Spacing Rules in Alberta It’s a layer cake!

1. Spacing Rules in Alberta It’s a layer cake! Robyn Swanson C.E.T., P. Eng. Senior Technical Advisor, Applications rswanson@benoitregulatory.com 403.263.3690

2. Spacing Rules in Alberta Topics to be covered: • Introduction • History of spacing in Alberta • Layers of Spacing • Spacing as it applies to vertical wells • Spacing as it applies to horizontal wells • Holdings vs Spacing vs SO’s • Primary Scheme Approvals, OSR’s • Off Target vs Non-Compliance

3. Spacing History in Alberta • 1931 – 1 lsd spacing oil or gas, Second Act stipulates interwell spacing of 440 yards • 1939 – lsd for oil wells • 1949 – One section spacing for gas; target 6,7,10,11 (central 4 lsds of section) stipulated • 1957 – 2 lsd spacing for oil, targets the even- numbered lsds, only in W5M-W4M stays on 1 lsd spacing for oil • 1962 – June 1 – quarter section spacing for oil, target SW lsd of quarter (100m inside lsd) also discovery well status (first well on target no matter where)

4. Spacing History in Alberta • 1962 – 1968 First well in June 1, 1962 to January 1, 1968 • 1968 – January 1 – quarter section spacing for oil, centre target 200 m from all sides of quarter • 1974 – June spacing unit plan implemented in Province centre and northeast LSD targets • 2007 – November – SU’s no longer issued. Approved spacing is now displayed on the AER’s website on their well spacing map. SU’s may be consulted for spacing in existence prior to October 27, 2007 and will take precedent over that shown on the well spacing map

5. Spacing History in Alberta • 2011 – October 6 - Bulletin 2011-29 announces • Default higher density drilling • Elimination of Area 1 and Area 2 targets • Center target areas for oil and gas, province wide • 2015 – February 17 – Bulletin 2015-06 Issuance of SO#1 Montney and Lower Doig • 2015 – March 17 – Bulletin 2015-12 announces issuance of SO#3 Duvernay • 2016 – September 29 – Bulletin 2016-29 announces issuance of SO#5 Cardium

6. Spacing History in Alberta Subsurface Order Schedule 13A or 13B Holding/Primary Scheme Approval DSU – Applied For DSU - Regulated

7. Spacing Unit Plan - Alberta From 1974 - 2011

8. Spacing Schedule 13A (2011 – Present) W5 W4 Includes Development Entity 2006 - 1B

9. Spacing Schedule 13B (2011 – Present) W6 W5 Corresponds with Development Entity 2006-2A

10. Subsurface Order No. 1B Effective February 23, 2018

11. Subsurface Order No. 3A Effective February 23, 2018

12. Subsurface Order No. 5 Effective October 7, 2016

13. Vertical Spacing • Default DSU for oil is one quarter section; 4.010(3,a) • Default DSU for gas is one section; 4.010 (3,b) • Drill anywhere in designated target = on-target, anywhere outside of this is off-target unless it is the first well in the pool; 4.030

14. Horizontal Spacing - Oil On Target and • Have to go through the target area on all DSU’s to stay on target

15. Holdings • Suspend target areas in underlying DSU’s in lieu of a specified set of conditions by applying to the AER for a holding; OGCR Section 5.190 • Apply for a holding to: • Increase well density • Request non standard buffer

16. Off Target vs Non Compliance Off target applies to DSU’s In order for a well to be considered off target and have an off target penalty assessed against it, the well must be off target towards an on target well (or first well in) producing from the same pool your well (the off target well) is in Off target penalties are initiated by an offset operator, by application to the AER Non compliance applies to holdings In order for a well to be considered non compliant, the well typically must be non compliant to a compliant well that is producing from the same pool your non compliant well is in Non compliance could be initiated by an offset operator or the AER

17. Subsurface Orders The first one was effective March 1, 2015 in the Montney-Doig A blanket approval for the specified formation in the defined area. Allows for unlimited well density for both oil and gas Centre target area with 100 m buffer on all sides Automatic GPP for wells within existing pools CCP is not automatically approved Annual pressure survey and initial deliverability not required Initial pressures taken at a minimum of 1 well per three section by three section area

18. Primary Scheme Approvals and Oil Sands Royalty Projects (OSR) Applies to oil sands development north of township 52 Primary Scheme approvals same as a holding approval but application is pursuant to the Oil Sands Conservation Act and Rules Approvals stipulate buffer, interwell distance and well density Generally high density, low interwell distance to optimize primary cold flow heavy oil production Approval issued by AER Oil Sands Royalty project approvals are an application for royalty relief in very high density development for primary cold flow production Also an approval in an oil sands area Must have a primary scheme approval issued by the AER before the OSR project application can be submitted to the Oil Sands division of Alberta Energy Approval issued by Ministry of Energy

19. Summary • Understanding that spacing is multi layered and has evolved since the first oil and gas wells in Alberta is fundamental • Companies need to pre-plan, understand spacing history exists and interpret the rules correctly in order to avoid costly off-target penalties and well shut-ins Remember it is easier to stay out of trouble, than get out of trouble!

20. Questions?