June 21, 2011

Regulating Unconventional Oil and Gas in Alberta – ERCB Perspective

Presentation to Synergy Alberta Conference 2012

Cal Hill | October 30, 2012

Outline

The ERCB Conventional versus Unconventional Shale Resources in Alberta Regulatory Challenges Regulatory Framework

The Energy Resources Conservation Board (ERCB) “A quasi-judicial, arms-length body created by the Alberta Government 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”

The ERCB Across Alberta

9 Field Centres Head Office (Calgary) Core Research Centre (Calgary) Alberta Geological Survey (Edmonton) Fort McMurray Oil Sands Regional Office

Conventional versus Unconventional

Drivers for change

Depleting conventional oil and gas

New technology; economics

Abundant unconventional resources

New risks and opportunities

Conventional

- Fluids flow through porous and permeable rock by pressure and buoyancy forces

- Hydrocarbons migrate from source rock to reservoir rock

- Hydrocarbons are trapped in pools by seals; low permeability rock

Unconventional - Rock has poor or no permeability - Requires innovative technology; hydraulic fracturing - Source rock is often target - Covers broad areas

Conventional versus Unconventional Oil & Gas

Conventional versus Unconventional

- Play scale - Permeability

Technological Innovation

Historical context - 171,000 wells hydraulically fractured in Alberta since 1950s - Drilling horizontal wells since mid 1980s - Since 2008, horizontal multi-stage hydraulically fractured wells >5200 Wide spread use of new technology --In 2011, over half of all wells drilled were horizontal - Wide range of geological targets (Cardium, Viking, Montney, Glauconitic, Mannville, Ellerslie, Exshaw, Duvernay)

Horizontal Multi-stage Hydraulic Fractured Wells by Formation

Shale Resources in Alberta

Shale Play Duvernay Formation

Initial area of interest

Challenges of Unconventional Oil and Gas Development

Unconventional Oil & Gas Development Challenges

Water management and protection Hydraulic Fracturing Development planning and cumulative effects Communication

Unconventional Oil & Gas Challenges

Water management and protection - Volumes and sources - Potential groundwater / surface water contamination - Flowback fluid management

Unconventional Oil & Gas Challenges

High-pressure Hydraulic Fracturing - Understanding 3-D fracture propagation - Communication with offset wells - Cement integrity - Natural faults and fractures - Other

• Sub-surface wellbore spacing

• Caprock integrity • Resource assessment

Unconventional Oil & Gas Challenges

Development planning and cumulative effects - Density of surface infrastructure and scale of development - Sensitive species habitat impacts - Access restrictions - Opportunities for collaboration - Nuisances

• Truck traffic – impact on roads • Noise • Duration of wellsite activity • Dust • Flaring and emissions • Light pollution

Meeting the Challenge

Regulatory Fundamentals

Comprehensive system of safety, environmental, and technical requirements; Well design Well casing and cementing blowout prevention groundwater protection Well completions shallow fracturing

Regulatory Fundamentals Facilities design and operation

flaring, venting, emissions

Waste Management drilling waste flow back & produced water oilfield wastes

Compliance Assurance production reporting field inspection and audits authority to shut-in operations emergency response

Closure suspension & abandonment requirements

ERCB Basic Requirements Dir 008: Surface Casing Depth Requirements Dir 009: Casing Cementing Requirements

Dir 020: Well Abandonment

Dir 027: Shallow Fracturing Restricted Operations Dir 029: Applications and Hearing Process Dir 031: Guidelines for… Cost Claims

Dir 035: Baseline Water Well Testing

Dir 038: Noise Control

Dir 044: Surveillance - Water Production in Wells

Dir 050: Drilling Waste Management

Dir 051: Injection and Disposal Wells

Dir 055: Storage Requirements

Dir 056: Energy Development Applications

Dir 058: Oilfield Waste Management

Dir 059: Drilling & Completion Data Filing

etc…

Evolving the Regulatory Framework

Reducing Surface Impact

Unconventional Oil & Gas Regulatory Framework (URF)

Start with the regulatory fundamentals Address regional aspects of unconventional development Address new technical challenges

URF Concept

URF based on two components: - risk-based -organizes risks by plays

Addresses ‘game changing’ new technologies Priority is low permeability resources Addresses regional impacts

Play/project approach - Based on level of risk - Applied to resource plays

- Move from well-by-well authorization to project based approach

- Requires project plans -Water management

-Surface infrastructure

-Sub-surface reservoir management

-Stakeholder engagement

-Wellbore integrity

- Move to performance-based / management system approach

Plans Must Address Water management - Play or project level Surface infrastructure development - Footprint, linear disturbances, trucking, dust, noise, etc. Sub-surface reservoir management - Resource recovery, minimize flaring, ER potential, reserves assessment Stakeholder engagement - Local community, business leaders, local authorities Lifecycle Wellbore Integrity - Apply Management-System approach to play

Addressing Technical Challenges

Hydraulic Fracturing -Fracture fluid disclosure requirements -Disclosure through Fracfocus.ca -Field office notification of HF operations -Interwellbore communication addressed -Ensuring wellbore integrity -Requirements for wells; intermediate depths (200 – 600 m) -Monitoring potential for induced seismicity

-Target Winter 2012