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Alberta Regulators Decrease Recommended Well Shut-Ins to 485

Alberta Regulators Decrease Recommended Well Shut-Ins to 485

As the battle rages on over shutting in natural gas wells for the purpose of preserving crude bitumen recovery from the Wabiskaw-McMurray formation located in northern Alberta, province regulators revised downward the number of gas wells they believe should be closed.

On Monday, the Alberta Energy and Utilities Board's (EUB) staff submission group (SSG) recommended that 485 gas wells be shut in permanently, a sizeable decline from the Sept. 1, 2003 order, which called for the interim shut-in of gas production from 938 Wabiskaw-McMurray wells, all of which were producing or had produced prior to Aug. 31, 2003. The September order put gas producers in a tailspin when the province determined that gas production posed a risk to crude bitumen reserves and future bitumen recovery.

The September order that effectively called for 95 MMcf/d in shut-ins was met with requests for temporary exemptions, which were provided for gas wells where operators had evidence that gas production was not associated with potentially recoverable bitumen. To date, 330 gas wells are shut in on an interim basis (representing 40.5% of the area's daily gas production, or about 95 MMcf/d), and 608 gas wells have temporary exemptions and continue to produce.

After analysis of a geological survey conducted by the EUB in early January, the SSG recommended Monday that regulators shut in 447 gas pools in the region, which accounts for 1,637 wells, 485 of which were producing as of Aug. 31, accounting for 135 MMcf/d of production (see Daily GPI, Jan. 6). The SSG said 342 gas pools should be allowed to continue, accounting for 1,023 wells, 360 of which were producing as of Aug. 31.

Justifying the expedited EUB process, the SSG submitted that "there is compelling evidence to clearly demonstrate that Wabiskaw-McMurray gas pools are at an advanced stage of depletion, that significant bitumen is at risk, and that immediate action is required to address this conservation risk" and further that "there is insufficient time to complete a thorough analysis of all available pressure data, and the board must err on the side of bitumen conservation."

The affected wells are operated by producers such as Devon Energy Corp., Paramount Energy Trust (PET), Canadian Natural Resources Ltd. and BP.

Calgary-based PET, which stands to lose a lot by the shut-ins, said the "SSG recommendations are not based on complete technical data and analysis and do not reflect an accurate assessment of which gas production, if any, may be placing potentially recoverable bitumen at an unacceptable risk." The producer noted that the recommended shut-ins account for approximately 1% of the province's production.

PET noted that it had over 250 producing or recently shut-in wells under review by the SSG, representing 44 MMcf/d of production in August 2003 of which 7.9 MMcf/d was shut in on Sept. 1. Following Monday's recommendations, the total production volume recommended for shut-in by the SSG represents 27% (24.4 MMcf/d) of PET's August 2003 production volumes.

The trust said it believes that once further data is integrated, the gas production deemed a threat to potentially recoverable bitumen will be further reduced. "While we continue to see mitigation of the effects of this process on the trust, PET still has serious concerns with the technical work that has not been completed and analyzed as well as the continuing accelerated EUB process," PET said.

As for the expedited process, PET said it disagrees with the SSG's generalizations. "The pressure evidence demonstrates that the subject pools are at varying stages of pressure depletion, affording time for comprehensive analysis for a large number of the gas pools under review," PET added. "Furthermore, not all bitumen in the region is of uniform quality or commercial viability and such differentiation would lead to substantially reducing the shut-in conflict. Consequently, PET submits that any perceived urgency should be assessed on a pool by pool basis. The overall lack of urgency in this matter is underscored by the fact that no industry requests for shut-in have come before the board despite the fact that approximately 50% of the bitumen rights are leased from the Crown within the Area of Concern."

While complying with the board's September order, the producer said it intends to file "technically based objections" with respect to virtually all of its wells recommended for shut-in and, absent any modifications to the proposed process, will notify the EUB's board by Feb. 9 of its intention to present its case at interim hearings scheduled to begin March 8.

"The Trust believes there is evidence that the vast majority of its gas production presents no threat to future potential bitumen recovery and that the application of a full and fair process and sound technical analysis should prove this to be the case," said PET. "The potential shut-in of one percent of Alberta's gas production, a resource valued at over $1 billion, has serious implications for all Albertans, not the least of which will be over $60 million in annual lost royalty revenue to the Province."

As for the next step in the process, the SSG said, "...gas and bitumen producers now have the opportunity to challenge any of the staff submission group's recommendations at an interim and a final EUB hearing. The interim EUB hearing will begin on March 8, 2004, and will address the production status of wells in dispute on an interim basis. Following the interim hearing, the panel members will deliberate upon the evidence that was brought forward during the interim hearing and will then issue a decision that best reflects the public interest. If required, a final EUB hearing will be held to decide the final production status of wells that continue to be in dispute."

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