ERCB Approves Well in Vicinity of Gas Storage Reservoir
On February 24, 2012 the Energy Resources Conservation Board (ERCB or Board) released its decision in the matter of Kallisto Energy Corp.'s application for a well licence in the Crossfield East field. This decision saw the ERCB assess an alleged conflict between the provincial interest in developing the oil and gas resource and protecting the underground natural gas storage industry.
Kallisto applied for approval to drill a vertical well targeting the Basal Quartz (BQ) formation. The proposed well is located approximately 1 km from the boundary of the CrossAlta Gas Storage & Services gas storage reservoir. CrossAlta, a joint venture of TransCanada Energy and BP Canada, uses the depleted Amoco East Crossfield Elkton pool to store natural gas for customers transported on TransCanada's mainline.
In 2001, another nearby well (the 7-25 well) was allegedly fracked in the BQ "A" pool. Subsequently, it became apparent that there was communication in the 7-25 well between the BQ A and the Elkton, CrossAlta's storage reservoir. CrossAlta argued that the fracking of the 7-25 well induced communication with its storage reservoir. CrossAlta objected to Kallisto's application on the basis that the drilling and fracking of the proposed well would similarly pose a significant risk to the integrity of its gas storage reservoir.
In its decision, the ERCB stated that Kallisto's application raised the following three issues:
- The risk of communication between the Elkton gas storage facility and the proposed well;
- The rights of the parties and the public interest; and
- The mitigation of risks.
On the first issue, the Board found that on balance the evidence did not support CrossAlta's view that pressure communication between the BQ A and the Elkton formations was caused by the small (5 tonne) frac at the 7-25 well. Further, the Board held that the proposed well was too distant from the storage reservoir for fracking to be of concern. The Board also rejected CrossAlta’s position that local geological conditions were such that there was a high risk of communication between the well and the storage reservoir.
On the second issue, the Board held that while gas storages facilities perform a public function, most of CrossAlta's arguments were based on adverse impacts on its commercial interests as opposed to the provincial public interest. Further, the Board held that the risk to the integrity of the storage reservoir must be balanced against the public interest in exploring for and developing proximal hydrocarbon resources and, where the risk can be appropriately and responsibly managed, such development should take place.
On the third issue, given the Board's finding that drilling and fracking the proposed well poses a low risk to the integrity of storage reservoir, it found that commitments given by Kallisto to obtain stabilized initial pressure data, pre- and post-frac, and to limit the size of the fracture stimulation to 40 tonnes, were acceptable to mitigate risk.
The ERCB's decision highlights that solid technical evidence is required, by both applicants and objecting parties, to support positions taken before the ERCB. Also, the decision reconfirms the importance given to the Board's primary legislative objective of fostering the orderly and efficient development of the oil and gas resources of Alberta.