Alberta orders 835 gas wells to be shut

Alberta orders 835 gas wells to be shut

Tue Jun 8, 2004 06:20 PM ET

By Jeffrey Jones

CALGARY, Alberta, June 8 (Reuters) - Alberta's energy regulator ordered 835 natural gas wells in the northern part of Canada's biggest producing province shut down on Tuesday to protect future multibillion-dollar oil sands developments.

The Alberta Energy and Utilities Board ruling, stemming from a hearing in March, will mean 123 million cubic feet a day of gas production will be shut off, representing less than 1 percent of the province's overall production.

That is a smaller volume than gas producers first feared.

Last July, the board ordered 938 wells shut down on an interim basis as it feared production was hampering future oil sands projects by sapping pressure in the reservoirs of tar-like bitumen near Fort McMurray, Alberta.

That touched off a battle between gas producers, led by Paramount Energy Trust (PMT_u.TO: Quote, Profile, Research) , and oil sands developers such as Petro-Canada (PCA.TO: Quote, Profile, Research) .

The board, which has wrestled with the thorny issue for seven years, maintains it is well within its mandate to make the order to conserve a resource that has 500 times the energy content of the gas to be shut off.

"What it should say to the investment community is that there is a regulator that is on the job to protect the resources of Alberta, that we at this stage have chosen the resource with the greatest energy content," board chairman Neil McCrank told reporters. "But we are equally on guard for protecting gas production."

As many as 505 wells affected may be able to produce gas at depths well above or below bitumen reservoirs, the board said.

The order affects gas reserves totaling 280 billion cubic feet, or 0.7 percent of Alberta's gas reserves, McCrank said.

The move is aimed at conserving 25.5 billion barrels of bitumen in a geological formation called Wabiskaw-McMurray, or 14.6 percent of Alberta's remaining bitumen reserves, it said

At issue is that some of the gas in the 22,000 square km (8,500 square mile) region lies in contact with bitumen below the surface, and when the gas is produced the pressure in the bitumen reservoir drops.

The risk, say the board and oil sands firms, is that some crude may not be able to be produced using steam-injection techniques, as is planned by several companies.

Gas producers, including Paramount, Devon Energy Corp. (DVN.A: Quote, Profile, Research) and Canadian Natural Resources Ltd. (CNQ.TO: Quote, Profile, Research) , argue the science is shaky and have warned that Alberta taxpayers could be on the hook for hundreds of millions of dollars in compensation.

The order means Paramount must shut off wells pumping about 15 million cubic feet a day, or 16 percent of its output, chief executive Susan Riddell Rose said. The income trust had already cut monthly cash distributions to prepare for the move.

"We're disappointed by the EUB's tenacity to continue on this path without recognition of technical input from industry," she said. "And, really, we're disappointed that there's been a jeopardizing of Alberta's role in North America's natural gas markets."

Alberta Energy Minister Murray Smith said last week that a compensation package for gas firms was nearly finalized.

Companies like Paramount, which already had gas production shut down in last year's interim order, have been receiving temporary government assistance of 60 Canadian cents per thousand cubic feet, or about a tenth of current prices, Riddell Rose said.