Canada: Energy @ Gowlings: June 26, 2012

Last Updated: July 9 2012

Edited by Paul Harricks

  • Production vs. Storage Rights: ERCB Balances Competing Interests
  • Public Private Partnerships: Policy and Execution Dilemmas
  • BC Hydro Releases its 2012 Draft Integrated Resource Plan

Production vs. Storage Rights: ERCB Balances Competing Interests
By: Sarah MacLeod

Alberta's Energy Resources Conservation Board ("ERCB" or the "Board") operates as an independent, quasi-judicial agency of the Government of Alberta to ensure that the "discovery, development and delivery of Alberta's energy resources take place in a manner that is fair, responsible and in the public interest."1

Recently in Kallisto Energy Corp.2, the ERCB was charged with balancing the competing interests of an oil producer and the operator of a natural gas storage project.

The Facts:

Kallisto Energy Corp. ("Kallisto") applied to the ERCB for a licence to drill a vertical well from a surface location at 27-1 W5M: Lsd. 11 of Sec. 26 (the "11-26 well"), to produce oil from the subsurface area known as the Basal Quartz "A" formation. CrossAlta Gas Storage & Services Ltd., BP Canada Energy, BP Canada Energy Company and TransCanada Pipelines Limited (collectively referred to as "CrossAlta") objected to the application. As the owner and operator of a gas storage facility injecting gas into a depleted field, situated below the Basal Quartz formation, known as the Crossfield East Elkton A and D pools (the "Elkton Storage Reservoir"), CrossAlta was concerned about the possibility of inter-pool "communication" which would allow liquids to migrate between the two pools. If there was effective communication, changes in reservoir pressure caused by production through the 11-26 well could cause gas that CrossAlta was storing on behalf of its customers to migrate into the Basal Quartz and to be produced through the well.

The Issues:

The Board considered three sets of issues in rendering its decision:

  1. the risk of communication with the Elkton Storage Reservoir;
  2. the rights of the parties and the public interest; and
  3. the mitigation of risks.

(1) The Risk of Communication:

At the hearing, Kallisto and CrossAlta agreed that the Basal Quartz "A" pool and the Elkton Storage Reservoir were in communication, but they disagreed with respect to the cause of this communication. Kallisto argued that the communication was naturally occurring, while CrossAlta maintained that it had been induced by hydraulic fracturing conducted at an earlier well at 7-25-27-1 W5M (the "7-25 well") in 2001.

Both parties submitted evidence designed to establish how or when communication first occurred, but the Board did not find this evidence to be conclusive one way or the other. Ultimately, the Board was not persuaded that the hydraulic fracture stimulation conducted at the 7-25 well was the only reasonable explanation for the communication and found that it was likely that the fracture stimulation merely enhanced a pre-existing communication. The Board went on to analyze the different geometry of the 7-25 well and the proposed 11-26 well location and determined that the spatial relationship between the 11-26 well and the Elkton Storage Reservoir was substantially different from that of the 7-25 well and the Elkton Storage Reservoir. Specifically, it found that the proposed well, even if hydraulically fractured, would probably not create communication with the Elkton Storage Reservoir.

(2) The Rights of the Parties and the Public Interest:

CrossAlta submitted that it had a legal responsibility on behalf of its customers and shareholders to prevent interference with its proprietary rights. Having operated the gas storage facility since 1994, long before Kallisto had acquired any rights to produce the minerals located on the adjacent lands, CrossAlta effectively argued that its rights were more "established" than those of Kallisto. CrossAlta further argued that Kallisto did not have any right to apply for or hold a licence for a gas well on Section 26 given that Kallisto did not have rights to a complete drilling spacing unit (DSU). Board regulations require a gas well operator to hold one full section of land, whereas Kallisto only held the rights to a quarter section, the DSU for an oil well.

CrossAlta raised financial loss concerns, arguing that it and its clients could suffer economically if its clients lost confidence in its ability to inject and withdraw gas from the storage facility when required to meet its customers' needs. Moreover, on the public interest side, CrossAlta maintained that storage gas has the following recognized public benefits: "(1) market balancing, (2) security of supply regardless of demand, (3) price stability and protection against extreme price shocks, (4) production efficiency, and (5) prevention of the shut in of wells and facilities due to price instability."3

Kallisto acknowledged that it did not have the right to remove or convert storage gas from the Elkton Storage Reservoir and also indicated that its intention was to drill an oil well and not a gas well. Kallisto further recognized that, should a gas formation be encountered and determined to be economically producible, it would need to secure the DSU by voluntary agreement or a compulsory pooling order. However, Kallisto argued that CrossAlta was shrewdly trying to create a buffer zone around the Elkton Storage Reservoir and was effectively sterilizing Kallisto's right to develop its mineral interest and the interest of the freehold owners.

The Board noted that it must "address and balance the public interest in the areas of public health and safety, the protection of the environment, resource conservation, and economics while facilitating the efficient, effective and orderly development of Alberta's resources."4 While the Board accepted that the ability to store natural gas performs an important function, was of the opinion that "most, if not all, CrossAlta's arguments relate primarily to adverse impacts on its commercial interests and its customers, rather than to the broader public interests of Albertans."5

(3) Mitigation of Risks:

Given the evidence surrounding the geology of the area, the Board held that the risk of communication between the 11-26 well and the Elkton Storage Reservoir was low and that the magnitude of potential risk was not sufficient to deny the approval of Kallisto's application. The Board however, set out the following three conditions to reduce the possibility of potential communication and harm: "(1) The Licensee must obtain and immediately submit stabilized initial pressure data to the ERCB and CrossAlta. (2) The Licensee must not use fracture stimulation on the well that exceeds 40 tonnes unless consent has been given by the Board. (3) The Licensee must obtain and submit stabilized pre- and post-frac pressure data to the ERCB and Cross Alta."6

What does this mean?

The ERCB can and frequently will use the terms and conditions of a licence that it is granting to balance competing interests. In cases involving conflicts between a party wishing to drill a well and the operator of a neighbouring gas storage unit, the Board's decision in Kallisto indicates that, in the absence of clear evidence of communication between the relevant areas, the Board is likely to permit the well to be drilled but to impose terms and conditions on the licensee of the well in order to mitigate, and hopefully eliminate, the risk of harm to the storage operator and its customers as a result of inadvertent communication.


1. "Mission Statement", 6 March 2012, online, Energy Resources Conservation Board

2. Kallisto Energy Corp., Decision 2012 ABERCB 005, online, Energy Resources Conservation Board

3. Supra at para. 66.

4. Supra at para. 73.

5. Supra at para. 73.

6. Supra, Appendix 1 – Summary of Conditions.

Public Private Partnerships: Policy And Execution Dilemmas
By: Myron Dzulynsky

Once limited to a few jurisdictions (including Australia, the United Kingdom and certain parts of Europe), private involvement in the procurement of public infrastructure through concession or similar arrangements (referred to in this article as public private partnerships, or PPP) have become increasingly attractive to governments worldwide. For any government looking to introduce PPP, or broaden its use of PPP as a delivery model, there are a number of questions that must be addressed. A few of these questions are set out below.

Politics: Involving private enterprise in public infrastructure cannot avoid the political reality in which it takes place. Different countries have different views as to the appropriate role of private enterprise in such undertakings. Any model must take into account these often divergent such views (including public perceptions with respect to PPP), while at the same time ensuring that politics do not so impede the development of the model that it defeats the benefits of the model.

Where PPP can be used: Some jurisdictions have looked to PPP's primarily in the transportation sector. There seems little reason, however, why PPPs cannot be used in broader government infrastructure sectors. For example, in the Canadian PPP model, there have been more social infrastructure projects (hospitals, detention centres, data centres, courthouses, etc.) than transportation projects. At times, there may be a predisposition to include or exclude certain subsectors based on constitutional jurisdictions within a particular country. To the extent that a country can develop a model which is flexible, one may ask why it should be restricted on such a basis.

Facilitating certainty: T attract foreign participants, and thereby increase competition, in its PPP market, countries need to provide some level of certainty to prospective participants. Certainty can be viewed on various levels, but in the context of PPP, it is suggested that there are a few key issues. First, the legal regime must provide an adequate framework for PPP participants to understand what they are bidding to. Second, PPP documentation must provide sufficient information to permit participants to properly evaluate risk and pricing, and thereby provide strong bids from which the government can choose. Third, the host government must provide certainty of process. A process should be one that is understood by all, consistent, transparent and, to the extent possible, free from political interference. With respect to the last of these, in certain jurisdictions (including a number of provinces in Canada) PPP participants have lauded the involvement of specialized government agencies which are not only advisory in nature, but are actually the procuring agency for various projects. One advantage of such an agency is that it can transcend some of the jurisdictional difficulties referred to above. Fourth, PPP participants are generally attracted to markets where there is certainty of deal-flow which can justify the significant pursuit costs that are associated with the PPP model. Robust deal pipelines can be hampered by a number of factors, including actual infrastructure needs, delivery capability, and financial strength (to name a few). One of the ways to address pipeline concerns is to first bring to market social infrastructure projects, which may be more numerous and smaller (in the latter case also facilitating development of PPP expertise in government in a smaller project context).

Choosing the Delivery Approach: There are arguments in favour of various PPP models (build finance, design build finance, build finance maintain, design build finance maintain, etc.) For example, some would argue that, in the absence of a design feature in a procurement process, proponents cannot bring full value to the infrastructure project in question. Similarly, many suggest that, in the absence of a long-term operational and or maintenance component (at least 20 years), governments may not fully realize one of the benefits of the PPP model "being the healthy tension between construction provider and operations and maintenance or facilities management provider".

The role of equity. One of the elements of the PPP model is the inclusion of an equity provider. While this may be part of a construction company, or operations and maintenance provider, it can also be a separate financial investor who is prepared to participate in a consortium involving construction and operations and maintenance participants. The type of equity participant that may be attracted to a particular PPP model may depend upon the structure of a particular PPP project (with most financial investors preferring a longer-term equity component). A longer term equity component may also have the collateral effect of encouraging a secondary market in infrastructure projects, which can in turn attract new investors into a country's infrastructure market.

BC Hydro Releases Its 2012 Draft Integrated Resource Plan
By: Henry Ellis and Bryan Millman

On May 28, 2012, BC Hydro released a draft of its Integrated Resource Plan 2012 (the "Plan"), a long-term forecast on the supply and demand for electricity in British Columbia. The Plan contains 14 recommended actions to meet the province's future electricity demands. BC Hydro aims to meet those demands via energy conservation and efficiency, supplemented by the purchase and construction of cost-competitive and reliable clean energy resources. The Plan does not commit BC Hydro to any specific capital projects; recommended courses of action are subject to subsequent approval and consultation requirements. Each recommended action is briefly highlighted below. For ease of reference, a table following this article lists all 14 recommendations.

BC Hydro anticipates that peak demand for electricity will grow by 50 per cent over the next 20 years, before accounting for the savings that can be achieved by current conservation and efficiency measures. Moreover, the province's load resource balance indicates that ratepayers will need an additional 4,900 gigawatt hours of energy by fiscal 2021. BC Hydro anticipates that an additional 12,500 gigawatt hours will be needed by 2031; however this figure is contingent upon the proposed Kitimat LNG plants proceeding as planned.

To close the gap between future electricity demands and existing supplies, BC Hydro will encourage residential, industrial, and commercial customers to implement energy conservation measures to reduce electricity consumption during peak periods. Further, BC Hydro plans to employ smart meters and revamped government codes and measures to assist in educating residential consumers to be more cognizant of energy conservation.

To bolster the effect of conservation, BC Hydro plans to increase the province's current energy supply by building Site C, a proposed hydroelectric dam on the Peace River in north-east British Columbia. Site C is projected to be operational by 2020. BC Hydro also intends to increase energy efficiency by creating improvements to existing infrastructure, such as installing a sixth generating unit in the Revelstoke Generating Station and reinforcing the transmission line from Prince George to Terrace.

Until Site C and infrastructure improvements are operational, BC Hydro plans to pursue readily-available energy resources to meet the province's short term energy needs. A combination of market purchases, power from the United States as part of the Columbia River Treaty, and reliance on the Burrard Thermal Generating Station are available options.

The development of energy procurement options from clean energy producers for projects that would come into service in the 2016-2018 time period is another recommended action. The majority of this additional energy is expected to come from wind, run-of-river and biomass projects, yet geothermal, wave, and tidal projects may be considered as well.

Contingency arrangements, should electricity demand grow faster than forecasted, are also contained within the Plan. Major developments in the gas industry along the province's north coast and in the Horn River Basin could significantly alter the Plan's energy forecast. BC Hydro will continue to monitor those potential projects and develop a range of options to satisfy associated energy needs. The Plan also includes further contingency options such as exploring the viability of pumped storage projects and natural gas-fired energy generation.

The Clean Energy Act directs BC Hydro to examine whether there exists any potential for the production of electricity for the purpose of export. As the Plan explains, current market conditions are not conducive to the export of electricity.

BC Hydro is seeking public and stakeholder feedback on the Plan between May 28 and July 6, 2012. Pursuant to the Clean Energy Act, a final version of the Plan will be submitted to the Minister of Energy by December 2012.

IRP's Fourteen Recommended Actions


Increase energy savings target to 9,800 GWh/year by F2021 (1,000 GWh/year more than the current plan) through conservation and efficiency programs, incentives and regulations.


Explore more codes, standards, and rate options for savings beyond the 9,800 GWh/year target. This action supports the recently introduced Bill 32 (Energy and Water Efficiency Act).


Pursue voluntary capacity-focused conservation programs that encourage residential, commercial and industrial customers to reduce energy consumption during peak periods.


Build Site C to add 5,100 GWh/year of annual energy and 1,100 MW of dependable capacity to the system for the earliest in-service date, subject to environmental certification and fulfilling of the Crown's duty to consult, and where appropriate, accommodate Aboriginal groups.


Begin work to allow the sixth generating unit at Revelstoke Generating Station to be built by F2019, adding 500 MW of peak capacity to the BC Hydro system.


Fill the short-term peak capacity gap from F2016 to F2021 with a combination of market purchases first, power from the Columbia River Treaty second, and extending the existing back-up use of Burrard Thermal Generating Station (Burrard), if required and as authorized by regulation.


Continue to investigate and advance cost-effective Resource Smart projects to utilize the remaining, untapped capacity within BC Hydro's existing hydroelectric system.


Reinforce the existing 500 kV line from Prince George (Williston Substation) to Terrace (Skeena Substation) to meet new demand on the North Coast.


Develop energy procurement options to acquire up to 2,000 GWh/year from clean energy producers for projects that would come into service in the F2017 to F2019 time period.


Explore pumped storage capacity options to reduce the lead time to in-service dates and to develop an understanding of where and how to site such future resources in the province, should they be needed.


Undertake work to maintain the earliest in-service date for a new 500 kV transmission line from Prince George to Terrace and Kitimat, and from the Peace River region to Prince George.


Develop procurement options for additional clean energy resources, backed-up by gas-fired generation — located either in the North Coast or both in the North Coast and across B.C. — for energy that could be delivered in the F2020-F2021 timeframe, should it be needed.


Explore natural gas-fired generation options to reduce the lead time to in-service dates and to develop an understanding of where and how to site such future resources in the province, should they be needed.


Continue to monitor the Northeast natural gas industry and undertake studies to keep open electricity supply options, including transmission connection to the integrated system and local gas-fired generation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
8 Nov 2016, Seminar, Ottawa, Canada

The prospect of an internal investigation raises many thorny issues. This presentation will canvass some of the potential triggering events, and discuss how to structure an investigation, retain forensic assistance and manage the inevitable ethical issues that will arise.

22 Nov 2016, Seminar, Ottawa, Canada

From the boardroom to the shop floor, effective organizations recognize the value of having a diverse workplace. This presentation will explore effective strategies to promote diversity, defeat bias and encourage a broader community outlook.

7 Dec 2016, Seminar, Ottawa, Canada

Staying local but going global presents its challenges. Gowling WLG lawyers offer an international roundtable on doing business in the U.K., France, Germany, China and Russia. This three-hour session will videoconference in lawyers from around the world to discuss business and intellectual property hurdles.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.