Link to PDF file

News Release

FOR IMMEDIATE RELEASE

EUB ISSUES DECISION ON APPLICATIONS TO PRODUCE OR SHUT IN GAS PRODUCTION IN THE CHARD AREA AND LEISMER FIELD

Calgary, Alberta (March 18, 2003) In Decision Report 2003-023 released today, the Alberta Energy and Utilities Board (EUB/Board) has made decisions on 27 applications filed by various companies that involve the production or shut-in of gas in the Chard area and Leismer Field (Chard-Leismer). The Chard-Leismer area is located about 90 kilometres south of the city of Fort McMurray, Alberta. The applications included a total of 145 wells.

The applications were considered at an EUB public hearing that began on November 26, 2001, in Calgary, Alberta. Given the significant technical complexities of the subject matter, the hearing timelines in this case differed from other more typical EUB hearings in scope and duration. The evidentiary portion of the hearing concluded on May 22, 2002, and involved 66 sitting days, over 800 exhibits, and about 12 000 pages of testimony. Final and reply arguments were presented in written form and were filed with the Board on June 14 and 28, 2002, respectively. The hearing dealt with a number of important issues, including the extent of affected resources and reserves, reservoir and aquifer continuity, and the effect of associated gas production on steam-assisted gravity drainage (SAGD) bitumen recovery.

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.

In general, the parties that applied for approval to produce gas argued that gas production from the applied-for wells would not have a detrimental effect on future bitumen recovery. Conversely, the parties that applied for gas to be shut in submitted that gas production from the applied-for wells would have a detrimental impact on future bitumen recovery.

Having considered all the evidence, the Board concluded that gas production from certain perforated intervals within the Wabiskaw-McMurray (a geologic zone) presents a high risk to future bitumen recovery in the Chard-Leismer area, but a low risk from other perforated intervals.

Accordingly, the Board has made the following decisions with respect to the wells included in the applications that were considered at the hearing:

• The Board will order the shut-in of associated gas production effective May 1, 2003, from specific perforated intervals within the Wabiskaw-McMurray in 39 wells.
• The Board denies associated gas production from specific perforated intervals within the Wabiskaw-McMurray in 21 wells.
• The Board approves gas production from specific perforated intervals within the Wabiskaw-McMurray in 21 wells.
• The Board will not require the shut-in of gas production from specific perforated intervals within the Wabiskaw-McMurray in 76 wells.
• The Board will not order the implementation of a pressure-monitoring program in the Chard-Leismer area.

The above decisions result in several considerations and requirements. In particular, with respect to Wabiskaw-McMurray grandfathered gas production and previously approved Wabiskaw-McMurray gas production in the Chard-Leismer area from wells not specifically considered at the hearing, the Board believes that some of the gas being produced by these 139 wells could present a significant risk to future bitumen recovery. (Grandfathered gas production refers to production from wells completed in the defined oil sands strata prior to July 1, 1998.)

The Board also believes that some grandfathered gas production in other areas of the Athabasca Wabiskaw-McMurray deposit with a depositional environment similar to that at Chard-Leismer could present a significant risk to future bitumen recovery. Therefore, the Board believes that there is a need to develop and implement a process to address grandfathered gas production in the Athabasca Wabiskaw-McMurray deposit (including Chard-Leismer). The Board intends to pursue this matter.

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This news release, associated backgrounder and Decision 2003-023 are available on the EUB web site at http://www.ercb.ca/.

For more information, please contact:

David Morris, Senior Advisor
EUB Communications
Tel. 403-297-7470; Fax 403-297-3757
E-mail: david.morris@gov.ab.ca
NR 2003-12

Backgrounder

MARCH 18, 2003 - EUB ISSUES DECISION ON APPLICATIONS TO PRODUCE OR SHUT IN GAS PRODUCTION IN THE CHARD AREA AND LEISMER FIELD

A major responsibility of the Alberta Energy and Utilities Board (EUB) is to regulate the province's energy industry to optimize resource recovery and to ensure that Alberta's energy resources are developed having regard for conservation and economic efficiency. This conservation focus is a critical and historic component of Alberta's regulatory process and framework.

During November 2001 to June 2002, the EUB conducted a hearing to consider 27 applications from various parties, some concerning requests for the shut in of gas wells and others for the approval to produce gas wells in the Chard area and Leismer Field (Chard-Leismer). Given the significant technical complexities of the subject matter, the hearing timelines in this case differed from other more typical EUB hearings in scope and duration. The evidentiary portion of the hearing concluded on May 22, 2002, and involved 66 sitting days, over 800 exhibits, and about 12 000 pages of testimony. Final and reply arguments were presented in written form and were filed with the Board on June 14 and 28, 2002, respectively. Companies participating in the hearing included, among others, EnCana Corporation, BP Canada Energy Company, Conoco Canada Resources Limited, Calpine Canada Natural Gas Company, Canadian Forest Oil, Ltd., Paramount Resources, Ltd., Rio Alto Exploration, Ltd., Devon Canada Corporation, Newmont Mining Corporation of Canada Limited, Nexen Canada, and Petro-Canada Oil and Gas.

The hearing dealt with the following issues:

• the extent of affected resources/reserves;
• reservoir and aquifer continuity;
• effect of associated gas production on steam-assisted gravity drainage (SAGD) bitumen recovery;
• geomechanical effects;
• feasibility of artificial repressuring;
• feasibility of artificial lift;
• economics;
• individual applications; and
• regulatory process.

The gas over bitumen issue: Does production of associated gas affect bitumen recovery?

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. In past proceedings and in this current one, some parties submitted that the pressure depletion of associated gas would adversely affect the recovery of bitumen to the extent that the bitumen might not be recoverable. This is the resource development conflict that the EUB must deal with in accordance with its conservation mandate.

A number of other proceedings, reports, and initiatives have dealt with this issue in the past. These have included, among other items, an EUB 1998 Inquiry Report on Gas/Bitumen Production in Oil Sands Areas; Decision 2000-22 (Gulf Canada Resources Limited, Request for the Shut-in of Associated Gas, Surmont Area); and a Government-Industry Advisory Group on Gas and Bitumen Conservation in Oil Sands Areas that was formed in April 2001. As these items illustrate, the conservation and equity issue is complex and challenging.

The Chard-Leismer Decision

The Board concluded that the bitumen resources within the Wabiskaw Member of the Clearwater Formation and McMurray Formation (Wabiskaw-McMurray) in the Chard-Leismer area are on trend with Alberta's most significant bitumen deposits. The Board also noted that most announced and approved commercial SAGD projects fall within this trend. The Board believes that a significant amount of potentially recoverable bitumen exists in the Chard-Leismer area, which therfore warrants consideration for protection for future development. Based on the evidence presented at the hearing, the Board also concluded that producing gas that is associated with bitumen presents an unacceptable risk to SAGD bitumen recovery.

In addition to society's immediate needs, the Board believes that it should consider the longer-term aspects of resource development and the longer-term interests of future Albertans. Therefore, given the number of unknowns about the technical and economic parameters surrounding SAGD bitumen recovery, the Board believes that it has a responsibility to ensure that long-term bitumen recovery is not jeopardized by the production of gas that is in pressure communication with significant bitumen resources.

Having considered all the evidence, the Board concludes that gas production from certain perforated intervals within the Wabiskaw-McMurray presents a high risk to future bitumen recovery in the Chard-Leismer area, but a low risk from other perforated intervals. Accordingly, the Board has made the following decisions with respect to the wells included in the applications that were considered at the subject hearing:

• The Board will order the shut-in of associated gas production effective May 1, 2003, from specific perforated intervals within the Wabiskaw-McMurray in 39 wells.
• The Board denies associated gas production from specific perforated intervals within the Wabiskaw-McMurray in 21 wells.
• The Board approves gas production from specific perforated intervals within the Wabiskaw-McMurray in 21 wells.
• The Board will not require the shut-in of gas production from specific perforated intervals within the Wabiskaw-McMurray in 76 wells.
• The Board will not order the implementation of a pressure-monitoring program in the Chard-Leismer area.

Additional Considerations

The above decisions result in several future considerations and requirements. In particular, with respect to Wabiskaw-McMurray grandfathered gas production and previously approved Wabiskaw-McMurray gas production in the Chard-Leismer area from wells not specifically considered at the subject hearing, the Board believes that some of the gas being produced by these 139 wells could present a significant risk to future bitumen recovery. (Grandfathered gas production refers to production from wells completed in the defined oil sands strata prior to July 1, 1998.)

The Board also believes that some grandfathered gas production in other areas of the Athabasca Wabiskaw-McMurray deposit with a depositional environment similar to that at Chard-Leismer (i.e., fluvial-estuarine) could present a significant risk to future bitumen recovery. Therefore, the Board believes that there is a need to develop and implement a process to address grandfathered gas production in the Athabasca Wabiskaw-McMurray deposit (including Chard-Leismer), and it intends to pursue this matter.

Steam-assisted gravity drainage (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.

<link to pdf file to view diagram>

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This backgrounder, the associated news release, and Decision 2003-023 are available on the EUB Web site at http://www.ercb.ca/.

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

NR 2003-12