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News Release August 2, 2001

FOR RELEASE AT 2:30 P.M.

EUB ISSUES DECISIONS ON APPLICATIONS FOR INTERIM SHUT-IN OF GAS PRODUCTION IN CHARD AREA AND LEISMER FIELD

Calgary, Alberta (August 2, 2001) The Alberta Energy and Utilities Board (the Board) today issued two decision reports concerning separate applications by Petro-Canada Oil and Gas (Petro-Canada) and Franco-Nevada Mining Corporation (Franco-Nevada) for the interim shut-in of gas production from particular gas wells located in their respective oil sands leases. The Board approved, in part, the Petro-Canada application, which will result in the interim shut-in of certain zones in 10 wells in the Chard Area. The Board denied the Franco-Nevada application. The shut-in order resulting from Petro-Canada's application will take effect September 1, 2001, and will remain in effect pending the outcome of an EUB hearing scheduled to commence November 13, 2001, to review these applications (and others) in more detail.

The Petro-Canada and Franco-Nevada applications and interventions were considered at two separate public hearings held in Calgary, Alberta, earlier this year. The Petro-Canada hearing was held from July 3 to 5, and the Franco-Nevada hearing was held on July 9 and 10. In both hearings the main issues included

• geological interpretation,
• effect of associated gas production on bitumen recovery by steam-assisted gravity drainage (SAGD), and
• economics and public interest.

In the Petro-Canada hearing, the feasibility of artificial re-pressuring and submission of pressure data was also considered.

Having considered the evidence presented at the Petro-Canada hearing, the Board concluded that continued production of associated gas from certain gas wells in the Chard area may present a significant risk to future bitumen recovery and may result in associated economic losses in portions of the Chard area. From the Franco-Nevada hearing, the Board was not persuaded that continued gas production from a particular gas well in the interim period prior to its decision arising out of the November 13 hearing would have a significant impact on bitumen recovery, the costs of recovering the bitumen, and the desirability of a bitumen project. The Board will not be bound by these interim decisions, and will review these in light of additional evidence that will be provided at the upcoming November 13 hearing. A list of the wells affected by the shut-in order and an overview of the SAGD process is provided in the backgrounder associated with this news release.

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This release and Decisions 2001-63 and 2001-64 are available on the EUB Web site at http://www.ercb.ca.

For more information, please contact:
Dave Morris, Senior Advisor
EUB Communications
Tel. 403-297-7470 Fax 403-297-3757
E-mail: david.morris@gov.ab.ca

NR 2001-29

BACKGROUNDER

Decision 2001-63 (Petro-Canada application) - Gas wells affected by interim shut-in order that will apply to specific perforated intervals noted in the decision (shut-in order will take effect September 1, 2001):

Q. Why did the Board order these gas wells shut-in (approving, in part, Petro-Canada's application), yet deny a similar type of application from Franco-Nevada?

A. In Decision 2001-63, the Board concluded that continued production of associated gas from certain gas wells in the Chard area may present a significant risk to future bitumen recovery and may result in associated economic losses in portions of the Chard area. In Decision 2001-64, (Franco-Nevada application/hearing), the Board was not persuaded that continued gas production from a particular gas well in the interim period prior to its decision arising out of the November 13, 2001 hearing would have a significant impact on bitumen recovery, the costs of recovering the bitumen, and the desirability of a bitumen project.

Q. What are these "gas over bitumen" (gas/bitumen) issues about?

A. Accumulations of natural gas found in contact and/or pressure communication with bitumen are referred to as associated gas. In Alberta's oil sands areas, the petroleum and natural gas rights are leased separately from oil sands rights. This means that different companies can have the rights to different resources (gas or bitumen) in the same geologic zone. Pressure depletion of the gas pools in association with the oil sands zones may adversely affect the recovery of bitumen to the extent that the bitumen might not be recoverable. An important aspect of hearings dealing with gas/bitumen issues is to determine if there would be negative impacts on bitumen recovery (such as resource loss and/or less efficient operations) when associated gas production occurs in advance of SAGD operations. These determinations require assessments of complex and highly technical resource management issues.

Q. What is steam-assisted gravity drainage (SAGD)? How does this process work?

A. SAGD is a process used to recover bitumen from oil sands. Typically, pairs of horizontal wells are drilled, one for steam injection and one for production. Under the ground, the horizontal wells run parallel to each other in the bitumen zone, with the production well located below the injection well. Steam is injected into the reservoir from the injection well and, as the steam permeates the oil sands, the bitumen is heated, allowing it to flow, and the bitumen is then pumped to the surface via the production well.

Q. Will gas producers be compensated due to the Board ordering their gas wells shut-in?

A. The EUB does not have the legislative jurisdiction to award compensation for losses suffered as a result of Board orders. Section 91 of the Oil and Gas Conservation Act provides that the Lieutenant Governor in Council may direct the Board to conduct a hearing for the purpose of recommending to the Lieutenant Governor in Council whether compensation should be paid and if so, who shall pay it, who shall receive it and how it shall be paid.