Canadian natural gas producers have found a procedural crack in Alberta’s bitumen policy and widened it into a doorway to gain at least a temporary reprieve from an order to shut in 938 wells found to jeopardize oil sands projects in northern Alberta. About 80% of the wells stayed open after the Sept. 1 shut-in date set by the July order, when 11 production companies filed a flood of about 740 exemption applications with the Alberta Energy and Utilities Board.

The AEUB process stipulates that in cases where exemptions are formally requested, the order can only be enforced if board staff or holders of oil-sands leases demonstrate that it should stick.

The escape hatch potentially stays open for at least some of the wells until next April 1, the target date set for a final ruling on all of them. The extent of the reprieve will depend on the speed of an expedited review process to be set up by the AEUB. After April 1, gas producers will still be able to demand full-scale hearings on any wells that they prize enough to try protecting with costly, full-dress technical defenses.

The producer most affected by the shut-in order, Paramount Energy Trust, alone filed 237 exemption applications. Others using the procedure included EnCana Corp., Canadian Natural Resources, ISH Energy, Devon Corp., BP Canada Energy, Viking Energy, Stylus Exploration, Superman Resources, Calpine Canada Resources and Husky Oil Operations.

Paramount, which had made a specialty of gas drilling in the region affected, stood to lose production of 44 MMcf/d or nearly half its output of 90 MMcf/d. The exemption applications cut the company’s immediate losses to 8-9 MMcf/d from 43 wells. The effects were less drastic on other producers with larger and more diverse asset portfolios.

The AEUB has estimated that total losses to the industry, if its order eventually sticks, will be about 250 MMcf/d and reserves of 1 Tcf or 2% of Alberta supplies.

Critics of the board suggest the true losses are likely much higher, although not possible to calculate reliably, because the decision is bound to curtail exploration in a gas-rich region. The shut-in order covered an entire geological zone, called the Wabiskaw McMurray, in an 8,500-square-mile area of the Athabasca Oil Sands.

After six year of inquiries and technical duels, the AEUB declared “there is an immediate risk to bitumen recovery from the production of natural gas.” The board found that a colossal 100 billion barrels of recoverable oil was in jeopardy because the shallow-gas production prevalent in the area reduced natural underground pressure needed to extract the bitumen.

The AEUB also found that there was no technology, known or on the horizon, to replace the natural force. Board chairman Neil McCrank called the case the most significant conservation issue the board has faced in its 65-year history. Oil-sands producers said they were disappointed that the exemption applications will continue a fight within the industry family that has become a marathon merry-go-’round of regulatory proceedings. Paramount pledged to continue using all available means to keep its assets and said it “believes there are, or will be, technical solutions to alleviate any risk to bitumen recovery from gas production.”

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