Paramount Energy Trust said last week that has joined forces with several other producers, including Devon Canada, BP Canada, Canadian Natural Resources and ProGas, to take legal action against the Alberta Energy and Utilities Board’s (AEUB) decision to shut in as many as 938 gas wells in northeastern Alberta starting today. The shut-in order is designed to conserve underground pressure and preserve future crude bitumen production.

In order to minimize the initial impact of the order, Paramount and many other affected Canadian natural gas producers will file for exemptions to protect their wells from being shut in.

In July, the AEUB issued its final decision to shut in natural gas wells producing about 250 MMcf/d and representing about 1 Tcf in reserves from the Wabiskaw-McMurray formation in the Athabasca Oil Sands Area of northeastern Alberta. The ruling was designed to ensure crude bitumen that represented about 600 times the energy content of the sacrificed natural gas. In an attempt to placate gas producers, the AEUB delayed the effective date of the order by a month and left room for producers to file for exemptions if they could prove their gas wells would have no impact on bitumen production.

Paramount, which was expected to take the biggest hit from the decision, said it will apply for exemptions for as much as 86% of its production (39 MMcf/d), leaving as little as 6 MMcf/d subject to the shut-in order. Applying for an exemption will allow the company to continue producing, unless an objection is filed by either the AEUB or another party. A hearing subsequently will determine whether the gas production can continue without impacting future bitumen production.

Meanwhile, the consortium of gas producers has taken legal action on two fronts. They have asked the Court of the Queen’s Bench to reject the AEUB’s decision as a violation of “reasonable fairness.” They also have asked the Court of Appeal of Alberta to grant them the right to appeal the order and to suspend it until their case is heard.

They claim Alberta regulators did not follow the correct legal steps before they acted and went beyond the AEUB’s legislative boundaries. The alleged result was a violation of their rights and an expropriation of their mineral interests without just compensation, according to the gas producers.

Murray Smith, Alberta’s energy minister, has said that he is looking at ways to potentially address the gas producers’ financial losses. Royalty breaks are being considered, but no concrete proposals for compensation have been made.

The companies have told the courts that they will lose between $75,000 and $225,000 in revenue per day if all of their wells in the area are capped.

Paramount Energy Trust shares lost one third of their value a day after the AEUB’s decision was made. Paramount President Susan Riddell Rose warned that the financial impact of the policy will be measured in “billions” of dollars, not “millions” of dollars.

“The value of the reserves themselves is over $1.5 billion,” she said in a June conference call. “There’s infrastructure that’s stranded. There is reclamation that will have to move forward. There’s loss of investment opportunities. All these have to be factored into compensation.”

And despite the severe impact, Paramount charges that AEUB never even proved that gas production posed an unacceptable risk to bitumen recovery. Rose said a large amount of the gas that would be shut in under the proposed policy “clearly poses no [bitumen] conservation issue at all.” She said that in fact there is “no empirical evidence at all” that gas production has impacted bitumen recovery anywhere in the province of Alberta.

However, oil sands developers, such as Petro-Canada, have supported the decision and the AEUB’s conclusions regarding the impact of gas production on bitumen.

©Copyright 2003 Intelligence Press Inc. Allrights reserved. The preceding news report may not be republishedor redistributed, in whole or in part, in any form, without priorwritten consent of Intelligence Press, Inc.