News Release March 20, 2001

FOR IMMEDIATE RELEASE

EUB DENIES CRITICAL SOUR GAS WELL IN ROCKY MOUNTAIN HOUSE AREA

Calgary, Alberta (March 20, 2001) The Alberta Energy and Utilities Board (EUB) has denied an application (Decision 2001-9) by Shell Canada Limited (Shell) for a licence to drill an exploratory level 4 critical sour gas well from a surface location at Legal Subdivision (LSD) 7-7-38-6-W5M approximately 13 km south southeast of Rocky Mountain House.

The application and interventions were considered at a two-week public hearing commencing November 7, 2000 at the Dovercourt Community Hall. The Board heard interventions against Shell's proposal from a number of residents of the Clearwater community.

In its decision, the Board states: "The hearing considered whether the development of the proposed sour gas well would be in the public interest and included an examination of the unique topographic and demographic conditions in the vicinity of the proposed well in conjunction with the potential release rate from the well under reasonable worst-case conditions. Having carefully considered all of the evidence, the Board is of the view that the emergency response plan proposed by Shell Canada Limited (Shell) has not adequately addressed these unique conditions. Since public safety cannot be acceptably assured, the Board does not believe the drilling of the well, as currently proposed, to be in the public interest. Therefore, the Board denies Application No. 1042932 without prejudice to any future application."

BACKGROUND

In reaching its decision, the Board found that the key issues were:

• need and location of the well,
• risk and hazard assessment,
• emergency preparedness,
• land-use impacts,
• public consultation, and
• other matters.

The Board notes that to fully determine the extent of potential production from a previously unexplored formation in a region, the drilling of an exploratory well and the testing of any associated production are necessary to confirm the full economic potential of the suspected reservoir. Such exploratory wells have been and will continue to be needed in order to identify the new reserves needed to replace produced gas reserves. However, the Board must ultimately be convinced that any well can be developed in a manner that does not have unacceptable impacts on local residents. The Board notes that the circumstances surrounding any individual well will differ and the unique features of a particular region may result in adverse effects that would be considered to be acceptable in other cases.

In assessing the evidence on public safety hazards and risks, the Board believes that it must consider three key aspects in reaching its conclusions. First, in order for the hazards and risks for a proposed development to be estimated, the appropriate tools, in this case computer programs for modeling plume dispersion, need to be selected. These tools need to be applied with plausible, yet appropriately conservative or protective assumptions with respect to methodology and input data. Second, it is necessary to be able to understand and assess the implications of the public safety hazards resulting from a failure or series of failures that could potentially occur. The assessment of hazards relies on understanding the consequences of a failure but does not incorporate the probability that the failure would occur. Finally, acceptable risk assessment requires the appropriate combination of the hazards associated with a development and the probability that the events or series of events will occur.

In summarizing the risk factor, the Board believes that sour gas wells can be drilled and operated with very small failure probabilities.

On the topic of adequate emergency preparedness, the Board believes that there are four key issues that it must address. These are:

• the acceptability of Shell's proposed reduction of the calculated Emergency Planning Zone (EPZ),
• the ability of local government to carry out its proposed role in the Emergency Response Plan (ERP),
• the ability of the ERP to address unique individual needs, and
• the impact of well ignition times on the ERP assumptions.

The Board, in reaching its conclusions on all four issues, has been particularly mindful of the interveners' evidence regarding the unique features of the area. An effective ERP for this area must address all unique features, including those not normally faced by a proponent. In this case, the presence of the Clearwater River creates a significant barrier to effective evacuation in the case of an emergency. This would be true in the spring, summer, and fall, when large numbers of recreational users are likely to be present within the steep river valley, and in the winter, when road access may be problematic.

The Board notes that communication with the public in the area may also be difficult under emergency conditions, since many residents are transitory and/or do not have telephones. Furthermore, there appear to be a number of individuals who could be particularly sensitive to not only the effects of an uncontrolled well release, but also the stress that such an event may introduce. While Shell has clearly tried to address this particular issue by offering to remove these individuals from the area during drilling and testing, the Board believes that this solution, which continues to be effective in many cases, is not without its own potentially significant impacts given the unique health conditions of these individuals.

With regard to the potential impacts on land use and associated land values from oil and gas development and particularly from sour gas development, the Board accepts that this issue is of growing public concern. The Board notes that it is charged with determining whether an energy development is in the public interest and that the public interest includes the environmental, social, and economic effects of the project. While there are relatively simple tools for assessing the net economic benefits of a project, similar methods for assessing the economic costs to nearby landowners are not as readily available. The Board believes that if growing public concerns regarding the long-term impacts of oil and gas development on property values are to be adequately addressed in the future, a process needs to be developed that allows both applicants and landowners to approach this issue from a common point of view. The Board has asked EUB staff to examine how this issue might be addressed and to report back to the Board on possible options.

As to public consultation, the Board notes it is clear that in designing its initial public consultation program, Shell significantly underestimated the concerns of the area residents. It is equally clear that Shell made a number of additional errors in the early stages of its consultation program. Shell acknowledged that these included assuming that the presence of regional oil and gas development meant that public concerns about new development would be reduced. Other concerns included concluding negotiations for the well site prior to initiating community discussions, initially relying on a mail-out of information packages as the primary communication tool, and providing a narrow time period, over a holiday season, for the public to read and respond to that information package. In the Board's view, the result was a serious erosion in public trust in Shell from the outset. The Board accepts the interveners' views that these initial errors very likely made future effective consultation almost impossible, despite Shell's subsequent efforts.

The Board also notes, however, that at least some members of the community also chose not to engage in Shell's initial consultation attempts. While this is certainly their right, the public must understand that the EUB only requires proponents to make every reasonable attempt to carry out public consultation. It would be very unlikely that the Board would find that an applicant had failed to meet the EUB's expectations for consultation should the public choose not to participate.

In determining whether a proposed energy development is in the public interest, the Board is charged with balancing the economic benefits of the proposed project, which generally accrue to the province as a whole, and the potentially adverse environmental, social, safety, and economic impacts of the project, many of which occur at a local or regional level. The Board believes that most Albertans believe that, in general, the economic benefits of oil and gas development have, at least to date, outweighed the potentially negative effects associated with energy projects, provided that they are reasonable and properly managed. The Board notes the testimony of the interveners to this hearing that they also recognized the general benefits of oil and gas development to the citizens in the province.

However, for the Board to find that a well is in the public interest, it must be able to conclude that public safety can be adequately protected. The Board does not believe that this means that the risk to the public must or even can be reduced to zero. However, the Board must be convinced that the risk is acceptable.

Given the evidence before the Board in this particular case, the Board is unable to reach such a conclusion. The Board believes that the unique combination of the potential size and hydrogen sulphide (H₂S) release rate of the proposed well, the limited and difficult egress from many of the area residences, in some cases towards the well, the relatively large and diverse population with a high probability to be out of doors, and the potential presence of hypersensitive individuals proximal to the well all lead to the conclusion that in the event of the reasonable worst-case scenario, the ERP as currently proposed by Shell cannot assure public safety.

Having considered all the evidence, the Board denied Application No. 1042932 without prejudice to any future application.

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This news release and Decision 2001-9 are also available on the EUB web site at www.ercb.ca

For further information please contact:

Greg Gilbertson, Senior Advisor
EUB Communications
Tel: (403) 297-3648
Fax: (403) 297-3757
e-mail: greg.gilbertson@gov.ab.ca

NR 2001-06