Off-Target Penalties

Timeline

Our estimated processing time for this application is 45 business days. See our timeline spreadsheet for updates.

Purpose of the Application

We may apply an off-target penalty against a company’s producing gas or oil well if it is completed outside of the prescribed target area in its drilling spacing unit (DSU). A well licensee can apply for an off-target penalty against a well if

• the well is off-target towards an applicant’s land containing a well capable of producing from the same pool, and
• the off-target well is producing.

The encroached-on well does not have to be producing. However, when the application is submitted, the well must be completed and shown to be capable of producing from the same pool as the off-target well.

We determine penalties for both gas and oil off-target wells in accordance with Schedule 14 of the Oil and Gas Conservation Rules (OGCR). Our regulations are governed by sections 4.060 and 4.070 of the OGCR.

Process Checklist

Submit an Application

Applications must be submitted through our Digital Data Submission (DDS) system. We will register each application and assign it a reference number.

By submitting an application, the applicant accepts that their information is no longer confidential.

Classifications That Affect Off-Target Penalties

First Well in a Pool

Under section 4.060 of the OGCR, the first well in a pool cannot be subject to an off-target penalty. Companies that take initiative by exploring for a new pool will not be penalized. Only one well can hold the first well in the pool status. To be considered the first well in a pool, the well must

• have the earliest spud date, and
• be the first well shown to be capable of producing from the pool.

The OGCR defines a capable gas well as one that is completed in the pool involved, with a test that confirms the well can produce at commercial rates on a sustained basis from the pool. The OGCR defines a capable oil well as one that is completed in the pool involved and is placed on production within six months of the spud date.

Location of Off-Target Wells

Where an off-target well is located will influence its penalty.

• Vertical wells with no deviation survey: Two per cent of well depth is applied at the top of the perforations in the most off-target direction. This will determine the coordinates of the well and whether it is off-target.
• Vertical wells with a deviation survey: The deviation is applied in the most off-target direction at the top of the perforations. This will determine the coordinates of the well and whether it is off-target.
• Deviated or horizontal wells: The wells must have a direction survey. The coordinates used to determine the off-target penalty position will be at the closest approach of the productive part of the wellbore to the offsetting DSU.
• Subsurface Orders No. 1 and 3: The target area for wells is the central area within the DSU having sides 100 metres (m) from the all boundaries of the DSU. Figure 3B in Schedule 14 can be used to determine the off-target penalty factors for one quarter section spacing with a 100 m target area in the subsurface orders.

Things to Remember

• When submitting an off-target application, the applicant must also provide a copy to the operator of the off-target well.
• When wells are producing from a number of horizontal legs, the entire reported production will be penalized—even if only one leg is off-target. This includes when the off-target leg has a “drain” status.
• If an off-target well is producing from a road allowance, we will determine the penalty by adding the road allowance to the appropriate offsetting section of its common ownership.
• The penalized allowable for an off-target gas well is communicated to the well licensee by letter. It is also stated on the Gas Allowable Orders webpage, which we update quarterly.
• The off-target penalty factor for an oil well is communicated to the well licensee by letter. For nonconfidential wells, the allowable production is stated on the Maximum Rate Limitation Orders webpage, which we update monthly.

Review Process

1. We share all applications on our Public Notice of Application page to encourage public participation in the approval process.
2. Anyone who believes that they may be directly and adversely affected by an application can file a statement of concern (SOC). If we receive an SOC, it may take us longer to process the application.
3. We will assign the application to a subject matter expert for initial review. If information is missing (i.e., the application is not complete), we will close the application. Otherwise, we will proceed with a full technical review.
4. We look at whether an off-target penalty needs to be applied. If we determine that the well is the first well in a pool, an off-target penalty will not be applied.
   • If we consider a producing well to be off-target towards a competitor’s land that contains a well capable of producing from the same pool, an off-target penalty may be applied.
   • If the producing well is off-target from a competitor’s land that contains a well capable of producing from the same pool, the penalty is not normally applied.
   • If a company is in the second-, third-, or fourth-line offset DSU without substantiating data that proves inequitable drainage, an off-target penalty will not be applied.
5. We may request additional information (through a supplemental information request) to complete our technical review.
6. We will decide to approve, close, or deny the application. If we close it, the applicant may reapply without prejudice. If we deny it, the applicant can file an appeal through our appeal process.
7. The penalty and related allowable will come into effect on the first of the month following the date that the application was registered by us.
8. We will provide the applicant with a link to the letter with our decision, which is accessible through the Integrated Application Registry Query. We will also share our decision on our Publication of Decision page.