FROM MOOSEs TO MOLASSES
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Oil and Gas Rights in Canada: Dealing with the Crown and Freeholders
Paul Negenman, LawyerLawson Lundell LLP
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OIL & GAS RIGHTS IN CANADA
Canada is a bit of an odd place
About 35 million people (less than California)
Most of our landmass is north of the 49th parallel
However over 60% of the population lives south of the 49th parallel (most of the population of Ontario and Quebec)
Contrast this to oil & gas, which is almost exclusively located north of the 49th parallel and far outside most populated Provinces and cities
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www.spec2000.net
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CANADA - CRUDE OIL
www.centreforenergy.com
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CANADA - CRUDE OIL PIPELINE
www.centreforenergy.com
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CANADA – NATURAL GAS
www.centreforenergy.com
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CANADA – NATURAL GAS PIPELINE
www.centreforenergy.com
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CONSTITUTIONAL MONARCHY Monarchy Part:
Crown is the root authority for all law (laws and statutes)
All tenure ownership originates and ultimately vests in the Crown
Constitutional Part:
The Crown is bound to act in accordance with Constitutional documents
Bound by Rule of Law (not men)
One government cannot bind a subsequent government
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CONSTITUTIONAL MONARCHY The Crown is bound by the Constitutional documents (the “Supreme Law”)
For individuals, the most important document is the Constitution Act (1982) which includes the Charter of Rights and Freedoms
For oil & gas, the most important is the British North American Act of 1867 (now called the Constitution Act, 1867) which divided powers among provincial and federal governments
Very similar in overall structure to the United States Constitution, but some important practical differences
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FEDERAL STRUCTURE Federal Structure
Division of Powers between
Federal Crown
Provincial Crowns (10 Provinces)
We also have 3 Northern Territories (think Puerto Rico) – the “North”
Yukon, NWT and Nunavut
Until recently, Northern Territorial powers were federal and delegated
Very recent changed for the NWT – devolution of powers to Territory
Beginning of Province like status (but not yet a Province)
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DIVISION OF POWERS Sections 91 & 92 of the Constitution Act, 1867, divide the power to govern
Canada between the federal and provincial governments
By virtue of the doctrine of “ultra vires” (cannot do something beyond your power)
Courts will step in and find legislation invalid if it impedes upon the powers of the proper level of government (Federal or Provincial)
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PROVINCIAL JURISDICTION Province Governments have primary jurisdiction over oil & gas by virtue of:
“Property and Civil Rights in the Province” (92.13)
“Local works and undertakings…” (92.10)
“Exploration for non-renewable natural resources in the Province” (92A.1) – added by Constitutional amendment in 1982
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PROVINCIAL JURISDICTION These Constitutional powers result in Provinces being the primary owner and
regulator of oil & gas activities in Canada. The Provinces are responsible for:
Mineral land tenure (Crown and Freehold)
Surface land tenure (Crown and Freehold)
Land Titles and Land Registry legislation for privately held fee simple lands
General regulation and licensing of oil & gas companies and activities
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FEDERAL JURISDICTION The Federal Crown (Parliament of Canada) has exclusive jurisdiction over certain
important matters that impact oil & gas:
“Trade and Commerce” (91.2) – interprovincial and international commerce
“Navigation and shipping” (91.10)
“Sea Coast and Inland Fisheries” (91.12)
“Indians, and Lands reserved for the Indians” (91.24)
Federal Crown also has jurisdiction over the Territories
Subject to recent devolution of powers in NWT
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FEDERAL JURISDICTION With respect to tenure, the Federal Crown retains direct jurisdiction over:
Federal lands (limited impact in Canada)
Administration of Indian Lands (IOGC)
Larger impact
Applies to Treaty Lands
Some devolution of Treaty land administration
Of more direct impact is the Federal power to regulate activities with respect to:
Interprovincial or International pipelines
International treaties (think Kyoto)
Railways
the Territories
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POGG - FEDERAL Matters not coming within the class of subjects described within the
Constitution Act, 1867 (new matters) fall within the general Federal Crown power to legislate with respect to
“..the Peace, Order and good Government of Canada”
[Aside - Funny how the US Declaration of Independence speaks to “life, liberty and the pursuit of happiness” and we odd Canadians speech to Peace, Order and good Government]
Anyway, POGG exists as a very limited Constitutional doctrine in Canada
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NEW MATTERS NOT CONTEMPLATED More generally, new matters not enumerated under the Constitution Act, 1867
are subject to common law rules of interpretation:
Federal Paramountcy; with
Concurrent Jurisdiction allowed for Provinces
In oil & gas matters we care because many significant aspects of our business are not enumerated in the Constitution Act, 1867.
Especially significant in environmental legislation and regulation.
Creates a large Federal role in environmental regulation
With overlapping Provincial regulation
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TENURE All land tenure and title ultimately vests in the Crown
The Crown holds “absolute title” to land
All Crown grants of a title or estate are subject to the absolute title of the Crown (think right of eminent domain on steroids)
Huge amount of Crown Land in oil & gas areas due to our sparse population
The Crown grants various degrees of title ownership:
Crown lease or license – statutorily granted and subject to changes in legislation
Sale of Fee Simple Title – greatest estate known to man
Historically, a certain amount of fee mineral rights were sold
Today, only surface rights can be acquired in fee simple from the Crown
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FIRST NATIONS The legal concept of absolute title being vested in the Crown provides us with a
clear and stable framework for Crown and Freehold tenure
With respect to First Nation Treaty Lands (reservation lands), the system remains somewhat predictable as the rules are generally known and followed and are based upon written treaties between the Crown and the First Nation
The Crown administers Treaty Lands for and on behalf of the Band through Indian Oil and Gas Canada (IOGC)
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FIRST NATIONS Federal Crown has a
“duty to consult”, and
“duty to accommodate” with First Nations inherent in the honour of the Crown
Applies to Treaty Bands and Non-Treaty First Nations
Additional claims to use of broader areas outside Treaty Lands or settled lands - “Traditional Lands”
Not full rights, but some rights
Less certain whom represents the First Nations
Generally don’t buy into the basic idea of the Crown holding absolute title
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FIRST NATIONS Unfortunately, many First Nations are not parties to Treaties (especially in BC)
Less certain rights and obligations
Less certain whom represents the First Nations
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THE COURTS Canadian Courts mirror the Federal division of government
Provincial Courts
Courts of Queen’s Bench
Provincial Court of Appeal
Federal Courts
Trial and appeal
Supreme Court of Canada (SCC)
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THE COURTS General oil and gas matters are almost always Provincial Court of Queen’s
Bench issues
Contract Law
Property Law
Issues with respect to Provincial regulators
Federal Courts deal with limited but important matters
First Nations issues
Issues with respect to Federal regulations
Most general oil & gas matters end at Provincial Courts of Appeal
Many First Nation and other Federal Matters end at the SCC
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THE PROVINCES Let’s now take a quick look at the major (and minor) oil & gas producing
Provinces
The North
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BRITISH COLUMBIA
THINK OF CALIFORNIA WITH MORE RAIN
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BRITISH COLUMBIA
www.centreforenergy.com
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BC TENURE HISTORY Large and sophisticated First Nations throughout BC
Captain James Cook arrives in the late 1770s
British colonies established on Vancouver Island and grow inland
Very little Treaty activity with First Nations
Different approach than in WSB
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BC TENURE Almost all oil & gas activity is in the far NE of the Province
Mineral Tenure is almost entirely Crown
Surface is largely Crown, but there is Fee Simple surface title
Very close to Alberta and away from the main population centers of BC
Until recently largely ignored in BC and mostly operated out of Calgary
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BC TENURE
Almost all Crown oil and gas rights.
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BC TENURE Land Survey system – and odd mix of two survey systems
Most of Province is subject to the National Topographical System (NTS)
However, a significant portion of the NE producing area was surveyed under the Dominion Land Survey and uses the Township System
Balance of Western Sedimentary Basin (WSB) uses the Township System
Mostly nice tight square spacing units
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BC TENURE Leasing of Crown mineral and surface rights regulated by the BC Oil and Gas
Commission (BCOGC)
Fee Simple lands governed under the Land Titles Act and administered by the Land Title & Survey Authority of BC (LTSA)
Mixed Torrens and Registry system
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BC REGULATOR Licensing and development of oil and gas matters regulated by the British
Columbia Oil and Gas Commission (BCOGC)
Single desk regulator
Normal well spacing
¼ section (1 unit) oil
1 section (4 units) gas
Normal spacing does not apply to “Unconventional” zones
See BC Drilling & Production Regulation
Set back and inter-well spacing only
Recognition of Horizontal Wells
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BC – LNG The recent dramatic increase in discovered NG in NE BC has lead to possible
LNG export from terminals on the west coast via pipelines through the interior of the Province.
Many issues arise
Are pipelines Provincially or Federally regulated
Pipelines and First Nations
Terminals
Kitamat and/or Prince Rupert
Shipping
Environmental Issues
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BC – LNG
0
10
20
30
40
50
60
70
1940 1950 1960 1970 1980 1990 2000 2010 2020
Average Reserves per Square Mile (10 wells per sq. mile)(BCF/Sq. Miles)
Montney & HRB
00's
90's
80's
70's
60's
50s
Average Reserves per Square Mile(Bcf)
*
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BC – LNG PIPELINE ROUTES
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BC – OIL PIPELINES The growth of Alberta Oil Sands and Conventional production has resulted in
applications for new or expanded pipeline access to the west coast
Enbridge Northern Gateway (to Kitimat)
Expansion of Trans-Mountain Pipeline (to Vancouver)
Please ask President Obama to approve the Keystone Pipeline
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BC – CURRENT ISSUES Now people in Vancouver (largest city) and Victoria (capital) care
No real history of working with the oil & gas industry
Environmental concerns
Industrial expansion at terminal sites
Possible pipeline spills
Possible tanker spills
“Social License” – whatever that means
What it is in it for BC?
The lack of Treaties for many of the interior First Nations on the pipeline routes are causes of material delays and issues
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ALBERTA
THINK OF TEXAS WITH SNOW
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ALBERTA
www.oneexchangecorp.com
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ALBERTA
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WSB – TENURE HISTORY Alberta and Saskatchewan are late comers to Provincial status
Part of the NWT until 1905
Mineral Tenure not transferred to AB and SK until 1930’s
More defined process of settlement
Dominion Land Survey and Township System in place
Focus on Treaties with First Nations
Not complete, but much more complete than BC
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WSB – TENURE HISTORY Largest area of Fee Simple Mineral Title ownership outside of the USA
Three main categories of Fee Simple Title:
First - Hudson’s Bay legacy lands
1670 King Charles II granted all rights within the Hudson’s Bay drainage basin to “The Govenors and Company of Adventures of England Trading into Hudson’s Bay
Oldest stock company in the world
1869 rights traded back to Crown, reserving 1/20 of surveyed lands
Becomes the Section 8 and 26 fee simple mineral lands
Now widely held by oil & gas companies
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WSB – TENURE HISTORY Second - Individuals granted Fee Simple Title
prior to Crown figuring out that “all mines and minerals ought to be reserved”
Into late 1880s
More Freehold Land the farther East you go, due to Canadian settlement patterns
Ergo, Manitoba oil & gas producing areas are almost all Freehold Land
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WSB – TENURE HISTORY Third – Railway Land Grants – 1880s
Dominion of Canada broke
Needed to build a nation wide railway
Granted Canadian Pacific Railway (CPR) lands grants (mineral and surface) rather than cash to build (a portion of the payment was in land)
25 million acres (lots with mineral rights)
Odd numbered Sections within 24 miles on each side of the railway main line (full mineral and surface rights)
Every other section (Checker board)
Some exchanges of land occurred creating massive Freehold blocks of mineral rights
Other railways granted similar rights resulting in more railway mineral fee simple
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WSB – TENURE HISTORY Third – Railway Land Grants – 1880s, cont’d.
CPR maintained ownership of these fee simple mineral rights
CPR creates Canadian Pacific Oil and Gas Company to administer these rights
CPOGC becomes PanCanadian Petroleum Limited
Fee simple administration and active oil & gas produces
PCP becomes Encana Corporation
2014 – Encana Corporation spins off the fee simple mineral rights into a new company – Prairie Sky Royalty Ltd.
Encana received $1.46 billion for 46% of the new company
One of the largest fee simple mineral companies in the world
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ALBERTA – TENURE HISTORY
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ALBERTA – TENURE Crown mineral and surface rights granted and administered by Alberta Energy
Fee simple lands governed by the Land Titles Act and administered by Alberta Registries (Land Titles office)
Full Torrens system and rights for fee simple lands in Alberta and Saskatchewan
Common law principles on Freehold Lease validity and continuation
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ALBERTA – REGULATOR Licensing and development of oil and gas matter regulated by the Alberta
Energy Regulator (AER)
Single desk regulator
Newly reformed in 2014, some growing pains
Responsible Energy Development Act
Oil and Gas Conservation Act
Oil Sands areas are Crown mineral and are governed by separate legislation (Oil Sands Conservation Act) but are still regulated by the AER
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ALBERTA – FUN TENURE FACTS The Alberta Crown has no qualms about taking or revising Crown land ownership,
even with respect to existing Crown leases
Deep rights reversion
Shallow rights reversion (in force but enforcement pending)
Oil Sands areas stripped out of existing Crown PNG Leases
Gas over Bitumen production restrictions
Crown expropriation of “pore spaces” within privately held fee simple mineral tenure
Fort McMurray town site vs. existing Oil Sands leases
And we, in Alberta, are the redneck property rights lovers
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ALBERTA – NG AND LIQUIDS Conventional NG in crisis due to annoying American gas production
A significant percentage of conventional NG is on freehold lands, which creates tenure certainty issues
Newish play is for liquids rich gas in NW Alberta (Montney)
More likely to be on Crown lands
Capacity issues for processing and transportation out of this area
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ALBERTA – CONVENTIONAL OIL Boom in Alberta conventional oil production due to HZ drilling
Wide area of tight oil plays, but many occur on Freehold tenure
Individual Fee Simple owners
Within the Checkerboard
Regulatory issues due to old “one well per pool” legislation
Adopted density drilling provisions in AB
Oil and Gas Conservation Rules
Applies to oil & gas wells in certain defined areas
Production Allocation Unit Agreement (of some type) required
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ALBERTA –OIL SANDS Defined areas with massive projects
Crown mineral rights
Significant regulatory hurtles and processes
First Nations areas
Some large mining projects, but the vast majority of new production will come from in situ projects
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ALBERTA – OIL TRANSPORTATION WOES
Unfortunately, we cannot fly our oil to market
Moves for pipelines to
BC
Eastern Canada
USA
Delays are moving more oil to rail
Federally regulated
Existing infrastructure and right of way
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SASKATCHEWAN
THINK OF OKLAHOMA WITH EVEN FRIENDLIER PEOPLE
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SASKATCHEWAN
www.oneexchangecorp.com
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SASKATCHEWAN Second only to Alberta in oil production, 20% (or so) of Canada’s oil production
Lots of small conventional pools and resource plays in SW Province
Massive Weyburn unit (currently in tertiary CO2 recovery)
Also has significant gas resources – mainly dry gas, not liquids
Massive move to HZ drilling
Spacing units almost dead
horizontal drainage area and ultimate drainage area used for HZ wells
Larger freehold footprint leads to more freehold validity issues and PAUA issues
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SASKATCHEWAN Crown surface and mineral tenure administered by the Saskatchewan Ministry of
the Economy (SECON)
Licensing and development of oil and gas matters also regulated by SECON
Fee simple tenure governed under Land Titles Act, 2000 and Information Services Corporation (ISC)
Full Torrens system like Alberta
Many oddly split and complex fee simple titles
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SK – FUN TENURE FACT SK is notorious for the “stealing” of foreign (US) fee simple mineral rights for
producing lands during the 1970s oil crisis
Oil and Gas Conservation, Stabilization and Development Act, 1973
Deemed transfer and vesting of private fee simple rights in Crown
Producing tract, down to and including producing zones
Anyone holding more than 1,280 acres (2 sections) fee simple mineral rights
Only lessor (fee simple owner) rights expropriated, not lessee (WI) rights
Actually stripped the lands out of the fee simple title and created new Crown acquired mineral titles
Creates very confusing and custom Crown acquired splits in producing areas
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MANITOBA
www.oneexchangecorp.com
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MANITOBA Around 40,000 boe/d of oil production
Light sweet oil
Massive move to HZ drilling
Spacing units almost dead
horizontal drainage area and ultimate drainage area used for HZ wells
Production allocation required
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MANITOBA Largest fee simple mineral footprint (percentage wise) in the WSB, so lots of
freehold validity issues and PAUA issues
Land Titles system is a mix of Torrens and registry
Manitoba Land Titles Office of the Property Registry
Land is Township survey, but many more meets and bounds splits due to the longer and greater individual fee simple mineral ownership
Regulation of oil & gas activities by Manitoba Innovation, Industry and Mines
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ONTARIO
www.oneexchangecorp.com
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ONTARIO Minor oil producer
Legacy oil pools near or under great lakes
Really hard to drill through the Canadian Shield
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QUEBEC
www.oneexchangecorp.com
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QUEBEC Little or no existing production
No historical oil & gas industry
Very tentative steps in the early 2000s to explore for NG
No fracking way
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THE EAST COAST
ATLANTIC OFFSHORE
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THE EAST COAST Large offshore production and potential production
Relatively settled Crown ownership and regulation
Historical disputes between Federal and Provincial Crowns
Atlantic Accord (1985) NFLD
Canada-Nova Scotia Offshore Petroeleum Resources Accord
More recent disputes between Provinces
Generally administered through combined Federal Provincial Boards
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THE NORTH
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THE NORTH Onshore plays
Southern NWT
Central Mackenzie Valley
Offshore plays
Beaufort Sea
Artic Islands of Nuavut
Eastern Artic Shore
Some 1950’s legacy oil pools
Normal Wells
Administered through Federal Government in cooperation with Territories
Aboriginal Affairs and Northern Development Canada
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BEFORE YOU BUY I am sure you are all now super eager to come up and buy oil & gas assets or
companies in Canada
Before you buy, there are a few pesky rules regarding foreign ownership and competition laws in Canada
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BEFORE YOU BUYForeign Investment
Investment Canada Act
Regulates foreign investment using a “net benefit test”
Investment Canada will review direct and indirect acquisitions of Canadian businesses by foreign nationals where acquisition exceeds $5M (if direct) and $50M (if indirect)
For WTO member states, acquisitions are only reviewable if direct and in excess of $354M (indirect acquisitions are not reviewable)
Acquisitions of control by state owned enterprises are subject to certain specific net benefit to Canada tests, including the corporate governance and reporting structure of the non-Canadian acquirer
Any acquisition or establishment of a new business in Canada by an non-Canadian whether subject to review or not may be reviewed and prohibited if “injurious to national security
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BEFORE YOU BUYCompetition and Merger Control
Competition Act (Canada)
Governs the acquisition of operating businesses in Canada
Requires advance notice to the Federal Competition Commissioner where:
parties to transaction have assets or gross revenues from sales from or into Canada in excess of $400M in aggregate
the aggregate value of target assets in Canada exceeds $82M or gross revenue from sales in or from Canada exceeds $82M
an initial waiting period of 30 days is imposed subject to a supplemental information request
an advance ruling certificate may be applied where no or minimal competition issues apply