Oil Sands Regulatory Issues

Presentation to the Institute for Energy and Economics, Japan

Harry Lillo, P.Eng.Executive Manager, Fort McMurray Office

October 18, 2004 Alberta Energy and Utilities Board

Agenda

• Introduction • History of the EUB• EUB organization• Legislative mandate• Application process• Fort McMurray office• Oil sands reserves and development• Recovery methods• Issues related to oil sands development• Project development status• Bitumen forecasts• Conclusions

Where It All Started

• 1887 Canadian Government policy enables the Crown to retain mineral rights

• 1930 Alberta is now a province. Natural gas has been discovered and urban populations are enjoying the benefits of heating, cooking, and lighting using natural gas.

The First Discoveries

• 1883 Natural gas – accidental discovery –Medicine Hat

• 1914 Light oil discovery – Turner Valley

• 1936 First major discovery of oil – Turner Valley

• 1947 Leduc ‘Number one’ discovery

The Alberta Experience – Early 1900’s

• 1931 Estimated 260 million cubic feet of natural gas flared.

• Albertans begin to realize that responsible stewardship of the provinces resources was required.

• Recognition that an independent ‘arbitrator’ was needed.

History of Regulation and Decisions

• 1932 Turner Valley Gas Conservation Board (TVNGCB) formed—first step toward prudent energy management

• 1938 Oil and Gas Conservation Act

• 1938 Petroleum and Natural Gas Conservation Board (PNGCB)

History of Regulation and Decisions

• 1939 First quasi-judicial hearing: The Assessment Appeal Hearing

• 1954 Board approval for TransCanada Pipelines to export gas from Alberta.

• 1957 Name changed to Oil and Gas Conservation Board.

History of Regulation and Decisions

• 1960 Board approval of first commercial Oil Sands mining scheme.

• 1971 Name changes to Energy Resources Conservation Board (ERCB )

• 1995 Public Utilities Board (PUB) is amalgamated with the ERCB to form the Alberta Energy and Utilities Board.

Vision

We will continue to build a regulatory framework that inspires public confidence.

Alberta Facts

• Produces 69% of Canada energy• Holds about 46% of Canada’s

conventional oil reserves, 70% of natural gas reserves and 100% of bitumen and synthetic crude oil

• Holds 46% of coal resources in Canada

Regulatory FrameworkGovernmentsets policy

OtherGovernmentdepartments

PublicRegulators

administer policy

Industrydevelops projects

LEGISLATION

REGULATIONS

Organization - Energy Portfolio Alberta

Government(LGC / Cabinet)

Minister ofEnergy

Regulatory Area

• Oil• Gas• Oil Sands• Pipelines• Coal• Power Plants• Transmission Lines• Minerals• Rates for Gas and

Electric Utilities

Statutes Administered by the EUB

• Alberta Energy and Utilities Board Act• Energy Resources Conservation Board Act• Public Utilities Board Act• Oil and Gas Conservation Act• Coal Conservation Act• Hydro and Electric Energy Act• Gas Resources Preservation Act• Pipeline Act• Gas Utilities Act• Electric Utilities Act• Oil Sands Conservation Act• Municipal Government Act

EUB Mandate • Assess reserves• Public safety• Environmental protection• Equity• Conservation of resources• Advice to government• Collection and dissemination of data• Utility regulations

Source: Suncor

Legislation

• Acts of Provincial Legislature or Federal Parliament

• EUB and NEB created by Legislation• Define jurisdiction• Provide enabling power• May authorize creation of regulations

Regulations

• Created under authority of legislation• Body administering legislation may be

authorized to make, amend or rescind regulations

• Implement the functions and responsibilities initiated in legislation

• Set out detailed requirements for approval and operation of the energy industry

Legal Instruments

• Legislation• Regulations• Interim Directives,

Information Letters, Guides

• Co-operative approach to development and requirements

Natural Justice

• Full disclosure - notice• Opportunity to be heard - evidence/hearing

- intervener funding• Fairness - rely on evidence

- neutral board- administrative procedures- written decision

• Accountability• Conformance to the law - legal appeals

Source: Suncor

Application Review Process

Staff Review/Government Referral• Assure legal requirements have been met (e.g. public notice)• Assure documentation is adequate for EUB to consider the

application• Promote “one window” concept• Opportunity to alternative dispute resolution• Satisfy other government needs for information

“One Window” Concept• Recognizes overlapping interests/jurisdiction within and

between governments (provincial/federal) as well as within province (EUB/AE)

• Primary overlap – environmental• Objective is to streamline decision making process• Designed to streamline the regulatory process• Avoid duplication in all aspects of review (documentation)• Avoid two public hearings• Set up MOUs with Alberta Government Departments• Joint review under EUB control• Use EUB process

EUB Application Process

EUB Hearing Process

Source: Suncor

Fort McMurray Office

EUB Fort McMurray Office Mandate

The Fort McMurray Oil Sands Office is responsible for oil sands mining activity including applications, operational and field surveillance, Aboriginal relations, geology and reserves, and environmental services.

Oil Sands Facilities in Alberta – December, 2003

• 28 commercial projects (in situ and surface mines)

• 82 primary recovery projects (in situ)

• 7 experimental projects (in situ)

Oil Sands Areas in Alberta

Economic, orderly and efficient development in the public interest- conservation - public safety- need - technology

Consider - environmental, social and economic factors- emissions - benefits/costs- disturbance - infrastructure- impacts - equity- risks - lifestyle- land use In situ

areas

Edmonton

Surface mineable

areaPeace River

Athabasca

Cold Lake

Ft. McMurray

Comparison of World Oil and Bitumen Resources

0

10

20

30

40

50

60

Venezuela Canada Saudi Arabia Iraq Mexico

Bitumen

Oil

Billio

n m

3

Source: National Energy Board, July 2003

Bitumen and Conventional Reserves

39

22.6

0.2

115.2

0.43

0.3 2.3

0

5

10

15

20

25

30

35

40

45

In Situ Mineable Conventional

Ultimate Potential

Remaining Established

Cumulative Production

Source: Alberta’s Reserves 2002 and Supply/Demand Outlook 2003-2012

Billio

n m

3

Bitumen Volumes (June 2004)

Category Mineable* In situ* Total*

Initial volume in place 18.0 240.9 258.90

Initial established 5.59 22.80 28.39

Initial established under development 1.74 0.65 2.39

Cumulative production 0.46 0.21 0.67

Remaining established 5.13 22.60 27.73

Remaining established under development 1.28 0.44 1.72

* in billion m3

Recovery Methods

• Surface Mining• In Situ Recovery

- Primary- Enhanced (Thermal, VAPEX)

Surface Mining0.3 m3 make-up water

mine

2.2 m3

plant

overburden tailings

1 m3 oil sands

1 barrel SCO 0.16 m3

1.2 m3

overburden 1 m3 water recycle 3 m3

Potential Are a Requiring Re clamation (2030)

Current and Future Mining Development

Mining Development Issues• Resource conservation

lease boundary developmentlocation of ponds, dumps, plant sites and utility corridors

• Tailings and water management minimize external tailings storageminimize water use from Athabasca Riverwater conservation (maximize recycling)

• Environmental effects minimize project specific impactsregional environment capacity (CEMA)progressive reclamation

In Situ Recovery

Oil Sands Projects

Cyclic Steam Stimulation Process

Steam Assisted Gravity Drainage

Bitumen Production

Source: Suncor

In Situ Development Issues• Resource Conservation

recovery levelsgas/bitumen issues

• Water Managementwater use (fresh versus brackish)water conservation (recycle)water disposal

• Environmental Impactsproject specific impactscumulative impactsgas venting/flaringwaste disposal (sludge, oily sand)

Development Guidelines

• Surface disturbances limited to maximum of 4 sites per quarter section (16 hectares)

• Multi-well pads required for high density drilling

Industry Notification

• Adjacent oil sands lease holders• Overlying and adjacent Petroleum and

Natural Gas leaseholders

Athabasca Oil Sands Projects

Cold Lake Area Projects

Alberta Production – December, 2003

103 m3/d 103 b/d

Conventional Oil 100 630

Bitumen 55 350

Synthetic Crude 86 540

Oil Sands ProjectsUpdated - August 3. 2004

Company/Project Location Production Rate (m3/d) Capital Cost Application Filing CommentsSuncor - Firebag Twp 94, Range 6W4M 4 phases - 35 000 bbl/d

each; 140 000 bbl/d total$750 x 106 May 2000 Approval Issued - Oct.

26/01CNRL - Primrose and Wolf Lake Expansion

Wolf Lake - Twp 65, 66, Range 5 and 6W4M Primrose - Twp 67, 68, Range 4 and 5W4M

Max prod. 88 000 bbl/d $1.3 x 109 November 2000 Approval Issued - Aug. 16/02

OPTI - Long Lake Twp 85, 86, 87, Range 6, 7W4M

2 phases - 70 000 bbl/d each $3.0 x 109 December 2000 Approval Issued - Aug.20/03

ConocoPhillips - Surmont Twp 81, 82, 83, Range 5, 6, 7 W4M

4 phases - 25 000 bbl/d each $250 x 106 /phase March 21, 2001 Approval issued - May 16/03

Petro-Canada - Meadow Creek

Twp 84, Range 8, 9, and 10 and Twp 85, Range 9W4M

80 000 bbl/d $645-$800 x 106 December 6, 2001 Approval Issued - Sept 30/03

Blackrock - ORION Twp 64, Range 3W4M 2 phases - 10 000 bbl/d each $300 x 106 August 9, 2001 Disposition Pending

EnCana - Foster Creek (Phase II)

Twp 70, Range 4W4M 50 000 bbl/d - incremental $500 x 106 January 2,2002 Approval Issued March 26/04

Imperial - Nabiye Twp 66, Ranges 2 and 3W4M 3 phases - 30 000 bbl/d total $1.1 x 109 May 31, 2002 Approval Issued March 26/04

Imperial - Mahihkan North Twp 66, Range 4W4M productivity maintenance pads

$900 x 106 May 31, 2002 Approval Issued March 26/04

Husky - Tucker Lake Twp 64, Range 4W4M 30 000 bbl/d $400 x 106 February 20, 2003 Approval Issued May 18/04

Deer Creek - Josyln Creek (Phase 2)

Twp 95, 96, Range 12W4M 10 000 bbl/d $170 x 106 July 9, 2003 Approval Issued May 18/04

Devon - Jack fish Twp 75 Range 5W4M 35 000 bbl/d $450 x 106 November 21, 2003 Disposition PendingCNRL - Horizon Twp 96 - 98, Range 10 -

13W4M270 000 bbl/d $4.9 x 109 June 2002 Approved Jan 2004

Shell JackPine Twp 95, Range 9 - 10W4M 200 000 bbl/d May 2002 Approved Feb 2004

Min

ing

Ther

mal

Pro

ject

s

Alberta Supply of Crude Oil and Equivalent

0

50

100

150

200

250

300

350

400

450

1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

Supp

ly (1

03 m3 /d

)

ForecastActual

Conventional Oiland Pentanes Plus

Synthetic Crude Oil

Nonupgraded Bitumen

Source: Alberta’s Reserves 2003 and Supply/Demand Outlook 2004-2013

Conclusions

• Oil sands is strategic energy resource for Alberta and North America

• Maximize resource recovery while minimizing development impact

• Environmental issues need to be managed

• A thorough and complete public consultation program

• Reclamation/abandonment and liability concerns are more important as development increases and matures

Thank you

www.eub.gov.ab.ca

EUB Organizational Chart - 2004

GENERAL COUNCILDoug Larder

CHAIRMANNeil McCrank

BOARD MEMBERSArden Berg Ian DouglasTom McGee Gordon MillerJim Dilay Graham LockJohn Nichol Brad McMannus

CORPORATE DIVISIONOPERATIONS DIVISION

Risk Management and Internal Audit

EUB Organizational Chart - 2004

Regulatory Review

Energy

Bitumen Conservation

Public Safety and Sour Gas

Coalbed Methane

Applications

Compliance and Operations

Resources

Board Projects Utilities

Field Surveillance

Fort McMurray Oil Sands

OPERATIONS DIVISION

EUB Organizational Chart - 2004

Risk Management and Internal Audit

FinanceCorporate Services Information & Systems Services

Law

CORPORATE DIVISION

EUB Staffing - 2004

Professional 223

Support 195

Technical 362

Total staff 780

Staff Allocation by Core Business - 2004

Adjudication and Regulation 57.44%

Information and Knowledge 27.56%

Managing the Business 15.00%

2004/2005 Operating Budget ($113.0 million)

Administration fees on oil and gas wells, oil sands projects, coal mines, electricity generators and utilities $62.0 million

• 67.7% from oil and gas• 18.1% from oil sands• 1.7% from coal• 1.3% from electric generation• 8.6% from utilities• 2.6% from electric transmission

Provincial Government contribution $41.0 millionOther revenues (86% sales, services and fees, 14% investment) $10.0 million

Core Research Centre – 2003 • Collection of over 14.7 million vials of

drill cuttings• 1544 km of core samples• 261 998 trays of drill cuttings• Approximately 300 000 tour reports

(drilling information on all wells drilled in Alberta)

• Monthly average of 300 companies, consultants and institutions use the Core Research Centre facility

Information Collection and Dissemination

EUB Mandate

Economic, orderly and efficient development in the public interest- conservation - public safety- need - technology

Consider - environmental, social and economic factors- emissions - benefits/costs- disturbance - infrastructure- impacts - equity- risks - lifestyle- land use

Legal InstrumentsInterim Directive• Implement a new regulatory requirement or exempt

from existing regulatory requirements• Interim step to regulation or when performance of

regulation is not requiredInformational Letter• Explains policy, regulatory requirements or internal

operating processGuide• Detailed assistance for preparing applications,

understanding information requirements or complying with regulatory requirements

Application Review Process (cont’d)

Disposition• Approve at Branch level (delegated authority) Board Advisory

Committee processOptions:

– Deny application− Notice for Objection− Hearing: - Examiner

- Board• If hearing required, assign Examiner Panel or Board Division• Hearing decisions• Examiner hearing recommendation to the Board• Board hearing final decision by Board Division

Disposition at the Board

Primary Energy Industry Regulatory Interfaces

Facilities/scheme approvalsInformation collection and disseminationCompliance/inspectionsCorrelative rightsUtility rates

Surface RightsBoard

Alberta Sustainable Resource

Development

Alberta Environment

PublicAlberta Energyand Utilities Board

Alberta Energy

National Energy Board

Alberta Human Resources and

Employment

Energy policy Mineral rights RoyaltyPre-drilling exploration

Gas Export Federally-regulated pipelines

Occupational health and safety

Notice of applicationsInformationDirectly affectedPublic Hearings

Environmental impact assessmentPollution control

Environmental standards and approvals

Surface access and rights-of-way on privately-owned land

EnergyIndustry

Disposition

Objective• Discharge Section 29• Full disclosure• Understand issues

• Adequate information

Options• Deny• Approve• Approve with conditions• Public hearing (all options)

Fort McMurray Office

EUB Fort McMurray Office – 14 Staff members (October 2004)• 2 Managers – Mining Engineers• 1 Administrative Co-ordinator• 2 Environmental Scientists• 1 Mining Engineer• 2 Process Engineers• 1 Geotechnical Engineer• 1 Inspector• 3 Technologists• 1 Community Relations/Communications Advisor

Bitumen and Conventional Reserves

Definitions:• Ultimate Potential

ultimate potential = initial established reserves + additions to existing pools + future discoveries

• Remaining Establishedinitial established reserves less cumulative production

• Initial Establishedestablished reserves prior to the deduction of any production

Major Oil Sands Schemes

• Environmental Impact Assessment (EIA) is mandatory at > 2000 m3 bitumen

• Participation in region environmental study group (CEMA etc) is expected

Notification• General Notice of Filing ( newspapers etc)• Public consultation with application review• Notice of Application

– general– direct to stakeholders