A total of about 123 MMcf/d of natural gas production from the Wabiskaw-McMurray formation in the Athabasca Oil Sands Area of northeastern Alberta will be shut in on July 1 by order of the Alberta Energy and Utilities Board (AEUB). The shut-ins are designed to preserve 25.5 billion barrels of potentially recoverable crude bitumen, representing about 14.6% of Alberta’s remaining bitumen reserves.

The AEUB said the bitumen being conserved has 500 times the energy content of the shut in gas production, which will total about 280 Bcf of gas reserves.

“These are the latest steps in a fair and balanced process to protect the bitumen for current and future generations of Albertans,” said EUB Chairman Neil McCrank. “The decision (2004-045) and orders (04-001 and 04-002) balance the interests competing for these resources and also clearly reflect the EUB’s mandate of conserving Alberta’s energy resources.”

The ruling sets final parameters on a process that came to a head last summer when Alberta regulators ordered the interim shut in of about 938 gas wells and 250 MMcf/d of gas production. About 80% of those wells remained flowing, however, after 11 production companies filed a flood of about 740 exemption applications. This decision issued Tuesday, which follows a hearing earlier this year, represents a final count on the wells that must be shut in.

The EUB believes there is an immediate and continued risk to bitumen recovery from the production of some natural gas in the Wabiskaw-McMurray that is in contact with the bitumen. As this gas is extracted, there is a drop in pressure within the gas pools. The EUB has found that gas production in these circumstances poses an unacceptable risk to bitumen recovery using thermal techniques, such as steam-assisted gravity drainage (SAGD). Some producers, however, disagree.

Paramount Energy Trust (PET) will be required to shut-in wells producing 15 MMcf/d or 16% of its current average daily production. This volume is in addition to the 4.5 MMcf/d remaining shut-in from wells shut-in on Sept. 1, 2003 pursuant to the EUB’s interim shut-in order (see Daily GPI, Sept. 4, 2003).

In a statement issued Wednesday, Paramount said the EUB accepted “almost none of the technical arguments presented by gas producers and oil sands rightsholders” at the recent interim hearing.

“The tenacity of the AEUB in pursuing its intended course of action on this matter and its lack of consideration for the technical input from industry over the past 12 months threatens to jeopardize Alberta’s role in North American natural gas markets,” said PET President Sue Rose.

PET continues to say that the entire regulatory review over the past year “lacked the due process required and expected.

“This decision also gives the appearance of a disregard for a resource which took decades and billions of dollars validly invested by Albertans to develop,” PET added in a statement. “In today’s market this gas production remains of significant value to gas producers and Albertans through royalties, continued investment, employment and other tertiary benefits relative to any lost value from reduced incremental bitumen recovery which might ultimately be placed at risk by its production.”

PET continues to have discussions with the Alberta government regarding financial compensation for its lost production and assets as a result of the AEUB order. “While the Trust is disappointed that a comprehensive financial solution was not announced prior to or concurrently with the AEUB Decision, PET is hopeful that ongoing discussion in that regard will lead to such an announcement in a timely fashion.”

Meanwhile, it plans to proceed with the appeal process that was granted to PET and other producers by the Court of Appeal of Alberta on Jan. 28. PET said it does not believe the hearing process set up by the AEUB allowed for an “adequate assessment of which, if any, gas production poses a threat to ultimate potential bitumen recovery.”

The EUB will hold a pre-hearing meeting on Sept. 15 to determine the scope and participants of a final public hearing on the matter.

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