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Informational Letter IL 83-11
2 December 1983
To: All Major Gas Purchasers and All Oil and Gas Operators
COMMON GAS PURCHASER AND RELATED MATTERS OIL AND GAS CONSERVATION ACT: REGULATION CHANGES AND CLARIFICATION OF BOARD POLICY
This informational letter together with Guide G-32 supersedes Informational Letter IL 79-13.
To aid industry in preparing common-purchaser and related applications under Part 10 of the Oil and Gas Conservation Act 1 (the Act) and to streamline the processing of such applications, the Energy Resources Conservation Board has amended the Oil and Gas Conservation Regulations as outlined here. In addition, the Board has briefly set out its policy on certain aspects of the common purchase of gas under section 40 2 of the Act where problems or confusion may exist. This policy is discussed in more detail in a new guide, G-32 3 , entitled "Common Gas Purchaser and Related Matters: Board Policy and Views".
This action stems from the Board's recently completed review of the declaratory provisions of Part 10 and the rateable-take provisions, section 23 4 , of the Act. The review was undertaken some time ago to speed up the application process and solve related administrative problems. The Board also solicited views from industry regarding problems and solutions. Guide G-32 reports on the Board's review.
1 REGULATION CHANGES
1.1 Part 10 Applications
Sections 15.010 and 15.020 of the regulations have been amended and sections 15.022, 15.024, and 15.026 added. The amendments describe in more detail the information to be included in common-carrier and common-purchaser applications respectively, while the new section 15.024 describes similar information for common-processor applications. Section 15.022 lists the information to be included in an application, under section 40(4) of the Act, requesting the Board to set proportions in order to assist in giving effect to a common-purchaser declaration. Section 15.026 lists the information required in an application under section 45 of the Act, to have the Board condition a declaration, issued under Part 10 of the Act, to be effective on a date before that of the declaration but on or after that on which the Board received the application.
1.2 Multiple Gas Production-Spacing-Unit and Rateable-Take Applications
Section 5.020 has been amended and sections 5.021 and 5.022 added to include the principles the Board will use in evaluating applications for multiple gas production spacing units (PSUs) (see page 3). The new section 15.005 lists information to include in a rateable-take application.
2 CLARIFICATION OF BOARD POLICY
The Board noted that a number of items raised by industry have been addressed in past Board decisions. The Board believes it appropriate to summarize here very briefly its policy respecting these matters and to discuss this policy in more detail together with its views on these matters in Guide G-32. In addition, the views expressed in IL 79-13 have been updated where necessary and incorporated into the guide.
2.1 Apportioning Under a Common-Purchaser Order
The Board believes that the onus in setting proportions should remain with the industry and not with the Board. It also believes that apportioning should normally be based on reserves and hence, for reasons explained in Guide G-32, has adopted a formula-type approach. The formula commonly used by the Board for calculating the proportions is:
Proportion attributed to = Pore volume of validated area validated area / Sum of pore volumes of all validated areas
The pore volume of each validated area would be determined from the parameters of its associated well. However, in most cases the proportions reduce to a ratio of the wellbore net pays of eligible wells. An eligible well is defined in most cases as one capable of production and tied into a gathering system. Where multiple gas PSUs (involving two or more drilling spacing units (DSUs)) are involved, the area would become a factor and the wellbore thickness might be varied from that of the associated well if appropriate.
2.2 Gas PSU Administration
The principles the Board will use for approving multiple gas PSUs, so that undrilled DSUs may be included when determining proportions, are as follows:
1. A multiple gas PSU shall contain only whole laterally adjoining DSUs that are pooled or are of common ownership, and must contain a well capable of production.
2. (a) The area of a multiple PSU for a gas well shall not exceed four sections.
(b) A multiple PSU for a gas well may not contain more than two sections in any direction.
3. A DSU shall not be included in the multiple PSU of a gas well unless it contains a well capable of production, or unless geological and other evidence from drilled wells adequately shows reservoir continuity such that, in the Board's opinion,
(i) a well capable of production could be completed on target within the DSU, and
(ii) the gas within the DSU is practicably recoverable by the producing well of the multiple PSU.
4. Any increase in a well's production rate due to the formation of a multiple PSU must not, in the Board's opinion, seriously affect the drainage patterns and hence equity within the pool, reduce the ultimate recovery of gas by inducing watering-out of the well, or cause other serious adverse effects in the reservoir.
2.3 Discrimination
In the Board's view, a failure on the part of a common purchaser, when so declared, to apportion the gas he will purchase among each qualified producer or owner of gas in the pool, and to accept the gas when offered for sale to him, would constitute discrimination within the terms of the Act. A qualified producer or owner of gas would be one who has completed a well in the pool capable of production at an economic rate and which, in most cases, is tied into a gathering system.
2.4 Cross-Dedication
In the Board's opinion, sections 40(5) and 9(1) of the Act offer sufficient protection to allay the concerns of any common purchaser who has a cross-dedication (multi-pool) type of contract for a particular area. While section 40(5) does refer only to the pool subject to the common-purchaser declaration, the Board believes that the intent of this section is that a common purchaser should not have to purchase additional gas as a result of the Board's issuing a common-purchaser declaration. However, interpretation of the statute is a question of law and rests with the Courts.
3 INQUIRIES
If you have any questions respecting the matters discussed in this bulletin, please contact the Assistant Manager of the Board's Gas Department at 297-8504, telex 03-821717.
[signed by]
G. J. DeSorcy Vice Chairman
1 Chapter 0-5, Revised Statutes of Alberta, 1980.
2 Previously section 52 of The Oil and Gas Conservation Act.
3 Regulation amendments and guide are available from the Board's Records Centre, Calgary.
4 Previously section 35 of The Oil and Gas Conservation Act.
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