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The Importance of Assessing Alternative Sites

30-Nov-11

by Michael Barbero

On November 16, 2011, the Energy Resource Conservation Board (ERCB) denied the well license application of Bernum Petroleum Ltd. (Bernum). Bernum sought to drill a horizontal well 4.5 km east of Cochrane on the north side of highway 1A. The application was unique in that the surface and freehold mineral rights were, in certain locations, held by the same party. The decision is of note given the strong position taken by the ERCB that Bernum failed to thoroughly assess alternative surface locations. The decision confirms that being able to justify the selection of a surface location is a critical issue for well licence applicants.

Bernum Petroleum and Frac Energy joined forces in 2009. Enar Securities, through various mechanisms, had common ownership of both the surface and mineral rights on certain portions of the drilling spacing unit.

Enar Securities granted a freehold mineral lease to Bernum on condition that drilling be north of Highway 1A. The rationale for this clause appears to have been the likely prospect of development in the area south of Highway 1A, as envisaged in a draft municipal planning document. Bernum subsequently selected the 1-4 site which was located north of Highway 1A on lands owned by a private owner, who objected to the well.

The ERCB noted the uniqueness of this application, namely common ownership of surface and mineral rights. It also noted that the draft planning document which called for development south of the highway was not approved. Therefore, the rationale for the condition in the mineral lease that the well be drilled north of the highway no longer existed.

However, the most important finding of the ERCB was made at paragraph 74, where the Board clearly expressed its concern with the lack of consideration put into the assessment of alternative sites. The Board went on to unequivocally state the importance of the applicant assessing alternative locations and presenting an analysis of social, economic and environmental factors that ultimately led the applicant to decide upon the preferred site.

The ERCB’s decision provides a clear message to industry and applicants. In order to have a successful well application alternative surface locations will need to be thoroughly assessed. For industry this decision crystallizes the need to thoroughly canvass and address alternative sites in a meaningful manner. For interveners the decision provides clearly established grounds upon which to object.

 

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