On January 25, 2022, Alberta Energy issued Mineral Rights Information Bulletin 2022-02 (Bulletin) setting out guidance for acquiring deep geothermal resource leases for stand-alone geothermal operations in Alberta.
The Bulletin advises that Alberta Energy will consider geothermal leases on a first-in, first-out basis. Accordingly, proponents that are considering applying for geothermal leases where there may be more than one application for the same location or where applications may request overlapping rights, should consider the timing of their application to Alberta Energy in light of this guidance.
Background
On December 8, 2021, the Geothermal Resource Development Act (GRDA) was proclaimed in force, building on Alberta's Recovery Plan, which is aimed at diversifying the Alberta economy and setting out Alberta's policy framework for the development of geothermal energy. Our prior blogs discuss key features of the GRDA: Wellsite Repurposing Projects and Alberta Utilities Commission Releases New Draft Application Rules for Power Plants. The Bulletin is a further step in Alberta's plan to develop geothermal resources and diversify the Alberta economy.
Geothermal Resource Leases
On January 1, 2022, the Geothermal Resource Tenure Regulation (Tenure Regulation) came into force establishing the regulatory framework for obtaining geothermal resource leases from the Crown. The Bulletin confirms that Alberta Energy is now accepting applications for geothermal leases, and details the information that must be submitted when applying to Alberta Energy for a geothermal lease.
Applications for geothermal leases must include the $625 non-refundable application fee and the $3.50/hectare annual rental for the first year of the term. Applications must also include (1) an overview of the project and the type of technology to be utilized; (2) legal land description of the Crown rights being requested (up to nine sections all of which must be laterally or diagonally joined and not separated by more than one section); (3) the target formation; (4) identification of other agreements and, if conflicts with other agreements or subsurface activities exist, mitigation strategies to reduce such conflicts; (5) the name of the registered lessee(s) with identification of percentage ownerships and the designated representative if there is more than one lessee; and (6) official address for notices.
Alberta Energy will consider applications on a case by case basis where there are overlapping rights between stand-alone geothermal operations and mineral agreement holders. To date, the existing legislation and guidance documents do not identify how Alberta Energy will address overlapping rights, or what factors Alberta Energy will consider in addressing overlapping rights requests.
Leases are issued for an initial term of five years. If, during the initial five-year period, a geothermal assessment report is submitted that demonstrates the lease is potentially productive, the lease can be extended for an intermediate term of an additional five years. The geothermal assessment report must detail efforts undertaken during the initial term to establish active development of the geothermal project. In order to show that the lease is potentially productive, the report must show onsite physical work undertaken during the initial term that demonstrates the geothermal resource and technical viability of producing geothermal energy, such as drilling, testing and logging wells, recompleting or deepening existing wells, surface infrastructure or fluid sampling and bottom hole temperatures.
In order for the lease to be continued beyond the intermediate five year term, a continuation application must be submitted to Alberta Energy before expiry of the intermediate term that includes a discussion of the geothermal project and technical data evidence, and that demonstrates that the whole or part of the location covered by the geothermal lease is "productive". "Productive" is defined in the Tenure Regulation to mean that, in the opinion of the Minister, geothermal resources are being produced from the lease.
A lease that is extended to a continued term may carry on operations for an indefinite period, unless the Minister provides notice to the lessee that it considers that the lease is no longer productive in whole or in part. The portion of the lease that is determined to no longer be productive will be cancelled one year from the date on which the Minister gave notice, unless the lessee submits an application to re-establish productivity prior to the expiry of the notice period.
Next Steps
Pursuant to the GRDA, a person must be entitled or authorized to develop the geothermal resource before applying to the AER for a licence to explore and develop the geothermal resources. At this time, the AER is not accepting geothermal applications because its rules and associated regulatory instruments are not yet in force. However, the AER has stated that it plans to publish in the spring of 2022 the final details of its regulatory framework, including details regarding the application process and technical requirements for development of geothermal resources (see Bulletin 2021-46). While the AER finalizes these details, proponents may still proceed to apply for the requisite licensee eligibility, which must be obtained prior to applying for a license. This process takes a minimum of 30 days.
The AER has stated that it is available to answer questions while its rules and processes are being finalized. In addition, the AER has issued a draft directive, Requirements for Geothermal Resource Development, which signals that the AER intends to regulate geothermal developments in a manner similar to traditional oil and gas operations with respect to matters such as licensee eligibility, participant involvement requirements, emergency response and the AER's holistic assessment which is used to determine whether a licensee poses an unreasonable risk in meeting its regulatory and liability obligations throughout the geothermal development life cycle.
However, because the Surface Rights Act does not apply to geothermal resource development in Alberta, right-of-entry orders will not be available for geothermal developments. Therefore, a proponent applying for geothermal development of wells, facilities, or pipelines must obtain the landowner's written consent for surface access before the AER makes a decision on the geothermal resource development application. Also, applicants for geothermal resource developments will be required to submit an estimate of total liabilities associated with the development, including costs of providing care and custody, and to abandon and reclaim.
