Off-Target Penalties

Under sections 4.060 and 4.070 of the Oil and Gas Conservation Rules (OGCR), off-target penalties might apply if a producing gas or oil well is completed outside of the prescribed target area in its drilling spacing unit (DSU).

A well licensee or operator may apply for an off-target penalty against a well if that well is off-target toward an applicant’s land containing a well capable of producing from the same pool. The off-target well must be producing before an application can be filed. The encroached-on well does not have to be producing, but must be completed and shown to be capable of production from the same pool as the off-target well at the time the application is submitted.

The following outlines the process to follow to get approval for off-target applications. It includes links to application submission procedures and guidance documents.

Application Submissions

The applicant will submit its off-target application through electronic applications submission (EAS). Applications are registered using the Integrated Application Registry (IAR), and all material related to an application is stored in this system.

Presubmission Clarifications

Please note the following clarifications and explanations of factors that affect off-target penalties:

First Well in a Pool

The AER established the policy that the first well in a pool will not be subject to an off-target penalty effective April 1, 1994 (“first well in a pool” policy). The policy is administered under section 4.060 of the OGCR. The policy was put into place so that companies that take the initiative to explore for a new pool will not be penalized. If it is evident that the policy is being abused, it may be rescinded or altered, or a special condition may be introduced to deal with the resolution of disputes.

The following principles are applied to determine the first well in a pool:

  • A gas or oil well is considered to be the first well in a pool when it has the earliest spud date and is the first well to have been shown to be capable of production from the pool. Both of these criteria must be met, not just one of them.
  • A capable gas well, as defined in section 4.060(6) of the OGCR, is a well that is completed in the pool involved and a suitable test has demonstrated to the AER’s satisfaction that the well has the ability to produce at commercial rates on a sustained basis from the pool.
  • A capable oil well, as defined in section 4.060(6) of the OGCR, is a well that is completed in the pool involved and is placed on production within six months of the spud date.
  • The AER will determine the first well in a pool status only when an application for an off-target penalty has been submitted.
  • When pools each of which contains a well with a first well in the pool status are coalesced, only one well will retain its first well in the pool status. However, the wells in the new pool will not be reviewed for first well in the pool status until a request is made to apply an off-target penalty. Until the AER makes a decision on such an application, all off-target wells with first well in the pool status will produce without penalty.

Determination of Location of Off-Target Wells

Penalties for off-target wells are related to where the off-target well is located and are determined for both gas and oil wells in accordance with Schedule 14 of the OGCR.

  • For vertical wells with no deviation survey, two per cent of well depth is applied at the top of the perforations in the most off-target direction to determine the coordinates for the well and whether it is off-target.
  • For vertical wells with a deviation survey, the deviation from the survey is applied in the most off-target direction at the top of the perforations to determine the coordinates for the well and whether it is off-target.
  • For deviated or horizontal wells, a direction survey is required and will be requested if none is available. The coordinates used to determine the off-target penalty position will be at the closest approach of the productive part of the wellbore to the offsetting drilling spacing unit (DSU).
  • In the AER’s Subsurface Orders No. 1 and 3, the target area for gas wells is the central area within the DSU having sides 100 metres (m) from the sides of the DSU and parallel to them. Schedule 14 of the OGCR does not contain a figure that shows off-target penalty factors for one section spacing with a 100 m target area. Figure 3B of Schedule 14 can be referred to instead in order to determine the off-target penalty factors for one section spacing with a 100 m target area in the subsurface orders.

Additional Clarifications

  • The AER expects an applicant to provide a copy of the off-target application to the operator of the off-target well when the application is submitted to the AER.
  • For wells producing from a number of horizontal legs, the entire production reported for the well will be penalized even if only one leg is off-target. This includes when the off-target leg has a “drain” status.
  • If an off-target well is producing from a road allowance, the road allowance will be added to the appropriate offsetting section of common ownership when the AER determines the off-target penalty for the well.
  • The effective date of a penalty and the related allowable will be the first of the month following the date that the application was registered at the AER.
  • For gas wells, the penalized allowable for an off-target well is communicated to the well licensee by letter and will be set out on the AER’s gas allowable order, which is updated quarterly. The gas allowable order is available on the AER’s website www.aer.ca.
  • For oil wells, the off-target penalty factor for a well is communicated to the well licensee by letter, and for nonconfidential wells, the allowable production will be set out on the AER’s maximum rate limitation (MRL) order, which is updated monthly. The MRL order is available on the AER’s website www.aer.ca.

Review Process for Off-Target Applications

After the application is received, it will be reviewed for completeness under the requirements set out in this process guide and as further clarified in the presubmission clarifications section of this process guide. If the application is determined to be incomplete, the application will be closed and returned with an explanation.

If the application is determined to be complete, a review will be conducted as follows:

  • Notice of all applications will be published on the Public Notice of Application page on the AER website to encourage public participation throughout the application process. This is in addition to any notification requirements an applicant must fulfill before submitting an application.
  • A person who believes they may be directly and adversely affected by an application may file a statement of concern (SOC) with the AER.
  • If an SOC about an application is received, the application is considered “Non-Routine” and must follow the AER’s SOC procedures and will not be subject to the application timeline.
  • If the AER considers a producing well to be off-target toward a competitor’s land that contains a well capable of producing from the same pool, an off-target penalty may be applied.
  • If the producing well is off-target away from a competitor’s land that contains a well capable of producing from the same pool, an off-target penalty is not normally applied.
  • An off-target penalty factor for a well is not considered if a company is in the second, third, or fourth line offset DSU without substantiating data proving inequitable drainage.
  • If clarification or more information is required, you may receive a request for additional information by e-mail.
  • A disposition document will be generated once applications have been reviewed and are considered complete and compliant with application requirements, rules, statutes, and the AER mandate.
  • You will receive an e-mail notification when your application has been dispositioned. You can find the disposition by following the link provided in the notification e-mail for 30 days after the date of disposition.
  • Some decisions on the application can be appealed by eligible persons based on the Responsible Energy Development Act. The filing requirements for a request for regulatory appeal, including form, content, and time limits, are set out in section 30 of the Alberta Energy Regulator Rules of Practice. The regulatory appeals procedures are set out in sections 30 through 33 of the Alberta Energy Regulator Rules of Practice.

Application Timelines

The processing time for this application is 90 calendar days.