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Vol. 140, No. 15 — April 15, 2006 Regulations Amending the Newfoundland Offshore Petroleum Drilling RegulationsStatutory authority Canada-Newfoundland Atlantic Accord Implementation Act Sponsoring department Department of Natural Resources
REGULATORY IMPACT (This statement is not part of the Regulations.) Description The proposed amendments arose from the regulatory agenda of the Atlantic Energy Roundtable (AER). During discussions of the AER, governments and industry agreed that an analysis of the impact of the regulatory framework in Atlantic Canada on the cost of drilling offshore exploratory oil and gas wells was required. This recognition was underlined by the fact that, increasingly, exploration in the Atlantic Canada offshore is moving into more expensive and technically challenging, high-pressure/high-temperature, deep-water wells. The AER was first convened in 2002 to provide a forum for governments, offshore operators, supply and service companies, regulators and labour groups to work together on issues of common interest to the further development of the Atlantic offshore oil and gas industry. The Minister of Natural Resources hosts this forum, and Natural Resources Canada (NRCan) plays a lead role in guiding its agenda and work plan. The ministers of the Environment, of Industry, and of Fisheries and Oceans and the Atlantic Canada Opportunities Agency have participated in recent meetings. The AER's analytical work revealed that, of the several regulatory requirements that affect well costs, one that contributes significantly to the cost of drilling a well is the requirement to flow test potential hydrocarbon reservoirs. A formation flow test is the critical factor in determining the potential of a reservoir to sustain commercial production. Industry has long believed that the decision to conduct these tests should be at the discretion of the operator, based on its assessment of the overall risks and benefits. The proposed amendments would provide that discretion to the operators. A flow test is a test that allows the fluids in a specific section of the rock encountered in drilling the well to flow into the well bore and up the drill pipe towards the surface. Noting the type of fluid expelled into the drill string and fluctuations of the pressure in the reservoir as it depletes and buildups allows the reservoir engineer to determine the type of fluid (oil, gas, water) in the reservoir, reservoir parameters such as permeability and, in many cases, the areal extent of the hydrocarbon accumulation. This information is critical in determining the size of the oil or gas accumulation and the rate at which it can be produced. The test requires the use of specialized equipment that must be attached to the bottom of the drill pipe and lowered into the well to the desired depth. Designing a flow test is dependent on the type of rock to be tested, the depth, and potential reservoir pressures and temperatures. Depending on the complexity of the well bore and the reservoir, it can be quite lengthy to design a test (i.e. 3 to 4 months for a conventional offshore well, and 6 to 12 months for a deepwater or high-pressure/high-temperature well). A flow test requires several days at a minimum to conduct because the drill pipe must be removed from the well bore, a production liner must be installed and perforated, testing tools must be attached and calibrated and the drill pipe put back down the hole. The zone to be tested is then allowed to flow for a minimum of 8 hours and then closed in to allow reservoir pressure to build back up. This process may be repeated several times using different choke sizes. The high cost of running a flow test is an accumulation of the cost of
For every well, basic well information may be obtained through mud logging, logging while drilling (LWD) and wireline testing. These procedures are used by companies to establish certain basic characteristics of the well (including the presence of hydrocarbon) and to guide a company's decision on whether it should evaluate potential reservoirs further through more precise testing. The most definitive way to test the production potential of a well is by conducting a flow test. Accordingly, legislation requires that, in order to establish that it has made a significant discovery, an operator must use a flow test to demonstrate the existence of hydrocarbons. However, as an alternate means of obtaining certain reservoir information (such as reservoir pressure and fluid samples), a company may desire to run a full wireline testing program instead of a flow test. Wireline tests involve the lowering of testing equipment into a well on a wire, allowing for a small fluid sample to be taken and a reading of the reservoir pressure. Compared to flow testing, wireline testing is a much quicker and less costly procedure and has the benefit of allowing several different zones to be measured on the same run. It does not provide the level of detail necessary for detailed reservoir performance calculations but provides enough detail to undertake preliminary reserve volume calculations. The current Nova Scotia Offshore Petroleum Drilling Regulations and Newfoundland Offshore Petroleum Drilling Regulations (the Offshore Petroleum Drilling Regulations) have been interpreted such that all exploratory wells should be flow tested. These regulations were developed over 20 years ago under a policy framework that placed the highest priority on data collection by governments. At that time, little was known about the various sedimentary basins in offshore Canada. The acquisition of exploration data by governments serves two purposes: it allows organizations such as the Geological Survey of Canada to undertake assessments of undiscovered resource potential in Canada's offshore, and it makes this data available to other companies to encourage further exploration in areas where data acquisition is very expensive. However, circumstances have changed in the offshore. There has been significant data acquisition and assessment over the last few decades; but as operators move into more technically challenging and complex areas, costs associated with flow tests are so high that mandatory flow testing may actually be lowering overall exploration activity and resultantly, the collection of data. Thus, there is a consensus among governments, regulators, and operators that now is the appropriate time to introduce discretionary requirements related to flow testing, in particular for the first well drilled on a geological feature. In addition to the AER, which operates at a strategic level in promoting responsible offshore oil and gas development, the Frontier and Offshore Regulatory Renewal Initiative (FORRI) has also been involved in operational level discussions regarding the need for mandatory flow testing on all exploratory wells in frontier areas, including the offshore and onshore areas in the Northwest Territories and Nunavut. The FORRI is an active promoter of the need for discretionary flow testing requirements within the Offshore Petroleum Drilling Regulations. The FORRI includes officials from NRCan, Indian and Northern Affairs Canada, the energy departments in the provinces of Newfoundland and Labrador and Nova Scotia, and the regulatory bodies with offshore jurisdiction (National Energy Board, Canada-Newfoundland and Labrador Offshore Petroleum Board, and Canada-Nova Scotia Offshore Petroleum Board). Providing greater discretion to operators with regard to formation flow testing requirements requires a shift in the current policy framework and an amendment to the Offshore Petroleum Drilling Regulations. Regulations created under the federal and provincial versions of the Canada-Newfoundland Atlantic Accord Implementation Act and Canada-Nova Scotia Offshore Petroleum Resources Accord Implementation Act (the Offshore Accord Implementation Acts) mirror those created under the Canada Oil and Gas Operations Act. The FORRI is in the process of developing goal oriented drilling and production regulations to replace the existing Offshore Petroleum Drilling Regulations and offshore area petroleum production and conservation regulations. For regulatory consistency, the proposed amendments regarding flow testing would apply to all frontier lands and, thus be captured in the proposed drilling and production regulations for each of the mirror versions. However, to promote exploration activity off the East Coast, the FORRI has recognized the importance of proceeding with the proposed amendment to the Offshore Petroleum Drilling Regulations under the Offshore Accord Implementation Acts prior to the next drilling season. Alternatives The only alternative examined would be to retain the status quo, which was not considered to be acceptable. As discussed in the Description section, all parties responsible for the regulation of offshore hydrocarbon exploration and development, with the support of the oil and gas industry, have agreed that now is the appropriate time to introduce discretionary formation flow testing clauses within the regulations. Benefits and costs For industry, the benefits of the proposed amendment amount to the financial savings of not having to conduct a flow test on wells where indications point to a low likelihood of production potential. The estimated cost of conducting an offshore formation flow test ranges from $10 million to $30 million, depending on the type of rig, water depth, and reservoir depth. This is a significant expense to an operator. Under the proposed amendment, operators will be in a position to incorporate feasibility assessments into the decision on whether or not to conduct a flow test, having reviewed the results from early data acquisition. The proposed amendment therefore represents a move toward a more fact-based, risk-based regulatory requirement. It is expected that operators will continue to conduct formation flow tests on wells that show potential for commercial production. Introducing discretionary requirements to formation flow testing may actually result in additional data gathering regarding hydrocarbon potential by freeing up resources for increased exploration activity. The desired end result is increased oil and gas production off Canada's East Coast, thereby contributing to the regional, provincial, and national economies and Canada's energy needs. From a regulatory perspective, the proposed changes are in line with Canada's smart regulation endeavours to contribute to innovation and economic growth and reduce the administrative burden on business. By achieving these outcomes, the proposed amendments also support the goals of the AER and the FORRI. Further, discretionary formation flow testing is an approach consistent with other offshore regulatory jurisdictions, including the United States. As most of the offshore operators are multinational companies, this provides them with clarity and consistency when moving people and equipment between jurisdictions. Although not expected, it is possible that in the short term, some reservoir data may not be obtained as a result of companies choosing not to flow test. However, it is believed that this potential loss of data is partially offset by advances in other well evaluation technologies. Further, operators will continue to be required to conduct a formation flow test prior to applying for a significant discovery declaration under the Canada-Newfoundland Atlantic Accord Implementation Act. Strategic environmental assessment From both an environmental and safety perspective, flow testing an offshore well is considered to be one of the higher-risk activities in the drilling and well evaluation process. From a safety perspective, these risks include the potential of a loss of well control (i.e. a blow out), which can endanger lives. From an environmental perspective, risks include a loss or spillage of the hydrocarbon that is produced in the course of the test. To the extent that the proposed amendment will remove the requirement to flow test some wells, the aggregate level of environmental risk associated with flow testing will be reduced. Under the proposed regulatory amendment, all existing approval and oversight roles for flow testing that reside with the Canada-Newfoundland and Labrador Offshore Petroleum Board will be maintained. It is the responsibility of the Board to ensure that operators plan and execute flow tests with all due regard to safety and environmental protection. Consultation The primary vehicles for consultation regarding these amendments have been the AER and the FORRI. The AER represents a broad cross-section of those directly affected by offshore oil and gas activities, including the federal and provincial governments, regulatory agencies, offshore operators, supply and service companies, and labour groups. Members of both the AER and the FORRI have agreed that the proposed amendments to the Offshore Petroleum Drilling Regulations are necessary. Compliance and enforcement Under existing legislation, the Canada-Newfoundland and Labrador Offshore Petroleum Board is responsible for ensuring compliance and enforcement of these Regulations. There is no change to compliance and enforcement responsibilities under this proposal. Gerard Peets, Policy Advisor, Natural Resources Canada, Frontier Lands Management Division, Petroleum Resources Branch, 580 Booth Street, 17th Floor, Ottawa, Ontario K1A 0E4, (613) 996-6923 (telephone), (613) 943-2274 (fax), gpeets@NRCan.gc.ca (email). Notice is hereby given, pursuant to subsection 150(1) of the Canada-Newfoundland Atlantic Accord Implementation Act (see footnote a), that the Governor in Council, pursuant to subsection 149(1) (see footnote b) of that Act, proposes to make the annexed Regulations Amending the Newfoundland Offshore Petroleum Drilling Regulations. Interested persons may make representations with respect to the proposed Regulations within 30 days after the date of publication of this notice. All such representations must cite the Canada Gazette, Part I, and the date of publication of this notice, and be sent to Eric Landry, Director, Natural Resources Canada, Frontier Lands Management Division, 580 Booth St., 17th Floor, Room B2-3, Ottawa, Ontario K1A 0E4 (tel: (613) 992-3794; fax: (613) 943-2274; e-mail: Eric.Landry@nrcan-rncan.gc.ca). Ottawa, April 6, 2006
DIANE LABELLE REGULATIONS AMENDING THE NEWFOUNDLAND OFFSHORE PETROLEUM DRILLING REGULATIONS AMENDMENT 1. Sections 170 and 171 of the Newfoundland Offshore Petroleum Drilling Regulations (see footnote 1) are replaced by the following: 170. Every operator shall ensure that every formation in a well is tested and sampled in a manner to obtain reservoir pressure data and fluid samples from the formation, if there is an indication that such data or samples would contribute substantially to the geological and reservoir evaluation. Formation Flow Test 171. (1) An operator may conduct a formation flow test on a well drilled on a geological feature if, prior to conducting that test, the operator (a) submits to the Board a detailed testing program; and (b) obtains the approval of the Board to conduct the test. (2) The Board shall approve a formation flow test if it determines that the test will be conducted safely and in accordance with good oilfield practices and that the test will enable the operator to (a) obtain data on the deliverability or productivity of the well; (b) establish the characteristics of the reservoir; and (c) obtain representative samples of the formation fluids. (3) The Board may require that the operator conduct a formation flow test on a well drilled on a geological feature, other than the first well, if there is an indication that such a test would contribute substantially to the geological and reservoir evaluation. COMING INTO FORCE 2. These Regulations come into force on the day on which they are registered. [15-1-o] S.C. 1987, c. 3 S.C. 1992, c. 35, s. 63 SOR/93-23 |
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