ERCB Sends Well Licence Applicant Back to the Drawing Board… Again
On April 4, 2013, the Energy Resource Conservation Board (ERCB or Board) denied applications by Bernum Petroleum Ltd. (Bernum) for a facility license and two well licenses. The applications involved surface locations in the Bearspaw area between Calgary and Cochrane. Bernum had previously applied for a licence to drill a single well from essentially the same location; that application was also denied by the Board, in November 2011 (see our earlier e-alert "The Importance of Assessing Alternative Sites“).
The decision is of note for the ERCB’s comments on the acceptability of continuous flaring in close proximity to residential development and the need for applicants to consider the full extent of energy projects located in areas with substantial residential development. Also interesting is the fact that it is a rare split decision by the ERCB.
Facility Application
Bernum applied for approval of a two-well battery for its proposed wells. Bernum’s economic evaluation concluded that gas conservation would not be economic. Bernum therefore proposed to continuously flare or incinerate solution gas until conservation became economic, which it admitted could take several years. In denying the facility application, the Board stated that it was not convinced that gas conservation would be uneconomic, noting that Bernum presented a “worst case scenario” to justify flaring.
The ERCB also considered the impact of flaring on the potential future residential development of the land. The Board concluded that gas conservation would eliminate the 500 metre flaring setback and thereby substantially reduce concerns about its impact on future country residential development.
The flaring setback is contained in ERCB Directive 60, which prohibits flaring of volumes greater than 900 m3/day within 500 metres of an existing residence but permits the construction of new residences within 500 metres of a flaring battery. The Board found that allowing new development within 500 metres of the battery would be “inconsistent” when it is planned country residential development.
Well Applications
Bernum argued that its plan to drill both wells and construct the battery on a single surface location minimized surface impacts. However, Bernum acknowledged it had plans to drill additional wells and would require at least one more surface location to accomplish this.
The landowners argued that the Board must consider not only the two wells applied for but also the future wells. They also argued that the Board must consider the country residential character of the neighbourhood and submitted evidence that while their land is currently agricultural, it is ripe for residential development.
The ERCB split 2-1 on the issue of the well applications. The Board unanimously concluded that there was another surface location from which Bernum likely could drill all the wells, not just the first two. It also concluded that country residential development was likely to occur and therefore the impact of flaring on that development was an important consideration. Finally, the Board unanimously agreed that flaring would have a significant adverse effect on future development potential.
The ERCB split on whether the well licences should be approved, with the majority finding that they should not because Bernum failed to take into account the impact of its entire development and the future development potential of the lands. The majority stated that an appropriate balance that would allow the minerals to be developed while also allowing the landowners to realize the future development potential of their lands has yet to be struck.
Conclusion
In several previous decisions, the ERCB has been unwilling to deny well licence applications based on impact on future development potential—actual approved developments were required. In the Bernum decision, the Board has signaled that if a proposed well is to be drilled in an area with obvious existing and future residential development, applicants will be held to a higher standard in terms of disclosing full development plans and showing that those plans have appropriately considered impact on future development.
For further information about this recent development in environmental law and how you operation may be affected, please contact Ron Kruhlak in Edmonton, Gavin Fitch in Calgary, John Donihee in Yellowknife, or any member of our Energy & Environmental Regulatory Practice Group.
The decision is of note for the ERCB’s comments on the acceptability of continuous flaring in close proximity to residential development and the need for applicants to consider the full extent of energy projects located in areas with substantial residential development. Also interesting is the fact that it is a rare split decision by the ERCB.
Facility Application
Bernum applied for approval of a two-well battery for its proposed wells. Bernum’s economic evaluation concluded that gas conservation would not be economic. Bernum therefore proposed to continuously flare or incinerate solution gas until conservation became economic, which it admitted could take several years. In denying the facility application, the Board stated that it was not convinced that gas conservation would be uneconomic, noting that Bernum presented a “worst case scenario” to justify flaring.
The ERCB also considered the impact of flaring on the potential future residential development of the land. The Board concluded that gas conservation would eliminate the 500 metre flaring setback and thereby substantially reduce concerns about its impact on future country residential development.
The flaring setback is contained in ERCB Directive 60, which prohibits flaring of volumes greater than 900 m3/day within 500 metres of an existing residence but permits the construction of new residences within 500 metres of a flaring battery. The Board found that allowing new development within 500 metres of the battery would be “inconsistent” when it is planned country residential development.
Well Applications
Bernum argued that its plan to drill both wells and construct the battery on a single surface location minimized surface impacts. However, Bernum acknowledged it had plans to drill additional wells and would require at least one more surface location to accomplish this.
The landowners argued that the Board must consider not only the two wells applied for but also the future wells. They also argued that the Board must consider the country residential character of the neighbourhood and submitted evidence that while their land is currently agricultural, it is ripe for residential development.
The ERCB split 2-1 on the issue of the well applications. The Board unanimously concluded that there was another surface location from which Bernum likely could drill all the wells, not just the first two. It also concluded that country residential development was likely to occur and therefore the impact of flaring on that development was an important consideration. Finally, the Board unanimously agreed that flaring would have a significant adverse effect on future development potential.
The ERCB split on whether the well licences should be approved, with the majority finding that they should not because Bernum failed to take into account the impact of its entire development and the future development potential of the lands. The majority stated that an appropriate balance that would allow the minerals to be developed while also allowing the landowners to realize the future development potential of their lands has yet to be struck.
Conclusion
In several previous decisions, the ERCB has been unwilling to deny well licence applications based on impact on future development potential—actual approved developments were required. In the Bernum decision, the Board has signaled that if a proposed well is to be drilled in an area with obvious existing and future residential development, applicants will be held to a higher standard in terms of disclosing full development plans and showing that those plans have appropriately considered impact on future development.
For further information about this recent development in environmental law and how you operation may be affected, please contact Ron Kruhlak in Edmonton, Gavin Fitch in Calgary, John Donihee in Yellowknife, or any member of our Energy & Environmental Regulatory Practice Group.