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No end to oil sands vs. bitumen fight Alberta’s Energy and Utilities Board fails to sway gas producers with latest findings Gary Park Petroleum News Calgary correspondent
It has been described by Neil McCrank, chairman of Alberta’s Energy and Utilities Board, as the “most significant issue” to come before the regulator in its 65 years of existence.
And it shows every sign of continuing to spread dissension within the ranks of Canada’s biggest oil and natural gas producers.
For six years the Energy and Utilities Board, oil sands proponents and natural gas producers have struggled to decide what, if any, impact continued gas production in northeastern Alberta has on the commercial future of underlying bitumen deposits.
At stake in the current battle over the Wabiskaw-McMurray formation in northeastern Alberta are reserves estimated at 1 trillion cubic feet of gas, or 2 percent of the province’s remaining reserves, and 100 billion barrels of bitumen.
The Energy and Utilities Board has sided with protecting the bitumen deposits, which it says have 600 times the energy content of the gas.
The latest attempt to settle the feuding appears, if anything, to have pushed the warring factions further apart. Wabiskaw-McMurray area studied For the past three months, a team of 15 geologists and engineers from 11 companies and 27 full-time Energy and Utilities Board staff, with support from others, has studied 5,000 square miles of the Wabiskaw-McMurray area.
The findings, while pointing to the possible permanent shutdown of 464 of 777 natural gas pools, are still being refined and could lead to more hearings.
By Jan. 26, the board will decide which of 938 wells should be closed. Gas and bitumen producers will be able to challenge that list at a March 8 interim hearing and, if necessary, a final hearing will be scheduled.
For now, 330 wells covering 40.5 percent of Wabiskaw-McMurray gas production are shut in and 608 have temporary exemptions.
While the regulatory debate rumbles on, Paramount Energy Trust, the hardest hit of the shut-in producers, has teamed up with Canadian Natural Resources, BP Canada Energy and Devon Canada to seek an Alberta appeal court stay of the Energy and Utilities Board’s actions.
Board accused of moving too fast
Although it is not clear whether the Energy and Utilities Board report would result in further well closures, Paramount president Susan Riddell Rose accused the board of moving too fast on a decision that she said could cost the industry a C$2 billion loss in total value, although it is “reasonable to expect that won’t be the case.”
Riddell Rose said the “aggressive” timetable set by the Energy and Utilities Board doesn’t give anyone the time needed to evaluate the data and make the best decisions, appealing for several months rather than a few weeks to reach a final verdict.
“I don’t think it’s at all appropriate that the EUB is taking these steps,” she said. “They’re not following due process.”
The board, noting the length of time already spent on the issues, said both sides have had ample time to present their arguments.
A spokesman said the knowledge gained from the geological study is “very significant” and will be the basis for determining which gas pools pose a threat to bitumen recovery and which don’t.
The study said that when the gas is produced “there is a drop in pressure within the gas pools. The EUB believes this leads to an unacceptable risk to bitumen recovery using thermal techniques such as steam-assisted gravity drainage.” Advances in steam-assisted gravity drainage Steady advances have been made over recent years, notably by EnCana and Petro-Canada, in the use of steam-assisted gravity drainage to recover bitumen from deep deposits.Operators use twin horizontal wells, one to inject steam and loosen the viscous heavy oil, allowing it to reach the surface through the production well.
The board study said that where there has been no gas production, the steam is mostly contained within the oil sands zone, while, in the depleted pools, some steam escapes into the lower pressure gas pools and thus the steam is not available to heat the bitumen. Paramount countered that there is still “great uncertainty around what is commercial bitumen and what impact gas depletion has on the ultimate bitumen recovery.”
It called for a case-by-case assessment to determine whether the bitumen recovery has greater economic benefit to Alberta than the production of associated gas.
“It continues to be our belief that no gas production in northeast Alberta poses a threat to the ultimate commercial bitumen recovery that cannot be alleviated by technological solutions,” the income trust said. Petro-Canada most vocal opponent of gas production On the other side, oil sands operator Petro-Canada said it has yet to see the technical solution that Paramount is advocating.
The most vocal opponent of gas production, Petro-Canada welcomed the Energy and Utilities Board findings and praised the efforts by the regulator to assemble so much geological and engineering data in only three months.
Meanwhile, the Alberta government expects to make a decision before March 31 on any “royalty adjustments” for gas producers, Energy Minister Murray Smith said.
The government decided in October to make preliminary compensation of C$25 million, or 60 cents per thousands cubic feet, to ease any “financial hardship” suffered by gas producers while it worked on a long-term solution.
Following a previous shut-in of 145 gas wells, Alberta paid C$85 million to seven gas producers, whose output was 20 million cubic feet per day from reserves of 95 billion to 180 billion cubic feet.
The current Wabiskaw-McMurray affects 40.5 percent of the area’s daily gas volumes.
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