When Energy Leases Meet Bitcoin Mining: Alberta Court Confirms Limits on Surface Rights

Surface rights leases can provide essential access for energy operations in Alberta. They may allow operators to enter private land, build infrastructure, and carry out activities connected to the exploration, development, and production of oil, gas, and related hydrocarbons. However, a recent Alberta Court of Appeal decision, Flowers v. Persist Oil and Gas Inc., demonstrates that broad lease language may still have meaningful limits.

In Flowers, an oil and gas operator used an existing compressor site on a landowner’s property to conduct bitcoin mining. The operator argued that the activity was connected to its natural gas operations because it used gas flowing through the compressor station to generate electricity and produce bitcoin during periods of low natural gas prices.

The Court dismissed the operator’s appeal and upheld a permanent injunction preventing the bitcoin mining operation from continuing on the land. The decision offers insight into how Alberta courts may interpret older surface rights leases when new commercial technologies are introduced onto leased lands.

The Surface Rights Lease and the Compressor Site

The dispute centred on a surface rights lease originally signed in 1999. The lease allowed the operator to access a road and a gas compressor site for purposes and uses necessary for the exploration, development, and production of hydrocarbons.

The lease had an initial 10-year term and was automatically renewed for one further 10-year term. It expired in November 2019, and the parties were unable to agree on a renewal.

However, under Alberta’s Environmental Protection and Enhancement Act, a surface rights lease cannot be terminated until a reclamation certificate is issued. No reclamation certificate had been issued, so the lease continued to operate despite the expiry of its renewal term.

The operator continued to run a natural gas compressor station on the land. The station separated, compressed, and processed natural gas produced from off-site wells before the gas was transported elsewhere for further processing.

Bitcoin Mining Equipment Added to the Land

In 2021, the operator brought natural gas generators, computer equipment, shipping containers, and other structures onto the property. The operator began using natural gas from the compressor station to run a bitcoin mining operation.

The operation was described as a means of generating revenue during periods when natural gas market prices were low. The operator later added another generator and more equipment, including data processors housed in shipping containers.

The landowner issued written demands requiring the operator to cease bitcoin mining and remove the equipment. The operator refused. The landowner then sued, seeking declarations that the bitcoin mining operation breached the lease and amounted to trespass and nuisance. The landowner also sought a permanent injunction and financial remedies.

Chambers Judge Found Bitcoin Mining Not Allowed Under Lease

At the first stage of the court proceedings, the chambers judge found that bitcoin mining was not permitted under the surface rights lease. The Court granted a permanent injunction prohibiting the operator from continuing the bitcoin mining operation and requiring the removal of related equipment not otherwise used for permitted operations.

The Court dismissed the landowner’s claims in trespass and nuisance, as well as the claim for disgorgement. However, the injunction remained a central remedy because the bitcoin mining activity was found to be outside the permitted use of the lease.

The operator appealed. It argued that the chambers judge had interpreted the lease too narrowly and had failed to consider the broader realities of the oil and gas industry.

Court of Appeal: Lease Focused on Oil & Gas

The Alberta Court of Appeal focused on the wording of the surface rights lease. The key language allowed the operator to use the land for purposes necessary for the exploration, development, and production of oil, gas, related hydrocarbons, or substances produced in association with them. The lease also specifically referred to pipelines, a sweet natural gas compressor facility, remediation, and reclamation.

The operator argued that bitcoin mining fit within the lease because the activity helped make continued gas production economically viable. According to the operator, the production of electricity and use of that electricity for bitcoin mining supported the ongoing production of natural gas during periods of low commodity prices.

The Court rejected that argument. It found that the lease language was broad enough to include changes in the oil and gas industry, such as new technology for gas compression or separation. However, the language remained limited to activities necessary for hydrocarbon exploration, development, and production. Bitcoin mining was not treated as a new method of producing hydrocarbons. It was not an improvement to gas compression, separation, or recovery. Instead, the Court viewed it as a distinct commercial activity with a different purpose and character.

New Technology Does Not Automatically Expand Old Lease Rights

A key feature of the decision is the Court’s treatment of technological change. The lease was created in 1999. Bitcoin mining did not begin until years later. The Court found that it could not be inferred that the original lease language was intended to capture the specific activity proposed by the operator.

This does not mean that older leases are frozen in time. The Court acknowledged that lease language may be broad enough to accommodate industry developments. For example, an operator may adopt new processes, equipment, or techniques that are still connected to the exploration, development, or production of hydrocarbons.

The issue is whether the new activity remains within the purposes granted by the lease. In this case, the Court found that bitcoin mining was not necessary for hydrocarbon production. The fact that it could make the operator’s business more profitable did not bring it within the permitted scope of the lease.

Right of Entry Order Did Not Authorize Bitcoin Mining

The operator also relied on a Right of Entry order granted by the Land and Property Rights Tribunal. That order allowed access to part of the land for activities related to the compressor station and access to that facility.

The Court found that the Right of Entry order did not change the result. The Tribunal had expressly stated that the bitcoin mining dispute was outside its jurisdiction. Its order was limited to access and activities connected to the compressor station.

The Court held that the Right of Entry order could not be treated as tacit approval of bitcoin mining. The compressor station and bitcoin mining operation were distinct undertakings. One related to gas compression. The other related to generating digital assets for revenue.

Regulatory Approvals Were Not Enough

The operator also pointed to energy and utilities regulatory materials. It argued that because certain regulators address cryptocurrency operations associated with energy activities, bitcoin mining should be understood as part of the broader oil and gas regulatory context.

The Court did not accept that position. It found that the materials relied on did not show that bitcoin mining was necessary for hydrocarbon production. One regulatory bulletin treated cryptocurrency mining operations that consume gas as consumers, even where the same company produced the gas.

The operator had also obtained approval from the Alberta Utilities Commission to construct and operate a natural gas-fired power plant. The Court found that this approval did not authorize the operator to use electricity on the leased land for any purpose it chose. It also did not authorize the operator to breach the lease.

The lease remained the central issue. Regulatory approval for one aspect of an operation did not determine whether the activity was permitted under the private surface rights lease.

Municipal Compliance Concerns Supported the Injunction

The landowner also raised concerns about municipal compliance. The local municipality had advised that the land was zoned agricultural and that bitcoin mining was not a permitted use. The municipality issued a compliance notice requiring the issue to be addressed or the bitcoin mining operation to stop.

The Court found that the chambers judge did not rely on the municipal evidence to interpret the lease. Instead, it was relevant to whether a permanent injunction should be granted.

The Court upheld the injunction. It found that the bitcoin mining operation breached the lease and that damages would not be an adequate remedy. Without an injunction, the operator could continue the activity, leaving the landowner to return to court repeatedly. The landowner also faced potential municipal enforcement risk if the activity continued.

Why the Permanent Injunction Was Upheld

A permanent injunction is a significant remedy. In this case, it prevented the operator from continuing the bitcoin mining operation and required the removal of associated chattels and fixtures not otherwise used for permitted lease activities.

The Court found no reviewable error in granting that remedy. The injunction was not framed as a punishment. It ensured that the operator complied with the lease.

The operator’s financial interest in bitcoin mining did not override the limits of the lease. The Court accepted that the landowner had established legal rights under the lease and that an injunction was appropriate in the circumstances.

Contract Is Key in Energy and Land Disputes

The Alberta Court of Appeal dismissed the operator’s appeal and confirmed that bitcoin mining was not permitted under the surface rights lease. The decision does not suggest that cryptocurrency mining can never occur near energy infrastructure. Rather, it confirms that the legal authority for the activity must be found in the applicable lease, order, approval, or land use framework.

In Alberta’s energy sector, land access arrangements often involve overlapping legal and regulatory considerations. This decision shows how courts may approach the boundary between permitted energy operations and separate commercial activities that use energy infrastructure for a different purpose.

DBB Law: Modern Civil Litigation and Business Lawyers Serving Clients in Calgary and Across Alberta

Surface rights disputes, energy lease issues, right of entry orders, and land use conflicts can raise complex questions for Alberta landowners, operators, and businesses. The knowledgeable commercial litigation lawyers at DBB Law assist clients with commercial lease disputes, civil litigation, injunctions, property rights matters, and land access issues across Calgary, Edmonton, Red Deer, and communities throughout Alberta. To discuss a surface rights lease, energy-related land dispute, or commercial litigation matter, contact our team online or call 403-265-7777 to arrange a consultation.