About four per cent of Albertans own their mineral rights, but understanding the legalities of that can be a jumble.
That’s what the Freehold Owners Association (FHOA) hopes to change.
The group met with 130 members July 27 at the Ponoka Legion to clarify royalty rates and how recent provincial changes has freehold owners in competition with the crown.
In an interview with Ponoka News, David Speirs, geologist and president of FHOA, said these meetings are meant to help members.
“When you start looking at it in the context of the bread basket of oil and gas in this province…we’re a reasonably important player,” said Speirs.
Most recently there has been development of well drilling near Morningside, Ponoka and Lacombe and east of Ponoka, said Speirs. Seeing that, freehold owners need to be competitive with the Crown but there’s a big gap between the two.
Speirs says the Crown charges five per cent royalty but for freeholders it’s generally fixed at 15 to 20 per cent.
“When you drill on Crown (land) you (companies) essentially pay a five per cent royalty until you get your $5 to $12 million back,” he said.
“At the end of the day, the problem that creates is, if you’re an operator, are you going to drill somewhere where you pay a five per cent royalty to the Crown or somewhere where you pay 15 per cent or 16 per cent?”
Add to that there is a mineral tax royalty that has to be paid. “You’re competing with the Crown and you have a four to five times greater burden on your property.”
FHOA hopes to educate freehold owners to settle for a lower royalty with a different land lease until the well is completed. He says it’s all about negotiating with the companies on new leases.
Speirs added there’s nothing to say that a freehold owner couldn’t speak with a company to renegotiate their existing lease to become competitive.
“If they do that there’s at least a reasonable chance that somebody might drill a well on their property rather than just running on Crown,” said Speirs.
Many freehold owners are older, he pointed out, and offered that not everyone has time to study the finer details of mineral rights. The FHOA hopes to bridge that gap.
Speirs wants to see some support from the province. He says Alberta has collected $200 to $350 million in mineral taxes from freehold owners and yet little in the way of support.
With better knowledge of the laws, Speirs suggests companies are more likely to drill, which will bring money into the province.
Another issue freehold owners face is if a company has a lease on their minerals and then becomes insolvent, the banks see these owners as an unsecured creditor, said Speirs.
“(The bank) effectively gets first call on whatever assets the company has,” he explained.
Most of the freeholders in Alberta own mineral rights south of Edmonton and he says that amounts to approximately five to six million acres out of 160 million.
The meeting brought a presentation from Brad Murray, an engineer and FHOA director. For more information on the association check www.fhoa.ca.