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Informational Letter IL 89-20
15 November 1989
TO: All Oil and Gas Operators
COMPENSATION IN CASE OF WELL BLOWOUT
Although well blowouts are rare, difficulty has often been experienced dealing with the matter of compensation to the public for the damage that may result. Representatives of industry associations, the public, and the ERCB have developed the attached guidelines in recognition of the need for a process that would facilitate agreement. Although these guidelines were developed specifically for sour gas wells in the Pembina area, the Board believes they have much broader application and encourages all operators to adopt or improve on these for their operations throughout Alberta.
The Board wishes to gratefully acknowledge the leadership of the following associations in the preparation of these guidelines:
- Pembina Agricultural Protection Association
- Canadian Petroleum Association
- Independent Petroleum Association of Canada
[signed by]
E.J. Morin
Board Member
attachment
INTERIM GUIDELINE FOR RESIDENT COMPENSATION DURING SOUR GAS (H2 S/SO2) WELL BLOWOUT EMERGENCIES
Contents
1 .0 Introduction
2.0 Statement of General Policy
3.0 Policy for Sour Gas Well Blowout
4.0 Categories of Compensation
4.1 TIER I
4.2 TIER II
4.3 TIER III
5.0 Payment Procedures
6.0 Options for Resolving Disputes
6.1 Negotiation Between Claimant and Operator
6.2 Mediation
6.3 Arbitration
6.4 Litigation in the Courts
APPENDIX 1 Example of Daily Expense Claim
This guideline for Resident Compensation During Sour Gas Blowout Emergencies was jointly developed by the Canadian Petroleum Association (CPA), the Independent Petroleum Association of Canada (IPAC), and the Pembina Agricultural Protection Association (PAPA) to address concerns of residents living in the Pembina Area of Alberta. It is intended for use by companies operating in the Pembina area and is suggested as a minimum standard for dealing with compensation claims of affected residents.
The guideline outlines a three tiered approach that is designed to facilitate fair and prompt compensation to those affected by an uncontrolled blowout related to drilling operations however, at present only two are described, Tier III, which deals with longer term impacts, as described below, is presently being discussed with PAPA. Once a procedure for dealing with this tier has been developed, it will be incorporated into and become an integral part of this guideline. This guideline also suggests various mechanisms to resolve disputes that may arise in connection with the negotiation of compensation claims.
It is the Industry's policy that all persons who have suffered damage as a direct result of an industry operation should be fairly compensated by the operating company.
Consistent with the above statement of general policy, the following draft policy outlines the Petroleum Industry's recommended approach for compensating those persons directly affected by an uncontrolled sour gas well blowout. It outlines a three tiered approach that is designed to facilitate fair and prompt compensation to those directly affected by an uncontrolled well blowout related to drilling operations and also suggests various mechanisms to resolve disputes that may arise in connection with the negotiation of compensation claims.
A three tier approach for categorizing damages has been developed to facilitate fair and prompt compensation to persons directly affected by the release of H2S and/or SO2 from an uncontrolled sour gas well blowout. It should be noted that agreement between resident and operators on settlement for any of these Tiers will not prejudice settlement on other Tiers, nor will it prejudice any other determination of responsibility arising out of an uncontrolled sour gas well blowout.
Tier I deals with immediate out-of-pocket costs related to a justifiable evacuation from an individual's normal residence. These costs would be incurred as a direct result of a temporary relocation necessitated by an uncontrolled blowout. There would be no dispute as to cause and effect. These costs would preferably be paid directly by the company responsible (e.g., pre-arranged hotel and meals) or the individual would be promptly reimbursed after incurring the costs and submitting a claim. Examples of costs that could be included in Tier I are:
- Cost of hotel accommodation.
- Cost of all meals while away from residence.
- Cost of transportation to and from evacuation centre/hotel and place of residence.
- Other reasonable daily expenses.
Tier II costs are those that are directly related to the uncontrolled release of hydrogen sulphide (H2S) or sulphur dioxide (SO2). These costs would normally be identified within a short period of time following a blowout, and would be for direct damages clearly caused by the release of sour gas. Reimbursement for these costs would be provided as soon as they were submitted and substantiated. Examples of Tier II costs are outlined as follows:
- Caring for house, barn, outbuildings and equipment during the evacuation period.
- Damage to house, barn, outbuildings, equipment (e.g., damage to corrodibile metals and electrical components).
- Daily care of livestock/pets.
- Removal of livestock to a safe area (where safe, viable and with prior agreement).
- Death of livestock/pets.
Tier III costs are those associated with longer term impacts where cause and effect are not clear and which may require considerable investigation and documentation to verify. These costs have not been included within the scope of this policy. A procedure for determining the level of compensation with respect to Tier III costs is being developed and will be incorporated into this guideline when completed.
The process by which claims for Tier I and Tier II costs may be handled is as follows:
- Once an evacuation has been initiated, claimants should register at the designated evacuation centre as soon as possible. Registration will assist company personnel in contacting evacuees during or after the evacuation and in processing claims for compensation.
- Residents will be provided with an information package that outlines the compensation process and provides examples of compensable items under Tiers I and II. Operators are encouraged to establish a monetary Guideline for Tier I and II costs that are reasonable and fair to both parties.
- Claim forms which can be filled out and submitted for out-of-pocket expense reimbursement will be provided. An example of a Tier I expense claim form is provided in Appendix 1.
- Wherever possible, pre-arranged direct payment of expenses will occur.
- As costs are incurred, claims forms can be filled out and submitted for compensation to the designated company representative.
As a result of the identification of the three tiers of costs mentioned above, it seems reasonable to predict that settling disputes with respect to costs will occur fairly easily at the Tier I level, will be somewhat more difficult at the Tier II level, and may be considerably more difficult at the Tier III level. Notwithstanding this general trend, it is desirable to describe a number of options for dispute resolution in such a way as to make it possible for the parties to agree to the utilization of any of the dispute resolution mechanisms identified. It is generally in the interest of all parties that serious effort be made to resolve disputes by negotiation prior to proceeding with any of the other dispute resolution mechanisms described below . To date, four dispute resolution mechanisms have been identified and a brief description of each follows:
This is a voluntary process and will most likely to be used in a situation where there is little dispute concerning cause and effect and the operator's obligation is clear.
To facilitate settlement, operators would identify a particular person with whom such settlements can be negotiated to ensure that the matter is dealt with appropriately. This would also provide some comfort to prospective claimants who would know that the person identified has the authority to deal promptly with the matter.
Mediation is a process whereby the parties to a dispute agree to submit the matter in dispute to an independent mediator who assesses the merits of the matter and recommends an award. The mediator's decision is not binding, however, as the mediator approaches the matter from the viewpoint of a "reasonable" objective person, it likely represents a fair decision in the matter.
There are a number of groups prepared to provide mediation services on a fee basis and since it is a less costly and time consuming way to go than the following two alternatives, operators are encouraged to assume the costs of mediation if that is the mechanism of dispute resolution chosen by the parties.
A mediator will, of course, conduct a thorough review of the facts and quite often will set formal rules with respect to the submission and hearing of evidence. In situations where the facts are complex and the application of rules of evidence is appropriate, it may be more appropriate to utilize the court system than this method of dispute resolution.
Arbitration is a process whereby parties to a dispute agree that an independent third party is to review the matter in dispute and make a decision binding on the parties. Alternatively, the parties may each appoint one arbitrator to represent them on a panel, who in turn will appoint a third panelist mutually satisfactory to them to act as chairman, in which case the matter is decided by a majority vote of the panel of arbitrators. If the arbitrators appointed by the parties to the dispute are unable to agree as to the independent third party to act as chairman, there is provision in the Arbitration Act of the Province of Alberta to have the courts appoint the third party.
From the viewpoint of efficiency and quality of results achieved, it is often preferable to proceed via the slngle arbitrator than the panel unless the matter is a complicated one and it is expected that an arbitrator will need to interrelate with representatives of interested parties in order to make a reasonable decision.
As is the case with mediation, groups are available to conduct arbitrations. Decisions rendered in arbitrations are binding and are generally not subject to appeal in the courts. As arbitrations tend to be conducted by well known experts in their respective fields, they are usually more expensive than mediations. This is particularly so when there is a panel of arbitrators rather than a single arbitrator.
An arbitrator or panel of arbitrators will have to review the facts relating to the dispute and accordingly, arbitration may involve rules of evidence, etc., much the same as court proceedings.
Use of the arbitration process tends to promote adversarial relationships between the parties which is usually not the case with the previous two alternatives.
This is a formalized process involving lawyers and judges which has a tendency to be time consuming, costly and unpredictable in terms of results.
Even when a court decision is rendered, it is subject to appeal and does not have the finality of binding arbitration.
The process is very costly and the cost is compounded by the involvement of lawyers which are generally necessary to take full advantage of the potential benefits of the litigation system (e.g., presentation of evidence, award of party and party costs, etc.)
Use of the court procedure also tends to promote adversarial relationships between parties. That is not the case with the first two alternatives.
The procedure for ascertaining facts in connection with a court dispute is examinations for discovery and exchange of documents. Examinations for discovery involve the examination of people involved in connection with the facts and the document and accordingly, the procedure for extracting the facts is very expensive and time consuming.
As further delineation of Tiers I, II and III costs occur, the dispute resolution mechanisms described above may be expanded and considered in further detail.
Example of Daily Expense Claim
Tier I Expenses
Name of Operator
DATE
NAME
ADDRESS
TELEPHONE NUMBERS
LOCATION OF LAND (LSD)
ADDRESS DURING EVACUATION
EXPENSES (Please Attach Receipts)
- Accommodation (if not pre-arranged)
- Meals (if not pre-arranged)
- Transportation (_KM @ _/KM)
- Other reasonable Daily Expenses
- TOTAL
Name & Telephone Number of Company Contact
SIGNATURE
