The Provincial Government and Conservation

When Alberta was created as a province in 1905, the Government of Canada retained authority over its mineral resources, including oil and gas. Their lack of authority was a sore point for successive provincial governments, as it prevented the province from playing any meaningful role in the regulation of these industries. After many years of negotiations, a landmark agreement was reached between the federal and provincial governments to transfer responsibility over natural resources to the provincial government. The agreement was signed in 1929 by Prime Minister of Canada William Lyon Mackenzie King and Premier of Alberta John Brownlee. It was brought into effect through legislation by the Parliament of Canada and the Legislative Assembly of Alberta in 1930.

The Government of Alberta had long had concerns about the flaring of natural gas at Turner Valley, a practice it believed to be wasteful. In 1932, the United Farmers of Alberta government passed the Turner Valley Gas Conservation Act, which created the Turner Valley Gas Conservation Board. This board was tasked with regulating Turner Valley’s gas industry and had the authority to inspect all wells, install mechanisms to measure the production of each well, place limits on the production of natural gas and encourage all gas producing companies to cooperate and pool excess gas. The board ran into opposition nearly from the outset. One company,

Spooner Oils, complained that the production limits would result in a catastrophic loss of revenue and shareholder investment. Spooner Oils brought the matter before the courts to challenge the legislation as being non-constitutional.

The Spooner Oils court challenge eventually made its way to the Supreme Court of Canada, which ruled in October 1933 that the Turner Valley Conservation Act was within the constitutional power of the provincial government. However, the court also ruled that the province's conservation measures could not be enforced on Spooner Oils because that company had made its land and mineral agreements with the federal government prior to 1930. This decision was a grievous blow to the province's conservation legislation as the greater majority of oil companies had acquired their mineral rights and land leases prior to 1930. This meant that the new conservation measures could not be legally enforced against nearly all companies operating in the Turner Valley region. Although the provincial government continued to make pronouncements about continuing with its conservation plans, it instead quietly faded away. Potential civil litigation from numerous oil companies compounded by the economic slide into the Great Depression defeated Alberta's first attempt at regulating the oil and gas sector.

In 1936, the United Farmers of Alberta government was defeated by William Aberhart’s Social Credit movement. Premier Aberhart quickly cancelled any remaining conservation regulations, claiming, largely correctly, that without the Government of Canada's agreement to amend the 1929/30 natural resources transfer agreement, any provincial attempts to regulate the natural gas industry would be unsuccessful. Although the Government of Canada had agreed to make the amendment, the deteriorating political relationship between the province and Ottawa, as well as the also deteriorating personal relationship between Premier Aberhart and Prime Minister Mackenzie King, delayed required federal legislation.

By late-1937, concerns, raised by Canadian Western Natural Gas and Turner Valley’s crude oil producing companies, about the detrimental effects of natural gas flaring on natural gas prices and the viability of the crude oil sector, had again become an issue. In April 1938, the provincial Oil and Gas Conservation Act was granted Royal Assent. This legislation, essentially the same as the failed 1932 Turner Valley Gas Conservation Act, created a board empowered to impose conservation regulations on the province’s oil and gas industries. The act would come into force as soon as the federal government amended the transfer agreement, which finally happened after a personal plea from Premier Aberhart in June. A board, headquartered in Calgary, was quickly appointed, began hiring staff and announced hearings on planned conservation, production and market-sharing regulations.

A regulation limiting natural gas production was introduced, to be implemented that October. Almost inevitably, the natural gas sector, led by three companies, Miracle Oils Ltd., Mercury Oils Ltd., and Gas and Oil

Products Ltd., challenged the legislation in the courts. They argued that the legislation was beyond the province’s authority as it interfered with trade and commerce, which were federal responsibilities. The Supreme Court of Alberta dismissed the gas companies’ legal challenge, but gas companies continued to ignore the new regulations. The conservation board’s diminishing reputation, inability to enforce its regulations and eroding support from crude oil producers meant that amendments to the Oil and Gas Conservation Act were needed. Premier Aberhart announced that a Royal Commission would be convened to thoroughly research the oil and gas sector and that a special second sitting of the legislature in late-1938 would be held to consider the conservation question.

The Government of Alberta believed that strong regulations were in the public good but had come to understand that the co-operation of the oil and gas sector was necessary to make any conservation scheme workable. Through a series of hearings between the government and oil and gas producers, a compromise agreement was reached with all but two companies. The new legislation included provisions to provide compensation to companies that were onerously impacted by the regulations and created an arbitration system to resolve disputes over compensation amounts. With the compromise agreement in hand, the new Oil and Gas Resources Conservation Act became law in November 1938. Although there continued to be opposition from industry and accusations, notably from the federal government, that the legislation was heavy-handed, this third attempt by the Government of Alberta to promote conservation in the natural gas industry was successful and formed the basis for conservation regulations in the province for decades to come.