Gas well shut-in carries billion-dollar cost

Energy and Utilities Board staff report recommends shutting in 485 gas wells, less than 938 wells originally targeted

Gary Park

Petroleum News Calgary correspondent

Natural gas producers in northeastern Alberta could lose C$1 billion in cash flow, if the province’s Energy and Utilities Board shuts-in 485 wells to protect more valuable oil sands reserves, says Paramount Energy Trust.

The Calgary-based trust, which has led the fight against idling the gas production, believes the gas producers would be entitled to payments or royalty breaks of C$200 million a year in compensation, said President and Chief Operating Officer Susan Riddell Rose.

The producers would seek 100 percent of cash flow, which would still leave them passing up the value of future gas development, she said Jan. 27 in response to an Energy and Utilities Board staff report proposing the shut-in of 485 wells — more than the 337 currently idled but far less than the 938 that were originally targeted by the regulator.

Under an interim compensation package, producers have been receiving 60 cents per thousand cubic feet from the Alberta government.

If the staff proposal is adopted, the operators — led by Paramount, Canadian Natural Resources and Devon Energy — will lose production of 136 million cubic feet per day from 300 billion cubic feet, or 0.7 percent of Alberta’s total accessible gas reserves.

The arm’s-length staff report said there is “compelling evidence” that the gas pools in the 5,700 square mile Wabiskaw-McMurray area are draining reservoir pressures, endangering the future extraction of 25.5 billion barrels of bitumen.

“The bitumen resource risk is immense,” the report said. “If associated gas is not immediately shut in, conservation of a high-quality bitumen resource may be moot.”

The staff calculated that the energy content of the bitumen deposit is 540 times greater than the affected gas production.

The findings will go before a March 8 interim Energy and Utilities Board hearing, when the drawn-out dispute between gas and bitumen producers will give both sides a chance to challenge the recommendations.

A final hearing may be needed to settle the production status of the disputed wells, although Paramount said Jan. 27 that it will pursue all avenues to obtain “reasonable” compensation of lost gas production.

But the trust has stalled legal action against the province, preferring to “come up with a negotiated solution,” Riddell Rose said.

However, Paramount brushed off the Energy and Utilities Board staff report, arguing that the gas pools are at “varying stages of pressure depletion” and not all bitumen in the region is of “uniform quality or commercial viability.”