Canada: Is The Play Still The Thing? – The Status Of Play-Based Regulation In Alberta

From low commodity prices to new climate change requirements and increased regulatory obligations arising from the Redwater Decision, the Alberta oil and gas industry finds itself in the eye of the storm. There is uncertainty for the future of pending energy projects in Alberta. As Borden Ladner Gervais LLP ("BLG")  wrote in February 2015, the Alberta Energy Regulator ("AER") launched its Play-Based Regulation ("PBR") Pilot Project to address cumulative effects of unconventional resource developments. Is this the answer to industry's current woes and what is the current status of PBR?

In September 2014, AER launched a pilot (the "PBR Pilot") in the Fox Creek area to test a new approach to regulate unconventional oil and gas development. The PBR Pilot is an integrated application process that allows energy companies to submit one application for all activities under an energy development project, instead of submitting separate applications for each activity. Energy companies are required to engage stakeholders for the entire project plan instead of for each individual well. This also allows the AER to better understand the broader impacts of projects to ensure steps are taken to minimize potential impacts on the environment, communities, and stakeholders. The PBR Pilot is an initiative under the Energy Resources Conservation Board's Unconventional Regulatory Framework discussion paper released in 2012, which described a play-focused approach to regulation.

To facilitate the PBR Pilot, the AER created Manual 009: Play-Based Regulation Pilot Application Guide, which sets out the information that must be included in an application under the pilot. Participation by operators is voluntary and many companies have taken advantage of the process. The AER provides a list of Play-Based Regulation Decisions for energy development activities under the PBR Pilot. The AER also provides in Notices of Application that the application is being submitted as part of a pilot to allow applicants to apply for multiple activities under a single application. Note that the PBR Pilot is for approvals under the Oil and Gas Conservation Act, Pipeline Act, Environmental Protection and Enhancement Act, Public Lands Act, and Water Act to construct, operate, and reclaim a project. It does not apply to applications for oil sands scheme under the Oil Sands Conservation Act.

Among the most recent oil sands project applications under the PBR Pilot is Suncor Energy Inc.'s Meadow Creek East in the Athabasca Oil Sands Area designed to recover (80 000 barrels per day from the McMurray Formation using steam-assisted gravity drainage ("SAGD") technology. The PBR Pilot application is for more than 1,500 wells, a central processing facility, stormwater ponds, pipelines, roads and land access, among other components. In a recent interview with Calgary Herald, Jim Ellis, the Chief Executive of the AER, was quoted to have said that PBR Pilot process would cut the application review from six or seven years down to a single year and would save Suncor about $64 million. Following Suncor was Canadian Natural Resources Limited's application to construct, drill, complete, and operate 47 wells on six multi-well pads and one single-well pad, associated multi-well bitumen batteries, access roads, gas pipelines for on-site fuel use and transport and sale of excess gas in the Cold Lake Oil Sands Area.

Earlier this month, new oil sands schemes, said to represent about $4 billion of potential investment into Alberta's economy and about 95,000 barrels per day of production, received initial approval from the Government of Alberta following the AER's recommendation pursuant to the Oil Sands Conservation Act. Among them are Blackpearl Resources Inc.'s Blackrod oil sands steam-assisted gravity drainage ("SAGD") project in the Athabasca Oil Sands Area and Surmont Energy Ltd.'s Wildwood oil sands SAGD project in the Athabasca Oil Sands Area. The project proponents will now work with the AER on specific licences and approvals.

The PBR Pilot is said to be the first step towards a proposed new framework for regulating oil and gas development in the province. In June 2016, the AER evaluated the PBR Pilot, and issued its findings in a report: Evaluation of the Alberta Energy Regulator's Play-based Regulation Pilot.

Key findings from the AER's June report respecting PBR included:

  • while not all of the benefits and objectives of PBR have been realized, it resulted in incremental progress, particularly respecting the development of, and greater efficiencies for, the integrated single application and single approval decision process;
  • progress was made toward reducing the cumulative effects of surface disturbances and water management in the pilot area;
  • proponents applied for water licences rather than temporary diversion licences;
  • surface disturbances were reduced in the pilot area;
  • there are further opportunities to develop and refine PBR as a regulatory framework.

The AER is confident that the PBR concept can be refined, albeit with legislative and regulatory changes to fully implement the PBR concept. Development of the play-based approach may enable future pilots and broader implementation of a play or area-based regulation approach across Alberta.

Implications for Industry

Regulating energy development on a play level rather than an activity-by-activity level requires an adjustment from the oil and gas industry. While the PBR Pilot was not able to achieve all of its intended objectives, the AER is clear that the PBR concept can be further implemented to realize benefits. Potential benefits to monitor in future include greater clarity respecting minimum application requirements as well as further administrative efficiencies by eliminating duplication, providing certainty about review timelines, and optimizing the single approval decision process. If Shakespeare's adage that "what's past is only prologue", it may well be that the play remains the thing to facilitate greater regulatory efficiencies for the AER's application and approval process.

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