Shallow Rights Reversion Frequently Asked Questions

Shallow Rights Reversion

What is shallow rights reversion?
Why implement shallow rights reversion?

Economics and cost to test shallow zones

Will shallow rights reversion force a company to shut down their well in order to conduct a test in a shallow zone?
Will the Department of Energy consider relaxing the continuation rules for shallow rights?

Surface Footprint

Will SRR significantly increase the surface footprint by requiring increased drilling?
Will SRR cause additional development near cities and towns?
Will operators be able to use existing surface leases and wellbores to exploit shallower rights or is there likely to be an increased industry footprint resulting from additional roads, well pads, flow lines and associated infrastructure?

Activity Levels

Does the Energy Resources Conservation Board (ERCB) anticipate an increase in non-routine applications?
Will the Government of Alberta be able to handle the increase in workload to handle SRR?
Does the ERCB expect an increase in common carrier and common processor applications from owners of the shallow resource?
Will SRR mean more seismic activity?

Agreements Subject to Unit Agreements

Will SRR affect agreements that are subject to unit agreements?

Alignment with Other Provincial Policies / Initiatives

How does the implementation of SRR align with other government policies or initiatives such as the Land Use Framework, Integrated Land Management, the Draft Wetland Policy and the management of greenhouse gas emissions?
Will the additional activity generated from SRR create additional impacts on wildlife and biodiversity, and specifically on species at risk?
Will the exploitation of shallower rights mean more coalbed methane (CBM) development and will useable groundwater be affected?
Will SRR development increase the demand for water for drilling or injection to assist with production from the shallower horizons?

Spacing, Commingling and Consolidation

Is the department contemplating using different continuation rules for spacing units and commingling for implementing SRR?
Can companies consolidate shallow rights documents and deep rights documents to maximize continuation of more zones?

Flaring

Is the ERCB contemplating changing any rules for the possible increase in flaring that may result from the implementation of SRR?

Shallow Rights Reversion

What is shallow rights reversion?

Shallow rights reversion (SRR) means that the petroleum and natural gas rights above the top of the shallowest productive zone in an agreement will be severed from the agreement at continuation. The depth of the shallowest zone will depend on the rights in your existing agreement i.e. shallow may be shallow, or deep. This is in addition to the existing deeper rights reversion. Rights between the top of the shallowest productive zone and the base of the deepest productive zone will remain in the agreement.

Why implement shallow rights reversion?

To encourage increased production from up-hole zones by severing non-productive shallow rights and to fill existing pipeline capacity. There is an estimated 44 tcf of potential reserves to be produced.

Economics and cost to test shallow zones

Will shallow rights reversion force a company to shut down their well in order to conduct a test in a shallow zone?

Each company will make their own decision on how to prove their shallow rights. Shallow rights can be proven in a number of ways including:

• use of geological mapping to prove the shallowest productive zone
• unitized zones
• payment of offset compensation
• proving productivity with a good gas test or production either by re-entering an existing wellbore or drilling a new well

Will the Department of Energy consider relaxing the continuation rules for shallow rights?

The same continuation rules will apply for shallow zones as currently apply to deeper zones. The department will continue to review all tenure policies on a regular basis and amend them if appropriate.

Surface Footprint

Will SRR significantly increase the surface footprint by requiring increased drilling?

The Government of Alberta does anticipate an increase in drilling as a result of SRR however there are several ways to prove the shallow zones so new drilling is not the only option.(see question 1). The development of shallower hydrocarbon resources that result from the SRR policy will be managed based on existing policy and management approaches. The increase in surface footprint will be mitigated by staging the implementation over several years and may be mitigated by innovative ways to utilize existing surface disturbance. Legislated protected areas and other areas may be off limits to SRR.

Will SRR cause additional development near cities and towns?

There is the potential for additional development across most of the province. Activities associated with this energy development will be managed in the same manner as current activities with the same opportunities for stakeholder consultation and involvement.

Will operators be able to use existing surface leases and wellbores to exploit shallower rights or is there likely to be an increased industry footprint resulting from additional roads, well pads, flow lines and associated infrastructure?

In some cases industry will make use of existing access and infrastructure. The re-entry of existing wellbores and hence the re-use of existing surface leases and roads may be an approach used by industry as approved by the appropriate regulator. Not all existing facilities, roads and surface leases will lend themselves to exploitation of shallower hydrocarbon-bearing formations so that some additional surface impacts are likely to happen.

Activity Levels

Does the Energy Resources Conservation Board (ERCB) anticipate an increase in non-routine applications?

With the potential for more wellbores, more testing and additional infrastructure under an accelerated shallow development proposal, there is the potential for more conflicts resulting in non-routine ERCB applications. However with appropriate SRR implementation rules, compliance to the regulations, increased efforts by companies to plan and to coordinate multi-company development activites, and effective consultation, the ERCB believes conflict management issues should not change significantly. The expected ongoing success in the ADR process, supported by increases in ADR staff, will also assist in this regard.

Will the Government of Alberta be able to handle the increase in workload to handle SRR?

The Government of Alberta will need to acquire additional resources in order to accommodate the increase in workload during the implementation period and maintain appropriate turnaround times.

Does the ERCB expect an increase in common carrier and common processor applications from owners of the shallow resource?

Utilizing existing infrastructure is the preferred option to reduce the footprint of oil and gas activity, however, in many instances deeper production has higher operating pressures than the shallow zones and may not be suitable for common production streams. The ERCB will continue to support the use of the Alternate Dispute Resolution process to settle disputes; however they will hold hearings as required.

Will SRR mean more seismic activity?

If existing seismic data was shot for deeper strata and the technical parameters are different to image shallower depths then a new survey may be needed. This will be determined by the quality of industry data and also the existing regulatory approach for seismic activity.

Agreements Subject to Unit Agreements

Will SRR affect agreements that are subject to unit agreements?

If the shallowest rights are unitized, they will not be affected.

Alignment with Other Provincial Policies / Initiatives

How does the implementation of SRR align with other government policies or initiatives such as the Land Use Framework, Integrated Land Management, the Draft Wetland Policy and the management of greenhouse gas emissions?

Development of the shallower hydrocarbon resources that result from the SRR policy will be managed in accordance with provincial policy and adhere to the provincial regulatory framework.

Will the additional activity generated from SRR create additional impacts on wildlife and biodiversity, and specifically on species at risk?

SRR will not always result in additional activity. Surface activities will continue to be subject to current practices approved by regulatory agencies such as ERCB and SRD. Common mitigation practices include directional drilling from common well-pads, joint use of roads and flow-lines, etc.

Will the exploitation of shallower rights mean more coalbed methane (CBM) development and will useable groundwater be affected?

Shallow-rights exploitation could result in more CBM development. Existing rules and practices to protect groundwater will continue to be implemented by regulatory agencies such as ERCB and Environment. As technology improves, other coal zones may become economic and best operating practices will be developed to minimize the effect.

Will SRR development increase the demand for water for drilling or injection to assist with production from the shallower horizons?

SRR will slightly increase the demand for the small amount of water used for drilling purposes. All produced saline water is either sent for injection into approved disposal wells or else injected back into the producing formation. When water is needed for injection, operators may be able to use produced saline water from deeper production, or else draw from the same approved water sources used for other wells in the vicinity.

Spacing, Commingling and Consolidation

Is the department contemplating using different continuation rules for spacing units and commingling for implementing SRR?

The petroleum and natural gas tenure system uses spacing units for issuing and continuing agreements. These same spacing unit rules will be used for SRR. However, the department has recently reviewed commingling rules and will clarify the rules as they affect the shallow and deep zones that are eligible for continuation.

Can companies consolidate shallow rights documents and deep rights documents to maximize continuation of more zones?

Consolidation can occur if you have the same ownership interests and designated representative and documents must be in the same vintage (primary or continued). Initial term licences can’t be consolidated.

Flaring

Is the ERCB contemplating changing any rules for the possible increase in flaring that may result from the implementation of SRR?

The ERCB has rules in place for flaring and does not contemplate a need to change them for SRR.

DEFINITIONS

Capable of producing in paying quantity:

The Department determines capability by several factors, including production, tests, reserves, logs and mapping of wells on the agreement and in the area.

Deeper Rights Reversion Zone Designation (DRRZD):

A DRRZD identifies a zone by its name. As noted in ERCB Decision 95-10, historically the name of the zone identified within type wells takes precedence over the depths identified in terms of utilizing a DRRZD.

Formation:

A body of rock identified by lithic characteristics and stratigraphic position; it is prevailingly but not necessarily tabular, and is mappable on the Earth’s surface or traceable in the subsurface.

Pool:

A natural underground reservoir containing or appearing to contain an accumulation of oil or gas or both separated or appearing to be separated from any other such accumulation.

Potentially Productive Zone:

A zone that is, in the opinion of the Minister, potentially capable of producing petroleum or natural gas or both in paying quantity

Producing Well:

A well that is considered by the Minister to be a producing well on the basis of the records of the Board and other information available to the Minister

Productive:

Capable, in the opinion of the Minister, of producing petroleum or natural gas from [a]well in paying quantity.

Proven:

Treated the same as “productive”

Reservoir:

In petroleum geology, any porous and permeable rock that yields oil or gas.

Test:

Physical recovery of a measurable quantity of hydrocarbons at the surface.

Zone:

A stratum or series of strata considered by the Minister to be a zone for the purposes of the P&NG Tenure Regulation.

Zone Designation (ZD):

Designates a lithostratigraphic zone described specifically by the depths identified in a particular well. ZDs are used, for instance, to describe the zones included in natural gas leases. When a ZD is being used, the depths and the interval take precedence over the name given to the zone.