Canada: The Alberta Energy Regulator Provides Guidance On Disputes Over Use Of Pore Space

Pore space is finite.  As there is increasing demand for it, disputes between parties having interests in or rights to use pore space in Alberta will become more frequent.  The guidelines and framework by which the Alberta Energy Regulator (AER) will decide these disputes is still developing.  Carbon dioxide disposal, water disposal and underground hydrocarbon storage operations all require access to pore space in geologically isolated formations.  This is particularly true in respect of water disposal formations where demand in particular areas is growing and acceptable disposal formations are in high demand.  This conflict is at the root of the July 28, 2014 decision of the AER in Canadian Natural Resources Limited (CNRL) Application for Disposal Lloydminster Field, 2014 ABAER 008Click here for a copy of the full decision. 

Facts

CNRL produces oil in the Lloydminster area with significant production of associated water.  CNRL drilled the 3-17-51-2W4/3 well (3-17 Well) and originally planned to dispose of water through the 3-17 Well into the Dina formation.  Ener T Corporation (Ener T) expressed concern with CNRL using the Dina formation for this purpose, following which CNRL obtained approval from the AER, pursuant to section 56 of the Mines and Minerals Act, RSA 2000, c. M-17 and AER Directive 51, to inject into the Moberly and Cooking Lake formations.  As a result of poor injectivity in these formations, CNRL brought this further application seeking approval to inject into the Dina formation. 

Ener T objected to the application on the basis that allowing CNRL to inject into the Dina formation would adversely impact Ener T's ability to dispose into the AB/16-7-51-02W4/4 well (AB/16-7 Well), located approximately 1000 meters away.  Ener T maintained that CNRL's injection into the Dina formation would lead to the reservoir being saturated or over-pressured at an accelerated rate, which would require higher injection pressures at the AB/16-7 Well and reduce the amount of fluid Ener T could inject into the reservoir.  Ener T maintained that small operators would be in ever increasing competition with CNRL's insatiable need for water disposal.  

The AER ultimately approved the application concluding that:

"[79] The panel finds that the evidence in this proceeding does not support Ener T's view that injection into the Dina Formation at the 3-17 location will result in significant adverse effects to the ongoing disposal at the Ener T AB/16-7 Well.  While the potential for some effects to Ener T's injection operations at the AB/16-7 cannot be ruled out, the panel concludes that the potential for adverse impacts to the Ener T's disposal at the AB/16-7 well is low and would be mitigated by the MWHIP limitation assigned to the 3-17 well.

[80] The panel notes that additional oil production can be brought on by CNRL if it secures additional disposal capacity for its produced water, and this additional oil production will provide a benefit to the province in the form of royalties to the Government of Alberta.  Given that the panel has found the risk of adverse impact to Ener T's AB/16-7 well to be low, the panel finds there to be a positive net benefit, if the application is approved."   

Issues

The panel focused on the following 4 issues:

1. CNRL's need for additional disposal capacity.  This issue was not seriously contested.  The panel noted that CNRL had productive oil wells that were shut-in in the area due to insufficient produced water disposal capacity and concluded that for CNRL to fully maximize recovery of oil reserves in the area, additional water disposal capacity was required.

2. The evaluation of alternative disposal zones.  The panel concluded that CNRL's decision to apply for disposal in the Dina formation in the 3-17 well was reasonable.  The main considerations in reaching this conclusion included:  

  • The 3-17 Well appeared to maximize the number of known disposal formations and avoided potential oil bearing zones, not typically approved as disposal formations;  
  • Since the 3-17 Well was already drilled, surface disturbance, land owner and environmental concerns associated with drilling another well could be minimized or avoided;  
  • CNRL had alternative injection locations but existing wells presented potential wellbore integrity issues; and  
  • CNRL made reasonable, but unsuccessful efforts, to enhance injectivity in the Moberly and Cooking Lake formations.    

3. The capacity of the Dina formation for injection fluids.  The Dina formation was recognized as an acceptable disposal formation with close to 300 wells in the area disposing in that formation.  The main geological contention was whether the Dina at the 3-17 Well was a regionally extensive aquifer and an ideal candidate for water disposal as argued by CNRL or a channel sand isolated from the regional Dina formation which would act as a closed system with limited volume as argued by Ener T. 

The panel concluded that, while there may be localized barriers in the Dina sand and the quality of sand may be variable, the geological evidence did not support the interpretation of a narrow channel sand that would act as a closed system.  The panel also considered seismic and hydrogeology evidence and concluded that the Dina reservoir was more likely open and regionally extensive as opposed to a limited closed system.

4. Potential adverse effects on Ener T's AB/16-7 Well.  Ener T's submission focused on the public interest in rewarding people who "incur the risk and the cost of drilling into a certain area".  Ener T also raised the need for a "buffer zone" to prevent large producers from coming in and drilling in the same zone as a small producer and negatively impacting the smaller producer's operations.  Ener T proposed a 1.6 km buffer zone around the existing disposal wells. 

The panel noted that AER regulations allowed both disposal operations to co-exist and did not restrict the distance between disposal wells.  Accordingly, the panel did not entertain the "buffer zone" proposal.   The panel noted that CNRL's submissions, including a case study and regional analysis of the Dina, indicated that risks of loss of injectivity at Ener T's AB/16-7 Well or saturation of the Dina formation were low.  The panel concluded that the Dina reservoir should be able to accept disposal fluids from both Ener T's and CNRL's wells and that CNRL's proposed injection at the 3-17 Well should not adversely affect Ener T's disposal well.  Further any unlikely impact on Ener T's AB/16-7 Well would be reduced by assigning a maximum wellhead injection pressure limited to the default wellhead pressure assigned by Table 1 in Appendix O of AER Directive 065

Implications

While this decision raises some questions, it provides little clarification on resolution of competing claims to finite pore space.  Geology of the Dina formation was contentious and the ability of the Dina reservoir to accept disposal fluids from both Ener T's and CNRL's wells without adversely impacting Ener T's pre-existing disposal well was uncertain.  However the AER was not inclined to recognize a pre-existing disposal operation as having any priority to the disposal zone, nor was the AER prepared to recognize a "buffer zone" around the pre-existing disposal operation.   One is left with the impression that a significant consideration for the AER was that additional water disposal capacity would maximize CRNL's oil recovery in the area and the corresponding royalties to the Government of Alberta.  This raises the question of whether a large producer with the most resources at risk if additional disposal capacity is not available has injection priority to a disposal zone.  It also raises the question of how the AER would have dealt with the matter had it been satisfied that Ener T's operations would have been adversely impacted. While the AER effectively sidestepped these issues in this decision, it is only a matter of time until the AER is required to squarely address the question of competing rights to pore space. 

While there is some uncertainty, this decision suggests that key factors the AER will likely consider in addressing competing rights and priority issues include (1) the need for the use of the pore space by the applicant; (2) whether there are other alternatives to achieve the applicant's goals; (3) whether the pore space or formation sought to be used is appropriate for the applied for use; and (4) whether the proposed use would adversely impact others, including other existing or proposed oil and gas operations that are in the public interest.  Any decision in this regard may have broader implications for carbon dioxide disposal and hydrocarbon storage operations. 

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