The Just Way
THE PLIGHT OF FREEHOLD OWNERS
THE FHOA LEASE
THE JFEC NICHE
THE PLIGHT OF FREEHOLD OWNERS
Fundamental to virtually all oil and gas exploration and development is a lease agreement between the owner of the resource and an energy company seeking to develop the resource. Conceptually a lease agreement is simple. The owner grants the energy company the right to explore for hydrocarbons within the owner’s lands for a certain period of years and to produce any hydrocarbons found until they are depleted in return for an upfront cash payment and a royalty share of the proceeds of production. In practice, a lease agreement is an exceedingly complicated document which addresses the many complexities of oil and gas exploration and development - what happens if hydrocarbons are found but not produced; what happens if production is established but then ceases; what happens if hydrocarbons are produced from an adjacent tract of land; what price applies to the oil and gas sold; what deductions are permitted in calculating the owner’s royalty; what recourse does the owner have if the energy company fails to fulfill its obligations; etc.
In Canada, much of the potentially productive petroleum and natural gas rights are owned by governments or the corporate successors to the Canadian Pacific Railway Company (the CPR) or the Hudson's Bay Company (the HBC). Not surprisingly, these entities have always prescribed the form of lease agreement under which their oil and gas rights may be leased by energy companies.
The freehold oil and gas rights owned by individual freeholders are also valuable and in aggregate represent a very significnat resource. However on an individual basis there generally isn't expertise and financial resources required to develop their own leasing terms/standards ard are left little choice but to accept terms/leases drafted solely by the energy companies.
JFEC as a freehold focused company has worked with freeholders and the Freehold Owners Association (FHOA) to develop new leasing standards that fairly balance the rights of the freeholder with those of the energy company leasing the freeholder’s rights.
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A FREEHOLD-FRIENDLY LEASE
In 1999, the Freehold Owners Association (www.fhoa.ca) was organized with the help of Alberta Energy. The purpose of this not-for-profit, volunteer organization is to provide information and education to freehold owners, to research issues of concern to freeholders and to act as their common voice. One of FHOA’s principle concerns was the widespread use of CAPL (Canadian Association of Petroleum Landmen) freehold leases. The association considered CAPL leases to be oppressive and it’s goal was to develop a fairer freehold lease form. However FHOA was reluctant to dedicate the resources necessary to develop such a 'freeholder-friendly' lease because it was aware of the fate which befell a similar initiative by the Office of the Farmers’ Advocate of Alberta in the mid-1980’s. The energy industry effectively refused to use the freehold lease form developed by the Farmers’ Advocate. A catalyst was needed.
Just Freehold Energy Corp., a company fostered by FHOA to lead the energy industry by example in adopting fair freehold leasing practices, provided the necessary catalyst by committing to use freehold-friendly leases in dealings with freehold owners.
A freehold-friendly lease differs significantly from CAPL leases and resembles the Government of Alberta’s Crown lease in many respects – product prices are tied to weighted average Alberta prices; royalties are on a sliding scale tied to volumes of production; and rights below the deepest zone proven productive revert to the freeholder. Mutual good faith dealings also means providing understandable royalty statements with transparent deductions, providing reasonable protection from drainage, amending or removing caveats in a timely manner, seeking the freeholders consent to unitization, and providing freeholders with recourse to mediation or binding arbitration in the event of a dispute.
THE JFEC NICHE
By treating freeholders fairly and offering freehold owners an opportunity to participate as shareholders in developing their own and other freeholders' mineral rights in a just manner (see Investor Information), JFEC has positioned itself as the developer of choice for freehold owners. JFEC has secured many good drilling prospects on freehold lands. The quality of these prospects is attested to by the fact that other energy companies who do not have our preferential access to freehold mineral rights are prepared to participate in their development on financial terms favourable to JFEC (see Projects).
Over time, as word of freehold-friendly lease agreements offered by Just Freehold spreads within the western Canadian freehold owner community, JFEC anticipates that the freehold leasing opportunities presented to our company will increase. JFEC intends to lead the western Canadian energy industry on adopting fairer freehold leasing practices for the benefit of all freehold owners. While doing so, Just Freehold expects to build a very successful energy company.