view pdf file

News Release

FOR IMMEDIATE RELEASE

EUB RELEASES ADDENDUM ON CHESTERMERE PIPELINE TERM OF OPERATION

Calgary, Alberta (January 31, 2006) The Alberta Energy and Utilities Board (EUB) today released an addendum to Decision 2000-20 that sets a minimum operating term for the Chestermere pipeline licence to March 31, 2012. The addendum was written and sealed in March 2000, only to be released if the land-use resource (LRD) agreement between certain local landowners (the landowners) and the pipeline operator failed.

The addendum was issued after Compton (the pipeline operator) asserted to the EUB that the LRD was no longer in effect due to the EUB's closure of Compton's applications to drill four sour gas wells southeast of Calgary. Although the landowners have stated that the LRD should remain in effect, they agree that releasing the addendum is appropriate. The LRD included a timetable for Compton to drill several new wells in the area on the condition that the new and existing wells, and all other associated infrastructure in the area (including the pipeline), would be removed permanently after 15 years.

The Chestermere pipeline handles production from Compton Petroleum Corporation's existing sour gas wells southeast of Calgary. The addendum states that to maintain the licence, the pipeline operator must initiate a written review of the licence with the EUB and the interested parties before the end of March 2012. After review, the EUB will decide whether to convene a formal hearing to determine if the pipeline should continue to operate. The addendum also states that additional informal reviews may be conducted every three years.

The addendum was discussed at length during an EUB hearing held in early 2005, and referenced in Decision 2005-060, which was issued in June 2005.

For over 20 years, the EUB has expressed concern about conflict between urban development and resource recovery in this area. EUB Decision 84-7 stated that recovery of the reserves should be expedited to recover as much gas as possible in advance of a conflict. However, the EUB noted that nothing in these decisions should be construed as prejudgment or consideration of any future application nor has the EUB ever directed any company, including Compton, to drill in this area.

In keeping with the EUB's concern over land-use conflict in this area, time restrictions were placed on the pipeline licence in the addendum to Decision 2000-20.

- 30 -

This news release, addendum, Decision 2000-20, and Decision 2005-060 are available on the EUB Web site at http://www.ercb.ca

Bob Curran, EUB Communications
Phone: 403-297-3392 Fax: 403-297-3757
Email: bob.curran@gov.ab.ca

NR-2006-03

BACKGORUND

The following chronology outlines the history of development in the area of Compton's North Okotoks Horizontal Well Program, which included applications to drill up to six horizontal wells. Those applications were closed by the EUB on January 4, 2006 after Compton failed to submit an emergency response plan for the applications.

• Two existing wells, one at LSD 10-13-22-29W4M and one at LSD 11-24-22-29W4M, produce through what is known as the Chestermere pipeline (licences No. 21027 and 17711).

• The Chestermere pipeline was approved in Decision 84-7, issued May 11, 1984. However, the EUB recognized that there was a significant potential for land-use conflict so the approval was to expire, unless renewed, on May 11, 1999 (15 years).

• On December 17, 1998, prior to expiry of the Chestermere pipeline licences, the operator applied to the EUB to extend the licences for another 15 years.

• The EUB held a hearing from August 18 to 27 and November 22 to 30, 1999. Decision 2000-20, issued March 31, 2000, extended the licence but directed that the operator (then Dynegy Canada Inc. now MPP Ltd. (an affiliate of Compton)) and surface owners (Ollerenshaw and Soutzso) develop a land-use and resource development agreement (LRD) that included an acceptable operating term for the pipeline. The decision also noted that the LRD should contemplate accelerated development of the sour gas reserves, given the expansion rate of the City of Calgary.

• Prior to reviewing the LRD (received on February 15, 2001), the EUB panel wrote a Default Addendum to Decision 2000-20 to be released only if the LRD failed. The addendum established the operating term for the Chestermere pipeline, and a process to review the licences in the future.

• After reviewing the LRD, the panel wrote another addendum to Decision 2000-20 (issued March 21, 2001) that accepted the LRD. The second addendum also informed the parties that the first addendum would not be issued while the LRD was in effect. The LRD agreed to the filing of applications for the drilling of additional wells to accelerate production from the reservoir.

• Compton filed applications for six horizontal wells at the 10-13 location on August 22, 2002. The applications were reviewed at a public hearing from January 11 to March 4, 2005, and Decision 2005-060 was released on June 22, 2005. The decision stated that if Compton could gain approval for its emergency response plan (ERP), the EUB would issue licences for four of the six well applications.

• Compton was originally required to notify the EUB if it intended to proceed with the applications by August 15, 2005 and submit a completed ERP by November 1, 2005. After Compton applied for an extension, the EUB extended the notification date to November 1, and the ERP submission date to January 3, 2006.

• On November 28, 2005, the EUB set forth a process by which it would review the ERP. This process could have resulted in a public hearing if agreement among the parties could not be reached that the ERP was appropriate.

• On December 14, 2005, Compton submitted a second request to the EUB for an extension of the filing date for the ERP to September 1, 2006. The EUB denied this request, but indicated Compton would be allowed to submit a draft plan, given that the process set forth in November could accommodate this circumstance. The EUB advised Compton that failure to file by January 3, 2006 would result in the EUB closing the applications.

• Compton failed to file an ERP by the deadline and on January 4, 2006 the EUB closed the applications for the horizontal wells.

• Compton gave notice on January 6, 2006 that the LRD agreement had failed. The landowners disputed this assertion, but agreed that in terms of the conditions set forth in Decision 2000-20, the addendum should be released.