We hear in the news from time to time about oil and gas land sales to the tune of millions of dollars. So what exactly is a land sale and how does it work? An oil and gas land sale is the purchase of a lease for either the oil or gas mineral rights in an area of interest. A lease provides only for access to the minerals, not to the surface area. Exploration and production (E&P) companies hold a lease for a period of two to five years, however they may be continued temporarily if drilling is scheduled to take place close to the expiry date. (Source: Energy Alberta)
In Canada, most mineral or subsurface rights are held by provincial governments. In Alberta, for example, the government holds 81 per cent of mineral rights and the rest are held by the federal government (First Nations and National Parks) and by private individuals and companies. (Source: Energy Alberta) In cases where landowners (whether individuals or companies) have title to the surface land and mineral rights, this is known as freehold.
For companies seeking to acquire mineral rights in an area of interest, they will make a formal request to the province to post them in a land sale assuming that the mineral rights are not already leased. Land sales are an auction with the highest bidder winning.
Unlike art or car auctions, land sales auctions are done by sealed ballot. Not even when the auction is complete are the bids made available and it is not until an operator obtains a drilling license that the company who won the auction is known. Land sales take place in Alberta every two weeks, in British Columbia once a month, every quarter in Manitoba, and every two months in Saskatchewan.
Annually these sales generate huge government revenues. In 2011, for example, the total amount spent on land sales in Alberta was a record breaking $3.4 billion which was $6 million more than the previous record year. (Source: Daily Oil Bulletin)
Land sales are an important indicator of potential future activity, and are one indicator that companies working in the oilpatch use to make business decisions around their own future activity.
Of course, getting access to the land surface is necessary for setting up a wellsite. Most surface rights are held by private landowners, so getting the rights to the surface requires another process.
E&P companies’ landmen meet with landowners to negotiate contracts for surface rights. These contracts spell out the wellsite location and compensation to the owner for general disturbances including loss of land use and the presence of facilities.