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Request for Regulatory Appeal by ISH Energy Ltd. – Canadian Natural Resources Limited, AER Request for Regulatory Appeal No.:1919287

Link to Decision Summarized

AER Regulatory Appeal


In this decision, the AER considered a request from ISH Energy Ltd. (“ISH”) under section 38 of the Responsible Energy Development Act (“REDA”) for a regulatory appeal of the AER’s decision to approve Canadian Natural Resources Limited (“CNRL”) application No. 1909395 (the “Application”) and Approval No. 11475EE (the “Amended Approval”) to allow the drilling and operation of a sixth steam assisted gravity drainage box (“KN06”). The AER determined that the Amended Approval is an appealable decision and that ISH established it is an eligible person. The AER also determined there is some merit to ISH’s request for regulatory appeal. Accordingly, the AER decided to grant the request and proceed to a hearing on the regulatory appeal.

Background

On May 11, 2018, CNRL submitted the Application to amend its approval for recovery of crude bitumen from the Wabiskaw-McMurray Deposit at its Kirby North project in the Athabasca Oil Sands Area. The proposed amendment was to allow the drilling and operation of a sixth steam assisted gravity drainage box, the KN06 box. The AER approved the Application and issued the Amended Approval on January 24, 2019.

ISH holds all petroleum and natural gas rights in the KN06 development area. ISH filed its request for regulatory appeal on February 21, 2019. The request raised concerns about the potential for CNRL’s operations at KN06 to result in the contamination of ISH’s resources in the overlying gas zones. ISH referred to a decision of the AER’s predecessor, the Alberta Energy and Utilities Board, to shut in the gas over bitumen (“GOB”) in the Kirby North area due to the potential absence of a sealing layer between the bitumen and the GOB. ISH stated that even if the sealing mudstone/shale layers are intact, the approved initial start-up injection pressure risks fracturing the barrier, which can result in direct communication between the bitumen and the overlying gas and contaminate the gas zone.

Reasons for Decision

The AER set out the test for a regulatory appeal and noted that the request for regulatory appeal was filed in accordance with the AER Rules of Practice. The Amended Approval was issued under an energy resource enactment, and because it was issued without a hearing, it is an appealable decision under section 36(a) of REDA.

The term “eligible person” is defined in section 36(b)(ii) of REDA to include:

a person who is directly and adversely affected by a decision [made under an energy resource enactment] …

The AER noted that although section 36(b)(ii) defines an eligible person as “someone who is directly and adversely affected”, the AER typically applies a may be directly and adversely affected test. To do otherwise would be to impose a near impossible threshold, since so often the actual effects of a decision, especially an approval, cannot be known with certainty in advance. The AER cited Court v Alberta (Environmental Appeals Board) 2003 ABQB 456 as authority for this position.

Based on the above, the AER found that the “is directly and adversely affected” requirement under section 36(b) of REDA does not impart a higher standard for demonstrating actual effect than section 32 does with respect to eligibility to file a statement of concern.

The AER was satisfied that ISH demonstrated it may be directly and adversely affected by the issuance of the Amended Approval. ISH holds the petroleum and natural gas rights directly above the KN06 development area. ISH provided information indicating there is some risk of CNRL’s operations at the KN06 Pad interfering with ISH’s rights to the natural gas in the drainage area. In particular, there is a risk that the approved start-up injection pressure will fracture the McMurray shale and Wabiskaw GOB zones overlying CNRL’s bitumen, resulting in direct communication between the McMurray sand and the GOB zone. Such communication could impair ISH’s ability to recover the gas in the GOB zone.

The AER determined that ISH has an arguable appeal on the merits, given the potential risk of the approved start-up injection pressure fracturing the McMurray shale and Wabiskaw GOB zone resulting in contamination of ISH’s resources.

CNRL cited an AER dismissal of Request for Regulatory Appeal No. 1910998 that “the law in Alberta recognizes that bitumen mineral rights holders can extract minerals pursuant to those rights even if in so doing they interfere with and/or commit waste of another’s minerals.” The AER noted that this was in reference to several decisions from Alberta courts on the incidental production of evolved gas and initial gas-cap gas in the production of bitumen, and on the ownership of coalbed methane.

The AER responded by noting that those cases address the situation where interference with or wastage of another’s minerals is reasonably necessary to “win, work, recover and remove” one’s own minerals. Further, the cases have their genesis in an early decision of the Alberta Court of Appeal on a split-title dispute between holders of petroleum rights and natural gas rights, where the Court held that “the [petroleum rights holders] are entitled to extract all the petroleum from the earth, even if there is interference with and a wastage of [the natural gas rights holders’] gas, so long as in the operations modern methods are adopted and reasonably used.” An essential question here is whether the approved start-up injection pressure for KN06 is reasonable in the circumstances.

Conclusion

The AER determined that ISH may be directly and adversely affected by the Approval, and there is some merit to the requested appeal. Accordingly, the AER granted the request for regulatory appeal and will request that the Chief Hearing Commissioner appoint a panel of hearing commissioners to conduct a hearing of the regulatory appeal.

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