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Alberta government offers royalty breaks Gas producers forced to shut-in wells due to oil sands get C$25 million Gary Park Petroleum News Calgary correspondent
The gas-over-bitumen dispute in Alberta has moved closer to a settlement, with the provincial government offering C$25 million in interim compensation to natural gas producers forced to close 338 wells and 95 million cubic feet per day of output.
Energy Minister Murray Smith announced that affected producers can apply for a royalty deferral equal to 60 cents per thousand cubic feet of production.
He said the temporary scheme has been put in place to reduce potential “financial hardship” while his department works with the industry to develop a long-term answer.
Susan Riddell Rose, president of Paramount Energy Trust, the hardest hit by the shut-in order, said the program is a “good first step,” but falls well short of covering Paramount’s estimated losses of C$8 million a year along with the “loss of opportunities we’ve suffered in the last three months.”
Alberta’s Energy and Utilities Board originally ordered the shut-in of 938 wells to protect reservoir pressures and safeguard 100 billion barrels of bitumen reserves, which the board rated as 600 times the energy equivalent of the gas reserves.
For now the other 600 wells have temporary exemptions from the shut-in because of evidence that the gas extraction does not affect the potential extraction of bitumen. Pressure surveys being conducted The energy board is also working with 15 geologists from 11 energy companies to conduct pressure surveys in the area. It has set a tentative deadline of April 1, 2004, to decide on the fate of the shut-in wells.
Meanwhile, five of the gas producers — Paramount, Devon Canada, BP Canada Energy, Canadian Natural Resources and ProGas — are taking court action to either quash the shut-in or appeal the regulator’s decision.
Paramount and Devon argue the Energy and Utilities Board has failed to abide by the legislation under which it operates and has thus lost its jurisdiction in the issue.
Following an earlier shut-in affecting seven producers and 146 wells with 20 million cubic feet per day of production, the government paid C$85 million in compensation.
In the current case, the producers have claimed they should be entitled to compensation of C$600 million-C$800 million.
Oil sands producers such as Petro-Canada have rejected any form of compensation, partly because they fear some of the costs could land on them.
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