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Bulletin 2010-07

February 4, 2010

Changes to Well Spacing Within Development Entities No. 1 and No. 2 and Spacing Notification Requirements

The Energy Resources Conservation Board (ERCB/Board) will make the following regulatory changes:

•  revise and harmonize subsurface well-spacing regulations in Development Entity No. 1 ( DE No. 1 ) and No. 2 (DE No. 2)

•  standardize target areas within DE No. 1 and DE No. 2

•  eliminate the requirement to notify surface landowners and occupants on lands that are the subject of proposed applications for special well spacing

The changes reflect an ongoing commitment to restructure and improve the ERCB's regulatory framework respecting unconventional gas development.

This bulletin describes the changes and timing for the changes.

1 Background

1.1 Well Spacing in DE No. 1 and DE No. 2

Well spacing establishes the number of subsurface drainage locations necessary to optimize the recovery of oil and gas in a reservoir. Oil and gas development within the area covered by DE No. 1 and DE No. 2 typically targets lower productivity reservoirs where higher well densities are frequently required to optimize recovery of oil and gas. Much of the area within DE No. 1 and DE No. 2 has been approved for higher density spacing. The ERCB notes that there is sufficient technical evidence and production experience to support setting higher densities for conservation purposes. The regulatory change is an opportunity to be proactive and eliminate many repetitive applications that pose little resource conservation or reservoir equity risk. The change is consistent with development trends in these areas, will provide a more consistent approach across DE No. 1 and DE No. 2 and will reduce the need for some special well spacing applications.

For DE No. 1, the change will provide baseline subsurface spacing west of the 5th Meridian consistent with that already in place east of the 5th Meridian (Southeast Alberta Regional Spacing Area, as defined in Schedule 13A of the Oil and Gas Conservation Regulations).

Proposed well densities that exceed the baseline standard in the DEs will require a Directive 065: Resources Applications for Conventional Oil and Gas Reservoirs well spacing application.

1.2 Landowner Notification of Applications for Special Well Spacing

The present application process for special well spacing includes a requirement for preapplication notification of surface landowners and occupants in the proposed area of application. Special well spacing is a subsurface reservoir development matter relating to increasing drainage points in a reservoir. With increased use of directional, horizontal, and pad drilling to increase well density in tight reservoirs, in many cases there is no direct correlation between reservoir drainage points and surface well sites directly above. Specific surface well sites or other infrastructure are not considered by the ERCB in a spacing application.

Objections triggered by the notification of surface landowners generally involve concerns related to impacts of additional surface infrastructure and activity. These objections are relevant to decisions made during the development of this infrastructure and are best addressed at the time applications are made for wells, pipelines, and other surface facilities. Notification for these developments is comprehensive and continues to be a regulatory requirement providing landowners an opportunity to express any concerns with surface developments that may impact them.

2 Changes

The ERCB will amend the gas well spacing regulations in the area identified as DE No. 2 (Attachment No. 1) and the oil and gas well spacing regulations for that portion of the area identified as DE No. 1 that lies west of the 5th Meridian (Attachment No. 2).

2.1 Well Densities

The amendment will increase baseline well densities in DE No. 1 and DE No. 2 as follows:

• 2 wells per pool per section for gas and 2 wells per pool per quarter section for oil in the Mannville Group, and 4 wells per pool per section for gas in formations above the Mannville Group for that portion of DE No. 1 that lies west of the 5th Meridian
  
• 4 wells per pool per section for gas for the stratigraphic interval of DE No. 2 being the designated strata and stratigraphic equivalents between the top of the Smoky Group and the base of the Rock Creek Member

2.2 Target Areas

Target areas will be modified for that portion of the area identified as DE No. 1 that lies west of the 5th Meridian to be as follows:

• at least 200 metres (m) from the south and east boundaries of the quarter section for an oil well producing from the Mannville Group
  
• at least 300 m from the south and west boundaries of the section for a gas well producing to the base of the Mannville Group

Target areas will be established for the area identified as DE No. 2 as follows:

• at least 200 m from all boundaries of the section for a gas well

Wells drilled on target before the effective date of the noted changes which become off-target under the amended spacing will not be subject to off-target penalties unless the Board otherwise directs, in accordance with the provisions of section 4.090 of the Oil and Gas Conservation Regulations.

When these changes in well spacing are implemented, existing special spacing within the area of the DEs established as a result of applications will continue to be valid unless rescinded or amended by the ERCB following the submission of an application.

2.3 Landowner Notification of Applications for Special Well Spacing

The ERCB will no longer require the notification of surface landowners and occupants of proposed applications for special well spacing. However, notifications now in progress for proposed spacing applications must be completed, and any objections received must be addressed through consultations and the processes available at the ERCB. In addition, any objections that have been received for spacing applications already filed with the ERCB must be similarly addressed.

EnerFAQs No. 7: Proposed Oil and Gas Development: A Landowner's Guide has been updated to provide information about well spacing.

As noted above, surface landowners and occupants will continue to have the opportunity to express their views respecting proposals for surface infrastructure at the time those developments are brought forward.

3 Timing

Effective as of February 4, 2010, notification of surface landowners and occupants of proposed special spacing applications will not be required.

The changes to well density and target areas within DE No. 1 and DE No. 2 will be effective on April 1, 2010.

Directive 065: Resources Applications for Conventional Oil and Gas Reservoirs will be amended no later than April 1, 2010, to reflect the changes noted in this bulletin.

< original signed by >

Stephen Smith
Executive Manager
Applications Branch

Backgrounder: Landowner Notification of Applications for Special Well Spacing

Well spacing refers to the number of subsurface drainage locations needed to optimize oil or gas recovery from a specific pool. It is based on the geological and reservoir characteristics of the pool that determine the area each well can effectively drain. High-quality pools typically require fewer wells per area than poorer-quality pools. While there is a relationship between the optimal subsurface well spacing and how many wells may be drilled, the two issues are addressed separately. Approval of special well spacing does not take into consideration or imply approval of any surface infrastructure, including wells, pipelines, or other facilities. These must be applied for separately.

Notice of well spacing applications has been provided to surface landowners and occupants in one form or another since the late 1970s. The requirement arose from surface owner concerns about high well density development that occurred in the early stages of heavy oil development in east-central Alberta . Since well drilling technology of the day relied heavily on vertical wells, there was a link between the number of wells drilled and the associated surface impact: one well site for every well.

The intended benefit of the notification was to make landowners aware of potential future development on their land so that they could begin discussing concerns with the applicant at an early stage. Since that time, increased well density has become more common in many areas of the province, and new directional well drilling technology can now access reserves from adjacent lands or centralize multiple well sites on one location. Also, early dialogue about planned energy development has been encouraged by the ERCB and its value is now recognized by most operators, as evident by initiatives such as community open houses and synergy groups.

As associated surface impacts related to well spacing can now be mitigated or eliminated by moving the surface location of the well, the ERCB is no longer requiring notification of landowners and occupants for special well spacing applications. However, notification currently under way must be completed and any objections addressed. Likewise, objections to spacing applications already filed with the ERCB must also be dealt with.

Well Spacing: Question and Answer

What is well spacing?
Well spacing refers to the number of subsurface drainage locations needed to optimize oil or gas recovery from a specific pool. The ERCB determines this based on engineering analysis of reservoir rock characteristics, fluid properties, and production behaviour. In its role as Alberta 's energy regulator, the ERCB is charged with ensuring that the province's energy resources are developed in a safe, responsible, and efficient manner.

As indicated above, well spacing is a subsurface issue, and as such, there are no associated surface impacts.

Why must a company apply for special well spacing?
Companies must apply for special well spacing when they seek to increase the number of drainage locations in a pool. They must demonstrate, through engineering and geological analysis, how special well spacing would improve oil or gas recovery from the pool. Special well spacing is a reservoir development matter unrelated to surface issues; specific well sites and other surface infrastructure are not part of a spacing application.

How do special well spacing applications impact landowners?
As mentioned, special well spacing is a matter that relates to increasing the number of drainage points in a reservoir, and therefore a landowner is only affected if the company decides to apply to drill a well—in short, there are no surface impacts. Even if a company receives permission to increase its spacing, it must still apply to obtain a well licence, just as it would after being granted mineral rights from the province.

Prior to the 1990s, most wells drilled in the province were vertical wells that required individual well sites located directly above the intended target. Technological advancements over the past couple of decades have resulted in a significant percentage of wells being drilled directionally or horizontally from a common surface well site. This effectively minimizes surface disturbance and allows increased subsurface well spacing from fewer well sites.

What ERCB requirements must a company follow when applying to increase well spacing?
A company is no longer required to notify landowners of proposed spacing applications. However, if the company then applies to drill a well, either from an existing lease or from a new site, it must follow the ERCB's same strict regulatory requirements, which include consulting landowners early in the process.

What is a development entity?
A development entity (DE) is a geographic area within the province that consists of multiple geological formations from which natural gas can be produced at the same time, without segregation in the wellbore. As a result, an operator does not have to apply to the ERCB if it wishes to produce from more than one geological zone at the same time. There are currently two DEs in the province.