Background
The oil and gas well spacing regulations and policy have received considerable review and some significant changes are appropriate. Extensive consultation with the Canadian Association of Petroleum Producers, the Small Explorers and Producers Association of Canada, and the Alberta Department of Energy has taken place.
The Energy Resources Conservation Board (the Board) will implement the changes summarized in the following paragraphs and in Attachments 1 through 3 on 1 April 1994.
"First Well" in a Pool
The optimum geologic location to drill the "first well" into a pool is often outside the existing target area. The Board receives many applications to change target areas for "first wells". Most operators apply prior to drilling to ensure on-target status and to avoid an off-target penalty that may result from subsequent pool development. These applications can alert competitors to the possible play and intervention may be filed resulting in long and costly delays. This, in effect, penalizes the company that takes the initiative to explore for a new pool. Accordingly, it is considered appropriate to establish a policy that recognizes those companies willing to take the risk associated with drilling exploratory wells.
Effective 1 April 1994 the Board will not impose an off-target penalty on the 'first well" in a pool. This policy will be reviewed periodically to ensure that the benefits received by industry justify the administrative resources expended by the Board. Should it be evident that the policy is being abused or is unmanageable it may be rescinded or, alternately, a special charge may be introduced to deal with the resolution of such disputes. Details of the policy are described in Attachment 1 and apply to oil and gas wells.
Off-Target Penalty Surveillance
The change from prorated allowables in oil pools to an environment where rate controls are administered primarily for conservation purposes led the Board to conclude that its role in monitoring off-target wells and lease-line drainage requires revision. The current policy of automatically applying off-target penalties in Maximum Rate Limitation (MRL) administered oil pools can result in the imposition of penalties when protection of correlative rights is not an issue. Also, the increased use of holdings and miscellaneous orders to facilitate drilling of optimum geologic locations during pool development has resulted in fewer off-target wells. Most oil wells do not have rate limitations because they are in pools subject to good production practice (GPP). The monitoring of off-target wells in GPP pools has been the responsibility of operators in the pools, with the onus on an affected party to bring equity concerns to the Board. With approximately 75 per cent of pools now on GPP, industry is presently responsible for much of the off-target surveillance.
Under the revised policy, the Board will no longer automatically apply off-target penalties, but, will require industry to monitor its respective oil and gas pools for off-target wells and bring equity concerns to the Board using the procedures and policy outlined in Attachment 2.
Off-Target Penalty Determination
Off-target penalty factors are presently calculated using the formulas outlined in Part 4 of the Oil and Gas Conservation Regulations. Part 4 contains some nine pages of off-target penalty calculations and text which are complicated and confusing to the user. The Board has replaced the current penalty calculations with simplified figures that show specific off-target areas and the assigned penalty factors. The new method to determine an off-target penalty is shown in Attachment 3, Figures 1 through 4.
It should be noted that the new method applies to wells spudded on or after 1 April 1994. Off-target wells spudded before 1 April 1994 will continue to have their off-target penalties calculated in accordance with present regulations.
The appropriate changes will be made to the Oil and Gas Conservation Regulations at a later date.
Questions regarding this interim directive should be directed to the Board's Oil Department at 297-8547.
<original signed by>
G. Berndtsson, P.Eng.
Board Member
