January 2007

Disclaimer: Agrilaw is a syndicated column produced by the full service London law firm of Cohen Highley LLP.  Paul G. Vogel, a partner in the firm, practises in the area of commercial litigation and environmental law.   Agrilaw is intended to provide information to farmers on subjects of interest and importance. The opinions expressed are not intended as legal advice.  Before acting on any information contained in AgriLaw, readers should obtain legal advice with respect to their own particular circumstances.

Should you need to discuss a energy regulation related matter, please contact Paul Vogel or John Goudy by e-mail or by telephone at (519) 672-9330.  If corresponding by e-mail, be sure to include your name, your telephone number and a brief message.

Oil and Gas Facilities – What Compensation?

Federal and provincial legislation provides landowners with a statutory right to compensation for adverse impacts which may result from the construction of oil and gas facilities on their lands. Even where the companies responsible for such facilities have successfully minimized resulting damage, landowners may nevertheless still be entitled to recover losses which they suffer.

In a recent case in Alberta, the plaintiff farmers claimed damages for crop loss on 14 acres of land allegedly adversely affected by flooding caused as a result of construction of a well-site access road. The provincial regulator, the Alberta Energy and Utilities Board, had already determined in other proceedings that the access road had not significantly increased the volume of water accumulating on the plaintiff’s lands. In the subsequent court action, the Alberta Provincial Court held that this conclusion did not restrict the plaintiffs in advancing their damage claim for whatever damage the access road did in fact cause. The court stated:

“Adverse effects of well-sites and access roads which are compensable may not be considered significant by the Board because they are compensable. That is, the Board may have contemplated that the plaintiffs would be compensated for the adverse effects they suffered when it found those adverse effects not to be significant. What the Board considers significant adverse effects are those which are not compensable, not mitigable, and which could result in substantial environmental damage or interference with existing land uses. Those are the kinds of adverse effects which might cause the Board to rescind a well licence or, more likely, require relocation of an access road.

Well-site and access roads often interfere with natural drainage patterns. The Board’s own legislation and regulations recognize that potential. But the fact that well-site access roads might interfere with drainage doesn’t cause the Board to refuse to licence wells or rescind well licences. Such flooding may cause the Board to insist that mitigative measures be taken to eliminate or reduce impacts. And, in this case, it appears the Defendant oil company voluntarily undertook such mitigation. But such flooding, even if it couldn’t be prevented, would not typically cause the Board to refuse a well licence or to rescind a licence already issued.

Adverse effects of oil and gas facilities are expected. Compensation for such adverse effects is provided for in the (provincial legislation). Compensation for such adverse effects, if such adverse effects are the result of an actionable tort, may also be awarded by this Court.”

The Court determined that, had construction of the access road not exacerbated an existing wetness problem, the plaintiffs’ field would have drained and dried sufficiently to permit planting of hay and oats. The culvert constructed along the access road was ineffective and, as a result, the construction of the access road caused damming and excessive ponding. The court accepted that the additional draining time required prevented the plaintiffs from seeding and resulted in the crop loss claimed. The Court concluded:

“In this case, we do have the actionable tort of nuisance. The Defendant’s activities on its leased lands created nuisance for the Plaintiffs in the Spring of 2003. That is, the Defendant’s activities on its lands unlawfully interfered with those of the Plaintiffs on their lands. Such nuisance caused the Plaintiffs to suffer a loss. That loss was the income the Plaintiffs might reasonably have expected to have received from the 14 acres which were adversely affected.”

Regulatory approval of oil and gas facilities does not preclude compensation claims by adversely affected landowners. Such landowners are entitled to be compensated for their losses even where the companies responsible for such facilities have implemented mitigative measures in accordance with the regulatory approvals they have obtained.