted up to 15 days after that deadline, unless the holder has received an extension under subsection 62(2).

• Marginal note:Approval

  (5) On receiving an application, the Minister must

  • (a) approve the selection of lands if the requirements of section 52 are met; and

  • (b) grant the holder the oil and gas rights or interests in the selected lands for the intermediate term of the permit if the holder has complied with the requirements of the Act, these Regulations and their permit.

• Marginal note:Notice to holder and council

  (6) If the selection is approved and the oil and gas rights or interests are granted, the Minister must send the holder and the council a notice of the approval and a description of the lands, including the zones, selected for the intermediate term of the permit. If the selection is not approved, the Minister must send the holder a notice of refusal that sets out the reasons for the refusal.