Heritage’s business model stems from this historical backdrop. It is centred on the nature of land ownership over certain parcels across Western Canada. Specifically, the fact that some historical land grants included the rights to any underlying mines and minerals such as petroleum, natural gas, coal, potash, metals and stone. Particularly important in the Heritage Royalty story are the lands retained by the Hudson’s Bay Company and lands granted by the Canadian government to the Canadian Pacific Railway. (For deeper background on mineral rights, please go to the very end of the time-line.)
Please read on, and enjoy!
King Charles II of England issues a Royal Charter granting the Hudson’s Bay Company sole trade and commerce rights and land title including minerals to Rupert’s Land. Rupert’s Land encompasses the entire area drained by Hudson Bay, totalling 948 million acres (1.5 million square miles or 2.8 million square kilometres). The vast expanse amounts to nearly 40 percent of present-day Canada’s land area and includes much of what became Canada’s Prairie provinces of Alberta, Saskatchewan and Manitoba.
Canada gains its independence from Great Britain. The new Dominion of Canada’s government immediately advances plans for westward expansion across the Prairies and to the Pacific Ocean, creating the urgent need for a railway to span the northern half of the continent.
The Hudson’s Bay Company cedes Rupert’s Land (plus its vast North-Western Territory acquired from the North West Company in 1821) to the Dominion of Canada under the Rupert’s Land Act. In return, the Hudson’s Bay Company receives £300,000 Sterling ($1,500,000) plus title over 5 percent of the region’s arable (agricultural) land, including the mineral rights.
These lands are apportioned via the new Dominion Land Survey System of 640-acre (1-square-mile) “sections” grouped into 36-section townships. The Hudson’s Bay Company retains Section 8 and three-quarters of Section 26 of townships lying south of the North Saskatchewan River between Winnipeg and the settlement of Rocky Mountain House, an area totalling 4.8 million acres.
The Dominion government begins construction of what was then called the “Pacific Railway” to bring British Columbia into Canada and encourage settlement across the West.
After construction of the transcontinental railway bogs down amidst political scandals and other problems, the government grants a massive concession to the Canadian Pacific Railway (CPR) company to undertake completion of the long, difficult section from Winnipeg to B.C. In exchange, the CPR is granted title to 25 million acres of land, including mineral rights, across the Prairies. Among these are the rights to petroleum and natural gas, which are then in their infancy as commercial commodities.
The plan envisions the CPR financing railway construction through the future sale of its lands and mineral rights. The CPR is allowed to select agricultural lands from the odd-numbered sections of townships in a broad belt straddling the railway’s right-of-way. This creates the “checkerboard” pattern of land ownership under which many present-day oil and natural gas leases continue to be held. Where lands adjoining the railway are deemed unfit for settlement, the CPR negotiates for other, more distant lands.
The Dominion Land Survey proceeds across the Prairies, following a standardized system of square land parcels: quarter-sections (160 acres), sections (640 acres or 1 square mile) and townships (36 sections). These are organized according to ranges and meridians of longitude. Surveyed road allowances provide access to every section of land. This system, including its standardized legal site descriptions, remains in use today.
In drilling for water with the aim of improving conditions for settlement in dry parts of the Prairie, the CPR’s Langevin No. 1 well strikes natural gas near Medicine Hat in what will become Alberta. It is the region’s first working oil or natural gas well. Soon the town of Medicine Hat fuels its street lamps with natural gas.
The transcontinental railway is completed, with the ceremonial driving of the “Last Spike” occurring at Craigellachie, B.C., on November 7.
The CPR returns 7 million acres of its lands to the federal government as part of a loan settlement and sells a further 5 million acres, including mineral rights, to various land syndicates. The following year, the Dominion of Canada ceases granting mine and mineral rights under Crown land sales. Over time, private parties with “freehold” mineral title (either along with land or separately) become the exception rather than the rule.
Alberta and Saskatchewan become provinces, and Manitoba expands to its present boundaries. Irrigation projects are initiated to improve the habitability of lands between Swift Current, Saskatchewan and Calgary. The checkerboard selection pattern is abandoned and the CPR receives a number of large, contiguous land blocks (including mineral rights) in exchange for building irrigation projects. One of these is the 1.8-million-acre Palliser Block in southeast Alberta.
The CPR establishes its own Department of Natural Resources and begins to reserve (withhold) mine and mineral rights when it sells its lands. It begins to lease or “farm out” its mineral rights to companies interested in developing the mineral potential, with the CPR collecting royalties on the subsequent production.
The CPR creates Canadian Pacific Oil and Gas Limited, passing (conveying) its mineral title lands to the new company.
PanCanadian Petroleum Limited is created through the amalgamation of Canadian Pacific Oil and Gas Limited and Central Del Rio Oils Limited (which has substantial freehold lands). The new company also receives various smaller mineral title packages.
Alberta Energy Company (AEC) is created by the Government of Alberta. Over time, AEC acquires substantial lands and mineral rights from Hudson’s Bay Oil and Gas, Dome Petroleum, Canpar Holdings and various smaller acquisitions. Among AEC’s largest holdings are the large, contiguous Suffield Block in southeast Alberta and the large Primrose Block in eastern Alberta.
AEC and PanCanadian each continue to grow. The methods, terms and royalty/fee structures of mineral leases gradually evolve. AEC aggressively adds lands, acquires companies and engages in widespread drilling programs. PanCanadian, while generally focused on smaller deals, reducing risk and retaining owned land, also explores offshore Atlantic Canada, in the Far North and overseas. Between them, the two companies have thousands of leases and tens of thousands of title records (which will become important later to Heritage).
EnCana Corporation is created through the merger of PanCanadian and AEC. The merged company holds fee title to a staggering 10.8 million acres that trace their origins to the CPR grants, the Rupert’s Land (Hudson’s Bay Company) grants and smaller freehold grants.
EnCana voluntarily divides itself into two independent, publicly traded companies: Encana Corporation (focused mainly on natural gas) and Cenovus Energy Inc. (focused mainly on oil and oil sands). Cenovus retains 4.8 million acres of fee title.
On April 1, all of Cenovus’s fee title lands (4.8 million acres) with rights to all mines and minerals, as well as 500,000 acres of rights to gross over-riding royalties, are placed into a separate legal entity, named Heritage Royalty Partnership.
On July 29, 2015 the newly formed Heritage Royalty Partnership is sold to the Ontario Teacher’s Pension Plan and commences operations as an independent royalty company called Heritage Resource LP.
Heritage is headquartered in Calgary, Alberta and commences business with royalty-interest production (crude oil, natural gas and natural gas liquids) totalling approximately 14,000 barrels of oil equivalent per day. For more on the company, please click here.
In Canada, mineral rights are generally held by the Crown in right of the province (i.e., the provincial government) within which the land is located. In other words, mineral rights are indirectly owned by the people of that province. Any private party aspiring to develop mineral potential must lease such rights from the province in return for fees, royalties, and possibly other payments, which are established by the province.
Fee simple estate (also known as “fee lands” or “freehold rights”), on the other hand, leaves the ownership of minerals found beneath the lands in private hands, usually in perpetuity. Owners (individuals, companies or other entities) can develop any minerals on their own, and are also free to lease out the development rights to interested parties and negotiate any fees and royalties directly with the lessee.
Freehold mineral rights are common in the United States, but today form a small proportion of land ownership in Canada. While the Crown holds mineral rights to the vast majority of Western Canada’s land area (more than 90 percent in Alberta, for example), this small proportion still amounts to millions of acres of mineral rights remaining in private hands.