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Outline of History of the Canadian Pacific Railway's Land Grants (Page 3)

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Petroleum and Natural Gas

The first important revenues from the hydrocarbon group (i.e., petroleum and natural gas) appear to have come from what was known as the Coste Agreement, entered into in 1911, with one Eugene Coste, founder of the gas company that was later to serve Calgary with natural turned over to the gas. It was under this agreement that the Company gas company its interests in exploratory welts it had drilled (originally in a search for water) in the vicinity of Medicine Hat, Brooks and Bow Island, and the original pipeline was built from the latter point in 1911- 12 to supply the City of Calgary.

Shortly thereafter, in 1914, the discovery of oil in Turner Valley by the team of A.W. Dingman and WS. Herron sparked interest in oil rights owned by the Company Although the 1914 oil boom quickly subsided as a result of the outbreak of WWI, the more permanent segment of the oil industry (notably Imperial Oil), continued to work persistently in the area, mainly through a subsidiary known as Calgary Petroleum Products Ltd.

As a result of Imperial Oil's persistence, the famous ''wonder well'' (Royalite No. 4) was eventually discovered - incidentally on Company- owned rights (W½ 7-20-2 W5) in 1924. This well yielded to the Company royalties of more than $400,000 during its active 5½-year life. The bulge in mineral revenues shown on the attached statement for the period 1924- 29 is directly traceable to this well.

It was during this period that the Ohlson Case had its origin. In the early days Turner Valley was regarded as a ''wet gas'' or ''condensate'' field - that is to say the effluent consisted of a heavy wet gas from which quantities of a highly volatile liquid (then referred to as ''naphtha'' but actually a light-gravity petroleum) could be extracted by simple separation at the wellhead. In this instance the Company's mineral title was limited to Coal and Petroleum. The practice was for the operators to Place separators at each well, the liquids being produced into a stock- tank, and the gas piped away to a convenient spot and ''flared''. In the Ohlson case, the owner of the minerals other than coal and petroleum, one Carl Ohlson, contended through his solicitor (M.M. Porter) that the Company and its lessee, Imperial Oil, should be compensated for it. After were wasting his gas and that he considerable negotiation, an arrangement was arrived at whereby Ohlson was to be paid a royalty of 2½% of the value of the substances produced and marketed, this to be shared equally by the Company and Imperial) i.e., Imperial paying a royalty of 13¾% to the Company, from which the Company paid 2½% to Ohlson, thus netting 11¼%. In other parcels in the vicinity under lease to Home Oil Co., Home solved the problem by simply purchasing the surface owner's entire rights for cash, and made no claim against the Company This action, along with the settlement in the Ohlson case, served to delay for many years the litigation which ultimately was entered into (see reference to the Borys case) in an effort to settle the question of ownership of mineral rights.

In the following years, interest in the search for oil in Alberta waxed and waned, due in part to the efforts of brokers and promoters, but it was not until 1939 that the interest of the major oil companies became evident. Imperial Oil, of course, being a Canadian-based company had been conducting continuous exploration in Saskatchewan and Alberta, and in 1942, entered into the first of our so-called Sliding Scale Reservation Agreements (PR 128) under which they undertook to diligently explore for oil and/or gas in the general areas covered by the reservation. This and other similar reservation agreements subsequently granted to other major oil companies, were on the basis of a fee of 10¢ per acre per annum on the first 200,000 acres, 5¢ per acre per annum on the next 200,000 acres, and 2½¢ per acre per annum on the excess over 400,000 acres. The reservations carried the right on the part of the oil company to take under lease lands upon which they wished to actually drill, terms of the lease being more or less standard for all companies and providing for $1.00 per acre per year rental, and a royalty of 12½% on production.

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