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Informational Letter IL 2001-9

December 4, 2001

To: All Oil and Gas Operators

REVISED MRL ADMINISTRATION OF OIL POOLS

This informational letter (IL) outlines a new procedure for administering Maximum Rate Limitations (MRLs) that will significantly streamline administration of allowables in oil pools. The change in procedure, which has been endorsed by the Canadian Association of Petroleum Producers (CAPP) and the Small Explorers and Producers Association of Canada (SEPAC), means pool MRLs will now be distributed to wells based on a well share rather than the previous method of area share. EUB Guide 7-1: Allowables Handbook has been updated to reflect this change and other previous changes outlined in Interim Directive (ID) 97-1: Horizontal Oil WellsRevised Production Rate Limitations and ID 99-2: Revised Policy on Administration of MRL's and Overproduction . The revised guide is available on the EUB's Web site <http://www.ercb.ca>.

The MRL is a rate control applied to oil pools primarily for conservation reasons early in the development of the pool. It is the base rate to which gas-oil ratio and off-target penalties are applied to conserve both oil and solution gas and protect equity. Under the current system, the pool MRL is distributed to wells based on their drilling spacing unit (DSU) area share of the pool and is expressed in units of cubic metres/day (m ³ /d) per hectare. The new process described below will distribute pool MRLs based simply on the number of oil wells in a pool, eliminating the onerous task of monitoring well spacing for the purpose of assigning MRLs. Most pools currently assigned MRLs are single well, have uniform spacing, or are on the Basic Well Rate (BWR) because of their small reserves. This change will only impact the MRLs in multiwell pools with a large reserve base where there is mixed spacing. These account for less than 5 per cent of the approximately 600 pools on MRL.

New MRL Administration

Effective with the January 2002 MRL Order, the MRL system will be revised as follows:

1. The pool MRL will be distributed to wells based on the number of nonabandoned oil wells in the pool. All wells in a pool will therefore be assigned the same MRL regardless of spacing. The well MRL will be listed for each pool in the EUB's MRL Order, expressed in units of m ³ /d/well. Off-target and gas-oil ratio (GOR) penalties will continue to be applied to the base MRL in accordance with current practices.
2. The pool MRL will continue to be calculated as the greater of the BWR times the number of nonabandoned oil wells in the pool or the reserve-based Preliminary Rate Limitation (PRL) described on the Application for a New Well Base Allowable or Base MRL (EUB Form O-38).
3. The MRL will be adjusted each month to reflect any changes in well count, reserves, or pool delineation.
4. Upon successful application, horizontal wells will be assigned a rate equal to the product of the horizontal well modifier (HWM) and the well MRL for the pool.
5. Project and block MRLs will be calculated as the greater of the reserves-based MRL or the product of the BWR and the total number of wells included in the entity.
6. In pools containing more than one project, the MRL for each project within each mechanism will be shared according to its assigned area as specified in EUB Form BO6A: Appendix to Block or Project Approval. Each project's total MRL will be individually listed in the Special Provisions to the MRL Order.

Other Considerations

In pools with large oil reserves, operators need to be aware of the possible impact of applications for reduction in spacing in offsetting lands within their pools. For pools developed under the current system, upon written request, the area-share approach will be grandfathered for a one-year period.

MRLs will be adjusted more frequently than previously, as well counts change from month to month. Operators are therefore advised to check the MRL Order for changes in pool MRL to avoid overproducing. The MRL Order is available on the EUB's Web site. The EUB has made every effort to accurately translate allowables to the new system, but encourages operators to monitor their own records and report any discrepancies.

Operators are advised that allowables records are now available by e-mail or on CD in addition to hard copy. These are available from EUB Information Services at (403) 297-8190.

Questions regarding this IL should be directed to Andy Burrowes at (403) 297-8566 or Nashila Visram at (403) 297-8354.

[Original signed by]

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