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News Release October 2, 2003

FOR IMMEDIATE RELEASE

EUB SUCCESSFULLY ABANDONS PEACE RIVER WELLS

Calgary, Alberta (October 2, 2003) The Alberta Energy and Utilities Board (EUB) today announced that as of Sept. 9, it had successfully abandoned the Peace River Oil Company No.1 well, along with two relief wells drilled in 1955 and 1982.

These well control operations were the product of a unique collaborative process established by the EUB in conjunction with the Orphan Well Association, the Canadian Association of Petroleum Producers, the Small Explorers and Producers Association of Canada, and provincial and federal authorities. The majority of the $5-million project was funded by industry.

The EUB also wishes to acknowledge the tremendous support and expertise supplied to this project by APA Engineering, which developed the well-kill plan in consultation with GSM Well Control, and Frontier Engineering, which managed the on-site well operations.

The original Peace River well licensed under federal jurisdiction blew out during drilling in 1916, and flowed salt water and some associated gas until 1955, when a predecessor to the EUB stopped the flow by drilling a relief well. The well blew out again in 1982, at which time the Energy Resources Conservation Board attempted another relief well.

That effort failed and the original well (through the 1955 and 1982 relief wells) flowed approximately 36,000 barrels per day of salt water into the Peace River since 1982, and produced one million cubic feet per day of natural gas with up to 0.1 % hydrogen sulphide (sour gas) content, which was flared.

The EUB ensures that the discovery, development, and delivery of Alberta's resources take place in a manner that is fair, responsible, and in the public interest.

This news release and backgrounder are available on the EUB Web site at http://www.ercb.ca.

For more information, please contact:
Bob Curran, Section Leader, EUB Communications
Phone: 403-297-3392 Fax: 403-297-3757
Email: bob.curran@gov.ab.ca

NR 2003-38

Backgrounder

PEACE RIVER OIL COMPANY NO.1 CHRONOLOGY

In October 1915, the Government of Canada issued lease 12038 under the Dominion Land Act to the Peace River Oil Company to drill for hydrocarbons at 4-31-85-20W5.

Peace River Oil Company No.1 was spudded on May 15, 1916, and drilled to a depth of approximately 350 meters (m). A major natural gas and salt water flow resulted. Subsequently, the drilling derrick collapsed and the well was left to flow into the Peace River.

In June 1917, the Peace River Oil Company unsuccessfully tried to rebuild the derrick and re-enter the 4-31 well, and it was again left to flow into the Peace River. The Government of Canada sent an engineer and pumping equipment into the area in early 1921 to complete the abandonment of several improperly abandoned wells. The federal engineer inspected the 4-31 well and recommended that it be deepened and the water flow brought under control. This recommendation was never implemented.

In 1930, the Natural Resources agreement between the Government of Canada and the Provinces transferred resource ownership to the provinces.

When employees of the Petroleum and Natural Gas Conservation Board (P&NGCB) first inspected the 4-31 well in October 1954, the well was flowing at approximately 19,500 barrels/day of salt water into the Peace River. The P&NGCB decided that the 4-31 well should be properly abandoned along with several other wells in the vicinity, and with approval and funding from the Province of Alberta; well control operations began on July 22, 1955.

The first Peace River 4-31 relief well was drilled in an attempt to intersect the original 1916 well bore at a total depth of 346.2 m. On August 7, 1955, the1916 well was re-entered and drilled to a depth of 234 m. On August 11, cement was pumped into the well, stopping the flow. With the flow stopped and after the relief well was abandoned, Board staff proceeded with surface abandonment of the wells.

Board staff periodically inspected the 4-31 well site, but were unaware of any well control problems below the surface until a public complaint was registered with the Energy Resources Conservation Board (ERCB formerly the P&NGCB) in the spring of 1982. This complaint indicated a sinkhole had appeared with gas and water flowing up the outside of the 1955 relief well casing.

In August 1982, the ERCB approached the Province of Alberta for a special warrant to fund well control operations. The ERCB's Development Department prepared a re-entry program, with well control operations scheduled to start in September 1982.

Attempts to re-enter the 1955 well were unsuccessful. As soon as the top plug was removed from the 1955 well, a 315-barrel/hour flow of salt water and gas was encountered. This significantly affected any ability to safely conduct well control operations. Collapsed casing prevented access to the bottom portion of the 1955 well, and attempts to set a packer in the casing above 49 m were unsuccessful.

Serious casing integrity problems were evident. The drill string and an inflatable packer were blown out of the well, creating an unacceptable risk to the health and safety of the crew members on site. Given the possibility of a similar hazardous situation re-occurring, a decision was made to move the rig off this well and commence drilling a new relief well at a location a few meters to the northeast of the 1955 well.

On October 6, 1982, the ERCB began preparing a location for the second relief well, ERCB Pro 1 PeaceR B4-31-85-20W5. The new well was spudded using a rat-hole rig which took three days to set 17 m of conductor casing due to encountering large boulders, gravel, and shallow natural gas and water flows.

When operations began on the new relief well, the drilling process was plagued with problems from the beginning. The well blew out several times with salt-water flows as high as 2,500 barrels/hour. Pumping heavy mud into the well would stabilize the well, but any attempt to drill ahead met with lost circulation and water/gas flows. It was noted that the flow of water was also coming up the outside of the casing, washing out the supporting ground under the drilling rig. To prevent the rig from collapsing into the river, cement was pumped into the crater under the rig. On October 19, 1982, at a depth of 99 m, operations were suspended, due to an inability to control the water and gas flow and the risks of losing ground stability under the rig, which seriously threatened the safety of the workers.

On October 25, 1982, the ERCB's operational management team met to review conditions at the wells. Faced with this near impossible situation, the decision was made to discontinue operations for the winter. It was hoped that over a period of time the flow from the wells might be reduced as the charged shallow zones depressurized. This was not the case, and flow rates remained constant for the next 20 years.

Over the next several years, the ERCB monitored the flow rates from the wells, took water samples, and conducted mobile air monitoring around the location. In June 1984, Alberta Fish and Wildlife Division indicated in correspondence that it had jurisdiction under the Federal Fisheries Act to prevent deleterious substances from entering fish bearing bodies and requested an update and recommended course of action from the ERCB. The ERCB and Alberta Energy had ongoing communication and meetings with Alberta Environment and Alberta Forestry, Lands and Wildlife (Fish and Wildlife Division) throughout this time and it was mutually agreed this was a jointly shared problem and the next necessary step was conducting environmental impact studies.

In December 1986, it was the opinion of the ERCB that any long-term success at controlling the flow of gas and water from the 4-31 wells was very doubtful using existing technology. Minimizing erosion of the riverbank, preventing further salt-water surface damage and managing the sour gas odours appeared to be the best means of mitigating the situation.

A decision to evaluate the environmental impact of the flow on the Peace River prior to any further well control attempts was made in consultation with Alberta Environment, Alberta Forestry, Lands and Wildlife, Alberta Energy and the ERCB. In November 1989, Alberta Environment published its Environmental Assessment Study of Peace River Oils #1. This report outlined the localized effects of the outflow on the river, evaluated ground water and soil contamination and effects on the landowner's water-well quality. The report indicated that the dilution effects of the Peace River were so great (1:10,000 at low flows), "that there were no effects other than a slight increase in chloride concentration for a short distance downstream of the wells." Fish and Wildlife had indicated that environmental assessment was necessary before a decision to allow the flow to continue could be made.

In March 1990, the ERCB was engaged by the Minister of Energy to continue the control of the flow of substance from the wells and to investigate alternatives for improving the separation or combustion of gas flowing from the 4-31 wells. After considering the environmental effects outlined in the Peace River study and the probability of successfully controlling the well effluent, the ERCB decided to upgrade the well separation equipment and site security.

From 1990 to 1998, ERCB staff were responsible for maintaining surface separation and flaring equipment. This was completed with scheduled bi-yearly maintenance visits. An additional yearly site inspection was conducted, in which flow rates were evaluated, water samples taken and air quality monitored. In 1996, the ERCB and the Public Utilities Board were amalgamated to form the Alberta Energy and Utilities Board (EUB formerly the ERCB). The EUB continued monitoring the 4-31 wells.

In 1998, an Orphan Fund Manager was hired by the EUB to manage all orphan oil and gas wells in the province of Alberta. It was the EUB's position that the original 4-31 well and the two subsequent relief wells should be managed along with the other orphan wells in the province. That same year, the Orphan Fund Manager took over care and custody of the Peace River 4-31 wells.

The EUB and its predecessors expended significant funds in addressing this matter: approximately $150,000 on the 1955 operations, $597,000 in 1982, $221,000 in maintenance costs since 1989.

The EUB monitored the status of the Peace River 4-31 wells annually with regard to public and environmental impact and the likelihood of successful abandonment. The Orphan Fund Manager was retained to assess the impact, weigh remedial options and schedule work for all orphaned wells in the province. In March 2001, the Orphan Fund Manager budgeted $250,000 to investigate repair options, facility upgrading and care and custody obligations for 4-31.

In October 2001, the EUB, in conjunction with industry and the Orphan Well Association, developed a well-control program that was implemented in July 2003. On Sept. 9, 2003, all three wells were successfully abandoned, and all equipment was removed from the lease.