CHAPTER 6 THE OIL INDUSTRY IN CANADA

• Jurisdiction: United States

International Minerals Acquisition and Operations
(Oct-Nov 1974)
CHAPTER 6
THE OIL INDUSTRY IN CANADA
John Bishop Ballem, Q.C.
Ballem, McDill & MacInnes
Calgary, Alberta, Canada

Possibly the first general observation that might made to someone contemplating the entry into Canada to explore for oil and gas or hard minerals is that the general legal structure is comparable to that in the United States. Both countries have inherited the common law so that there are very few surprises in areas such as contract and property law. There are, however, some very fundamental differences in the general framework within which industry must operate.

The first aspect that will strike the American newcomer is that the minerals within Canada are largely owned by government, either provincial or federal. The areas of past and present interest insofar as oil and gas exploration are concerned are the provinces of Alberta, British Columbia, Saskatchewan and to a much lesser extent, Ontario. Elephant hunting for the really big reserves is conducted on federal lands offshore on both coasts, at the moment the east coast is receiving the most attention, and in the far north. In all the areas outside the provinces, (subject to some dispute with the east coast provinces) the federal government owns the mineral title and will be your lessor.

On the provincial level, Alberta is by far the most significant and in that province the government owns 81% of the minerals. Individual freeholders own approximately 9% and the remaining 10% belongs to the federal government because of their jurisdiction over

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national parks and Indian lands.

It is impossible to overemphasize the importance of this aspect and the power that it gives to government to control the industry and indeed the responsibility that it confers upon government to make sure that the resources are properly utilised. We will return to the question of government ownership, when we deal with the manner in which oil and gas and mineral rights are acquired.

Like the United States, Canada is a federation with a division of power between the central and the provincial government. This division of power is set out in The British North America Act, and in general terms matters of a national nature are granted to the federal government while matters of a purely local or private nature are conferred upon the provincial governments. The residual power belongs to the central government.

There is no doubt that back in 1867 when the country was formed the Fathers of Confederation envisaged Canada as having a centralized type of government. Under our constitution the federal government not only has the residual power to legislate, it also have very far reaching powers under the individual heads of jurisdiction. Those portions of the federal jurisdiction that seem to bear most directly on the oil and gas situation are the general power to legislate for the peace, order and good government of the country, the power to regulate trade and commerce and, of course, the power to raise money by taxation.

The provincial powers to legislate are found in Section 92 of The British North America Act and the most relevant heads insofar

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as the oil and gas industry is concerned are the powers to legislate with respect to property and civil rights within the province and to deal with the management and sale of public lands belonging to the province.

The constitutional issue and the question of who has jurisdiction to legislate in any given area of activity has become a very important and a very vexed question in Canada in the past 18 months. The upheavals that have taken place in the world oil situation have naturally focused the attention of government on the industry and has led to a virtual torrent of legislation, designed not only to control and regulate the industry but also to seize as much as possible of the astronomical revenues generated by the wildly escalated oil and gas prices. The federal government, of course, relies heavily upon its power to legislate over inter-provincial or international trade (comparable to your federal power over inter-state commerce), its taxing power and by its general power to legislate with respect to matters of national interest. The provinces use the concept of ownership to justify their legislative excursions and also upon the fact that the actual sale at the wellhead or at the processing plant takes place within the province and before the substance leaves the provincial boundaries. The entire question of jurisdiction is very much in dispute at the present time in Canada, if it develops into open warfare, the federal government possesses enough weapons under the constitution to ultimately prevail. All that we can be certain of at the moment is that there will be more and more legislation affecting the industry and that the governments will allocate a large measure of the revenues to themselves.

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There is one other aspect of the Canadian constitutional situation that should be borne in mind. Canada has inherited the doctrine of supremacy of parliament from England and there are, in effect, no limitations on the power of government to pass laws so long as they are within the proper jurisdiction of the enacting body. We do not have the constitutional limitations that are part of your constitution. This is subject to one fairly mild qualification in that since 1960 we do have a Bill of Rights, which does contain some pretty impressive language; it enshrines the right to life, liberty, security of the person and enjoyment of property and the right not to be deprived...