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Bonavista Energy Corporation: Regulatory Appeal of Well Licences and an Application for a Pipeline, 2017 ABAER 001

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Regulatory Appeal – Natural Gas Facilities – Pipeline Application


Background

On June 8, 2015, Bonavista Energy Corporation (“BEC”) submitted to the AER nonroutine applications for two horizontal gas wells to be drilled from the surface location of two existing wells (the “15-22 Site”) but to different bottomhole locations. The AER approved the well applications and issued well licences 476069 and 476070 to BEC on July 10, 2015 (the “Well Licences”). No statements of concern were received by the AER prior to it issuing the Well Licences.

On June 29, 2015, BEC applied for approval to construct and operate a pipeline to transport gas from the site of the existing and approved wells to an existing compressor station ¾ of a kilometre away.

Patrick and Patricia Alexander and Evelyn Heringer (collectively, the “Alexanders”) filed a request for regulatory appeal of the Well Licences on July 23, 2015. On July 26, 2015, the Alexanders filed a statement of concern with respect to BEC’s pipeline application.

On September 17, 2015, the AER decided to hold a hearing for the pipeline. However, that hearing was delayed pending the AER’s decision regarding the request for the regulatory appeal of the Well Licencnes. On May 9, 2016, the AER granted the request for a regulatory appeal and decided to hold a combined hearing on the pipeline application and regulatory appeal of the Well Licences.

The hearing was held in October 2015.

Parties’ Submission

While the Alexanders did not object to the need for the wells, they objected to the extension of the lease for the existing wells to accommodate the space for the two additional wells. The Alexanders submitted that the lease extension resulted from poor planning on the part of BEC, and that they should not have to pay the price of losing more land and added inconvenience to their farming operations.

The Alexanders also presented evidence on other sites that the Alexanders submitted were similar in size to the original lease for the 15-22 Site and accommodated 3-4 wells.

The Alexander’s raised other concerns regarding:

• the impact of increased traffic caused by the project;

• the potential effects on water wells;

• noise and light effects during construction; and

• the esthetic impact of the project and negative impact to property values.

BEC presented evidence that, on a per well basis, the extended lease for the 15-22 Site would be similar, or smaller to, the area of comparable sites referenced by the Alexanders.

With respect to the effect on water wells, BEC submitted that it completes a surface casing depth design in accordance with AER Directive 008: Surface Casing Requirements. Specifically, BEC noted that for the for 400 metres in depth, which it submitted is deeper than water wells, it uses water based drilling fluid, sets a surface casing string, and then cements the surface. BEC conducts water testing on concerns being raised by landowners. The water testing is done by a qualified third party and compared against baseline measurements. Any issue are remedied at BEC’s sole cost.

With respect to the pipeline, the Alexanders submitted that the existing 6-inch pipeline from the current 15-22 site had been installed only three years ago, along the same route as the proposed pipeline. They submitted that they were concerned with the proliferation of oil and gas facilities in their area and that the need for a second pipeline reflected poor planning by BEC.

AER Decision Denying Regulatory Appeal

The AER stated that it does not have requirements for, nor does it regulate, county road use.

The AER held that BEC’s proposed mitigation measures were sufficient to address the Alexander’s concerns related to noise and visual impact. The AER acknowledged the Alexander’s concerns regarding impact to property values, but noted that awarding monetary compensation was beyond the AER’s jurisdiction.

The AER held that BEC’s practices to protect drinking water during drilling complies with AER requirements. The AER also held that BEC’s water testing protocol sufficiently addresses any potential concerns that may arise during the operational lives of the proposed wells.

The AER accepted BEC’s evidence that the rig in question had been used in the majority of similar wells drilled in the area. The AER concluded that BEC had demonstrated that the licenced surface location of the wells required the lease extension to meet safety and regulatory requirements to drill the wells for the proposed rig.

The AER also held that BEC’s stated commitments to mitigate the Alexanders’ concerns regarding reclamation and farming would allow the Alexanders to continue farming in much the same way as they do currently.

AER Decision Denying Pipeline Application

The AER denied BEC’s pipeline application.

The AER found that due to the rapid reduction in production volume expected to occur from the proposed new wells, the need for extra pipeline capacity would be relatively short-lived. The AER noted that within six to seven months, production rates will decline enough to eliminate the need for an additional pipeline to handle production from the four wells at the 15-22 Site. The AER found that having the additional pipeline available would only minimally expedite production of gas from the wells at the 15-22 Site. The panel held that denying the pipeline application would not result in lost production volume, but merely some volume deferred for later realization.

Given the AER’s finding that there was only a short term need for additional pipeline capacity, the AER held that short-term economic benefit to BEC did not justify the adverse impact to landowners. The AER’s ruling was on a without prejudice basis to BEC with respect to future projects.

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