Decision 99-18 plus Addendum

RANGE PETROLEUM CORPORATION
APPLICATION FOR A WELL LICENCE
Lsd 4-35-70-24W5M
STURGEON LAKE AREA

Application 1019406

View PDF file (Decision and Addendum)

1 DECISION

Having carefully considered the evidence, the Board believes that it would be possible to drill the proposed well safely and with minimal risk, subject to the conditions listed in the Attachment 1. However, in light of the unique setting of the area, including the residences and the configuration of the roads and lakeshore, and the difficulty that would exist in preparing an effective ERP, the Board will defer its decision on the well licence application until an approved ERP is in place.

2 INTRODUCTION

2.1 Application and Intervention

Range Petroleum Corporation (Range) applied to the Alberta Energy and Utilities Board (EUB) pursuant to Section 2.020 of the Oil and Gas Conservation Regulations for a well licence to drill a sour oil well from a surface location in Legal Subdivision (Lsd) 4, Section 34, Township 70, Range 24, West of the 5th Meridian, directionally to a bottom-hole location under Sturgeon Lake in Lsd 4-35-70-24W5M (4-35 well). The purpose of the proposed well, Range et al Sturls 4-35-70-24W5M would be to obtain sour oil production from the Leduc Formation. The well would be a Level 1¹ well because it would have a potential maximum hydrogen sulphide release rate of 0.0412 cubic metres (m) per second (m³/s).

1 Sour wells are designated by levels pursuant to Interim Directive 97-6 depending on their potential maximum H₂S release rate. Level 1 wells have a potential maximum H₂S release rate of not more than 0.3 m³/s. Level 1 wells may not be located closer than 100 metres from an individual permanent dwelling.

The EUB received objections to the application from landowners, cattle ranchers, farmers, residents, and cottage owners (the interveners) in the area of the proposed well (see attached Figure 1).

2.2 Hearing

The application and intervention were considered at a public hearing on 26 January 1999 in Grande Prairie, Alberta before Board Member J. D. Dilay, P.Eng. (Presiding Member), and Acting Board Members, R. J. Willard, P.Eng., and M. J. Bruni. The Board viewed the proposed surface location, the previous Lsd 3-2 surface location, and the surrounding area prior to the commencement of the hearing.

Those who appeared at the hearing are listed in the following table.

2.3 Background

The proposed well would be located on the south shore of "the Narrows" of Sturgeon Lake, approximately between "the Narrows" subdivision and Boyd's Lakeshore Properties and near the intersection of two dead-end roads accessing these developments (see attached Figure 1).

Sturgeon Lake is located approximately 125 kilometres east of Grande Prairie and approximately 25 kilometres west of Valleyview. People from both communities use the lake for a variety of recreational uses on both a permanent and seasonal basis. Cattle ranching is carried out on the land to the southwest of the proposed wellsite.

Range applied in March 1997 to drill directionally from a surface location in Lsd 4-34 to a bottomhole target at Lsd 6-35 under Sturgeon Lake. Opposition from interveners located on the south shore of "the Narrows" caused Range to reconsider its preferred surface location. Range agreed to attempt to drill directionally from a surface location on the north shore of "the Narrows" at Lsd 3, Section 2, Township 71, Range 24, West of the 5th Meridian (3-2 surface location). The Board issued the well licence August 1997.

According to Range, the drilling of the well from the Lsd 3-2 surface location was unsuccessful because it experienced hole problems while drilling through the Fernie Formation (Fernie), an unconsolidated shale formation. Problems included: hole collapse in the Fernie, operational problems drilling a new hole, and the parting and loss of a downhole motor. In trying to overcome these operational difficulties, Range plugged back the well with cement to above the Fernie, and side-tracked to the base of the Fernie. In total, Range made three attempts to drill through the Fernie. Range encountered additional problems in trying to case through the Fernie to prevent sloughing, as the casing was stuck at a depth of 1200 m, but it was eventually freed.

After 48 days of drilling time and spending in excess of $2.9 million on the hole, Range made the decision to abandon the well and release the drilling rig based on its assessment that hole conditions had deteriorated, and the continued operational risks of drilling from Lsd 3-2 were too great. The proponent reapplied in the spring of 1998 for approval to drill at the originally applied-for Lsd 4-34 surface location to a bottomhole location in Lsd 4-35. However, the residents maintained their opposition to the Lsd 4-34 surface location.

2.4 Preliminary Matters

Prior to the commencement of the hearing, the interveners asked the Board to direct the applicant's former drilling contractor to attend the hearing and testify as to the reasons why the drilling of the well at Lsd 3-2 in 1997 was unsuccessful. The applicant submitted that it would adduce sufficient evidence from its proposed witnesses (which did not include the drilling contractor), to address the issues arising from its current application to drill from the Lsd 4-34 location. The applicant added, that apart from the knowledge gained from the unsuccessful well in evaluating the appropriate drilling program for the current application, an inquiry into the drilling of the Lsd 3-2 well was irrelevant and beyond the scope of the current well licence application.

The Board advised the parties that it would not compel the drilling contractor to attend, but if it were necessary to reconsider the matter at the hearing, it would review its decision.

While the Board has the authority to compel the attendance of persons to a public hearing for the purpose of providing direct evidence, it also has considerable latitude in determining the nature of the evidence that it will admit on any relevant issue before it. The Board is satisfied that the applicant's witnesses, who gave evidence regarding the 1997 drilling problems, have properly familarized themselves through direct discussions with the drilling contractor, review of appropriate drilling reports, notes, logs or other data, and discussion among themselves so as to provide the Board with an accurate account of the 1997 drilling problems. The Board notes that the drilling contractor was reporting directly to the applicant. For these reasons, the Board is not disposed to issue a subpoena or notice to attend to the drilling contractor.

3 ISSUES

The Board considers the issues with respect to the application to be:

• the need for the well,
• the need for the bottomhole location at Lsd 4-35 and drilling limitations,
• surface locations and public/environmental impacts, and
• public safety.

4 NEED FOR THE WELL

4.1 Views of Range

Range said that it obtained petroleum and natural gas leases covering the mineral rights under Section 35. Range submitted that, on the basis of its interpretation of the geophysical 3-D seismic and geological data, it identified an anomaly in the Devonian age Leduc (D-3) reef under Sturgeon Lake within the area of its lease holdings and needed to drill the proposed well in order to obtain production. Range expected to encounter a Leduc oil pool with similar characteristics to the Sturgeon Lake South Pool. If the exploratory well were successful, Range indicated that it would consider drilling up to three more wells in the same structure, which could contain possible recoverable oil reserves of 2.4 million cubic metres. In addition to the Leduc primary target for the proposed Lsd 4-35 well, Range considered the Nisku (D-2) Formation as a secondary target with some hydrocarbon potential based on nearby analogue wells and the overall geological setting of this area.

4.2 Views of the Interveners

The interveners did not question Range's right to explore for and develop its mineral rights in Section 35.

4.3 Views of the Board

The Board notes that Range has acquired rights to the minerals under Section 35. The Board believes that a well is required to determine if oil is present, and if so, to enable Range to produce it.

The Board also notes that the subsurface location under Sturgeon Lake is a considerable distance from the nearest shoreline. Resource extraction will require highly technical high-cost drilling and operations assuming an acceptable surface location can be determined given the extensive existing land use. In the following section, the Board will review the technical aspects of accessing the exploration target.

5 THE NEED FOR A BOTTOMHOLE LOCATION AT 4-35 AND DRILLING LIMITATIONS

5.1 Views of Range

Range stated the proposed bottomhole location Lsd 4-35 was selected based on its interpretation of the geological and geophysical data. Range believed that the bottomhole location, which would yield the highest probability of successfully encountering a permeable oil formation, is situated under the lake in Lsd's 4, 5, and 6 of Section 35. Range considered it imperative, for the bottomhole location of this initial exploratory well, to be at Lsd 4-35 to test the most updip portion of the Leduc structural closure. Range stated that this crestal could have up to 25 metres of pay and would drain reserves from the structural attic. Range claimed that, based on its latest geophysical mapping, any movement away from the Lsd 4-35 location may result in reduced reservoir and oil column thickness, increased risk of top and/or lateral seal failure, and reduced chance of encountering the best quality reservoir.

Range stated that it initially considered a bottomhole location at Lsd 6-35-70-24W5M. As a result of its re-evaluation of the seismic data, Range concluded that a Lsd 5-35 or 6-35 location was too high a geological risk and changed the well design to reflect a bottomhole location target in Lsd 4-35.

In planning the previous Lsd 3-2 well, Range submitted that it had reviewed the directional drilling evidence in the area, especially the Amerada Coho Sturls 16-25-70-24W5M well drilled directionally under the lake to a total depth of 4230 m after 132 days.

From this review, Range applied a different mud program for the 3-2 well from that used in previous wells to address the Fernie shale problems, albeit unsuccessfully.

Range developed a different drilling program for the proposed Lsd 4-34 well involving vertical drilling through the shale, setting casing through the shale, and then directionally drilling at a shallow angle. This technique has a reported practical horizontal reach limit of 1800 m. Accordingly, Range submitted that extra drilling time would increase the cost of drilling a longer hole from Lsd 3-2 by about $1 million and present unacceptable risks of losing the well.

5.2 Views of the Interveners

The interveners expressed concern that the bottomhole location had shifted from Lsd 6-35 to Lsd 4-35 since the drilling of the Lsd 3-2 surface location. They questioned Range's assertion that the Lsd 4-35 bottomhole location was essential to the company's drilling program from the Lsd 4-34 surface location. The interveners observed that the lateral displacement from the Lsd 3-2 or Lsd 4-34 surface location would be similar if the company had not changed its original bottomhole location thus removing the technical risk preference argued by Range. The interveners presented no technical evidence on either geology or drilling limitations.

5.3 Views of the Board

On the basis of the geological and the geophysical models presented by Range, the Board agrees that Range's geological assessment of a possible oil reservoir under the lake in Lsd's 4, 5, and 6 of Section 35 is reasonable. The Board concurs with Range's geological assessment that, to test the most updip portion of the Leduc Formation structural closure of the reservoir as mapped, the bottomhole well location would have to be in Lsd 4-35 to obtain the best chance at the highest quality reservoir. The Board also notes that it is not uncommon for companies to change bottomhole locations with new data, new interpretative techniques, or seismic processing evaluation.

The Board believes that a successful well could be drilled from the Lsd 3-2 surface location, particularly now that the kind of problems that were encountered earlier at the Lsd 3-2 site can be anticipated and prepared for. However, it would likely be more risky and substantially more expensive than a well drilled from Lsd 4-34 to Lsd 4-35. Such additional risk and costs would only be warranted, if the impacts of the proposed well location were too great, and the proposed well could not be drilled from Lsd 4-34. In the following sections of this report, the Board assesses the impacts of the proposed well to determine whether or not they would be acceptable in the public interest.

6 SURFACE LOCATIONS AND PUBLIC/ENVIRONMENTAL IMPACTS

6.1 Views of Range

Range indicated that it had a valid surface lease and landowner consent to drill at the Lsd 4-34 location. Range said that it had chosen the Lsd 4-34 surface site because it allowed a bottomhole location that had economic and operational risk acceptable to Range. It also placed the well site location away from the cottage subdivisions in a treed area, out of sight from the road into the area, on an existing cut-line, to obscure the site as much as possible from the recreational dwellings.

Range stated that it would apply the same commitments it had made for the previous Lsd 3-2 well. The maximum amount of surface equipment required at the proposed wellsite would be limited to a treater, if necessary, and the wellhead and control building. It stated that the produced fluid from the well would be transported by pipeline to either the PetroCanada plant to the north at Lsd 10-29-71-23W5M, or to the Lyse battery to the south at Lsd 5-17-70-23W5M, or that it may build a remote facility of its own. Range said that an operator would be required to check the well twice daily. No drilling would occur in July or August.

Range further committed to have the proposed lease site bermed to contain any possible spills, and that this measure in combination with the distance of the lease from Sturgeon Lake provided sufficient protection against a potential spill affecting the lake. Range indicated that it planned to use water from Sturgeon Lake during the drilling of the well, and that Sturgeon Lake water was used for the drilling at the Lsd 3-2 location. Range expected that the Water Resources Branch of Alberta Environmental Protection would allow a similar arrangement.

Range did not comment on property values at the hearing.

Range stated that it had done a preliminary site assessment. It was aware of two water wells in the vicinity of its proposed drilling activity. Range stated that it was unable to provide details regarding the distance and direction of the wells from the proposed drilling location, the depth of the wells, or the water quality and quantity. Further, Range said that it was unable to comment on the presence of any other wells in the area or what other sources of drinking water were used by local residents. Range committed to complete a water-testing program for all water wells in "the Narrows" and Boyd's Lakeshore areas for water quality and rate prior to commencing drilling operations. Range had completed a groundwater protection search to determine groundwater conditions in the area, and found the base of useable groundwater to be 350 m in depth. Accordingly, Range stated that it would protect groundwater by drilling the surface hole to a depth of 350 m, and then run surface casing and cement to surface. In addition, Range said that it would drill to the Debolt Formation, set intermediate casing, and cement it to surface.

Range confirmed that it would use a fresh water-based drilling fluid for drilling of the surface hole. Further, it noted that the Lsd 3-2 drill experienced no surface loss of circulation, and that it proposed to use the same procedures for drilling and groundwater protection at the proposed Lsd 4-34 location. Range also indicated that it was not aware of any near-surface lost circulation in the drilling of other wells in the vicinity of Sturgeon Lake.

Range indicated that it would use above ground containment tanks for fluids during drilling, but proposed to have some in-ground pits for overflow containment. It believed that there would be no risk to groundwater from these in-ground pits because they would be lined or the naturally occurring clay soils would be compacted. Range produced a pre-disturbance assessment that provided soil data. It evaluated soils to a maximum depth of 40 centimetres on the proposed lease site and access road, indicating soil textures to be predominantly silty loam to silty clay loam. Range confirmed that further assessment of surficial deposits would be needed to determine their suitability for in-ground pits.

Range stated that it would be using a closed production system to reduce the risk of odours in the area and that flaring would occur only during testing of the well, taking two to four weeks to complete. Range confirmed that it would have qualified personnel on site during drilling and testing, to monitor air quality on-site and away from the site.

Range confirmed that it proposed off-site land spreading for disposal of its drilling materials.

6.2 Views of the Interveners

The interveners stated that the abandonment of the well at the Lsd 3-2 surface location was based on mechanical and technical problems, and that Range should attempt to rectify these problems and re-drill from the Lsd 3-2 surface location. The interveners also believed that Range would face similar technical problems drilling through the Fernie shale at the Lsd 4-34 surface location and that Range only wanted to save money.

The interveners submitted that their three major areas of concern were safety, health, and the impact on the value of their property. The primary concern was the safety of the operation and their inability to leave the area in the event of an emergency. The interveners also raised the concern of non-compatible industrial activity in a recreational setting citing odour, noise and safety issues from H₂S emissions and increased traffic. The interveners said that they believed a complete and comprehensive environmental impact study should be undertaken before any drilling is allowed to proceed.

The interveners expressed concern about the potential release of lost circulation drilling material or production and its effect on their water wells, the quality of Sturgeon Lake, the quality of recreational activities at the lake, and the local fishery. The interveners submitted that the water quality was murky during the drilling of the well from Lsd 3-2 although no evidence to show a direct link between the two events was available. The interveners believed that they need a mechanism to report incidents such as this, and have them investigated. The interveners suggested that, if the well were drilled, Range should undertake to sample the baseline water quality of the lake prior to drilling.

The interveners were concerned about the potential for loss in property value, and submitted that the sale of properties had declined to zero during the 1998 summer, compared to previous summer sales. They believed that this was due to the drilling at Lsd 3-2.

The interveners sought some conditions concerning any drilling from either site that included: no production facilities at the site, mud tank usage rather than sump pits, no drilling to occur between 1 May and 1 October, testing of the water wells in the area, testing of the lake water, and, pipeline plans to be in place before the well is approved.

6.3 Views of the Board

The Board notes that considerable planning has occurred to select a site south of "the Narrows" that minimizes potential impacts. The treed location using minimal on-site and closed facilities, H₂S detectors, and remote production would substantially reduce any significant public or environmental impact. Further safeguards or precautionary actions proposed by Range, concerning surface casing, and water well testing is prudent.

The Board believes some additional safeguards are warranted for this site. There remains a risk that fluids may migrate from an in-ground pit or a bermed site and potentially reach groundwater and the lake. For this reason, above ground pits and a secondary containment around the tanks would be required.

The Board further believes that the Lsd 4-34 surface location warrants minimal flaring even during well testing. While there are no existing pipelines to permit testing through pipe, the Board believes that flaring for test purposes should be limited to determining well characteristics and not prolonged reservoir studies. Unless authorized by the Board, the flare test is not to exceed 10 days. Gathering additional information would await completion of the pipeline and closed production facilities. Given the area's concentrated summer recreational use, the Board believes that no drilling or production testing should occur between 1 May and 15 October.

With respect to the issue of property values, the Board notes that the Sturgeon Lake area had oil and gas activity, at various areas around the lake, in place prior to the drilling attempt at the Lsd 3-2 surface location. The Board understands the apprehension that some residents have about the potential impact on property values, however, there was not conclusive evidence to indicate that there would be such an impact.

7 PUBLIC SAFETY

7.1 Views of Range

Range calculated an emergency planning zone (EPZ) of 315 m for the Lsd 4-35 well based on the Leduc analogue reservoirs in the nearby Sturgeon Lake South and Calais Fields. Range stated that it believed that the proposed well is a Level 1 facility based upon EUB guidelines. It believed that the Nisku Formation, if penetrated by the proposed well, would have negligible impact on the well's total H₂S release rates because of the low probability of encountering a significant Nisku reservoir. The EPZ did not encroach on currently developed property but Range committed to preparing a proper emergency response plan (ERP) prior to drilling the well that included both residential developments.

7.2 Views of the Interveners

The interveners were concerned that, because there was only one road into the lake subdivisions, there would be a safety problem if an accidental release from the well occurred. Further, they were also concerned that there were additional daily recreational users that used the area for a variety of purposes throughout the year that may not be notified in the event of an emergency. The interveners requested that the Board impose a requirement for a professional ERP to be in place before any drilling would occur, although they stated they were firm in their conviction they did not want the well in the vicinity of their recreational dwellings.

7.3 Views of the Board

Residents' concern about their health, well being, and safety when living near sour oil or gas facilities is a paramount consideration of the Board when reviewing these applications. Indeed, the bulk of the Board's regulations, requirements, and guidelines in this area embody the principles of protection of the public's well being and the environment. Strict regulations are in place that governs the drilling and subsequent production of sour gas and oil.

It is the Board's view that the risk of a blowout during drilling or other unplanned release of oil or gas is very low given the drilling, testing, and production criteria that the applicant must meet. For the most critical Level 4 H₂S wells, such detailed plans must be filed as part of an application. For the other situations including non-critical Level 1 wells, such as the proposed Lsd 4-34 well, it is the Board's normal practice to address the well license first followed by an approval of the ERP. Where residents have raised specific safety concerns, and, the issues and impacts are the subject of a hearing, the Board expects that the applicant would be prepared to address its plans in sufficient detail.

In this particular case, Range has committed to include the unique topographical and subdivisional features in an expanded ERP. However, the Board is concerned that the applicant may not appreciate the specific circumstances associated with "the Narrows" site, the concerns expressed by the residents, and the importance of such a plan as early as possible. It has provided the Board with a generic ERP. While the Board recognizes that the plan is in draft form, the Board notes that it is seriously deficient in a number of areas including: basic information (number of residents, distance to nearest town, name, and phone number of evacuation centre), detailed response actions with an adequate number of responders, personnel responsibilities, communications plan, air monitoring, coordination of responsibilities with government agencies, and inaccurate mapping. The Board believes that a detailed ERP is required before it can complete an assessment of the impacts of the proposed Lsd 4-34 well.

In the present case, the applicant proposes to drill a Level 1 sour oil well with permanent homes, cottages, and recreational trailers in close proximity to the outer edge of a normally calculated ERP planning zone. The Board was advised that large numbers of the general public also make use of this popular destination for boating, fishing, snowmobiling, and related activities. The salient feature of the location from an emergency response perspective is that there is only one road providing ingress and egress from the area. The road stops at "the Narrows" at a public dock. It traverses parts of the EPZ. For most of the people in the area, whether residents or visitors, the road represents the most feasible means of egress if evacuation is necessary. Even if it is not necessary in terms of public safety, some people may wish to leave the area. There may be other means, such as moving people to the north over "the Narrows" but options were not discussed at the hearing.

Dated at Calgary, Alberta, on 5 July 1999.

ALBERTA ENERGY AND UTILITIES BOARD

J. D. Dilay, P.Eng.
Presiding Member

M. J. Bruni
Acting Board Member

R. J. Willard, P.Eng.
Acting Board Member

ATTACHMENT 1 TO DECISION 99-18

Condition 1

Drilling of the Lsd 4-34 well and associated pipeline activity and facility construction is not to occur during the period 1 May to 15 October.

Condition 2

No permanent flaring shall occur at the Lsd 4-34 wellsite.

Condition 3

Range shall provide the residents with a minimum of 72 hours notice of the planned flaring activities to test the well. Flaring related to testing is not to exceed a period of 10 days unless otherwise approved by the Board.

Condition 4

Range must test the appropriate number of water wells for quality and quantity prior to spudding the Lsd 4-34 well.

Figure 1 - Map (follow link to view map)

Addendum (Released July 31, 2001) 
Addendum available only in PDF file with the Decision