CBM Special Spacing by Encana

[sagewood]

Has anyone out there had the O & G companies come and do a special spacing? I.e. Encana want to downsize the placement of CBM wells on the land in this area from 4 per section to a maximum of 16 per section.

The dilemma of a lot of the landowners in the area is what to do--fight this cutting up of the land, or let them come in and just take the extra revenue. Some of the landowners are concerned that this chopping up of the land will reduce the land values b/c it will be harder to farm around well heads with large equipment and then there are set backs from well heads and pipelines--restricts building spots and so forth. Our land is valued at $3,500 to $4,000 b/c of our proximity to Calgary and the Highway 2 corridor etc., but if the land is used up in an industrial way with O & G everywhere, the land value will no doubt decrease. I know this special spacing has happened in the Strathmore area of AB. Can anyone shed some light on their thoughts on this and if we must have this spacing, what do we need to watch out for and request from the O & G company. Thanks.

[mcfarms]

Heres a link that you might get a contact name or two to talk too.

http://albertasurfacerights.ca/nav/members.html

[silverback]

Eight per section is quite common these days, but I don't know of anyone suggesting 16? That seems very excessive.

[sagewood]

Thanks mcfarm that is a good site to bookmark. I have heard from Encana, and they say while they can put 8 wells per pool per section, it is unlikely to happen because of cost, but if they pool the Edmonton and Belly River together in their submission, then they can produce from both pools via the same well bore. So it looks like we could have at least 8 wells per section. Is that what is happening in your area Silverback?

[mcfarms]

The CBMs are not as high intensity as the traditional wells where they produce a lot of water later in life and need sep tanks etc. I do though have concerns with the higher intensity increasing likelyhood of biological contamination (clubroot,scentless cham etc) Encanas policies there are designed to protect Encana and are flawed in the real world. You also have to take into account that in your area the pipelines go into the ground and are there forever ( there is no true abadonment procedure) Encana will hold a caveat on that piece of ground forever. And if the future use changes it will be up to Encana whether or not they want to "help" you out.

[sagewood]

Yikes, always something to worry about as to the future of these leases and their intended uses. I already have a couple of wells and have made EnCana put in a clause in the agreements that once these pipelines are no longer used, they are to be removed and the area reclaimed as per the environmental requirements of the day--all at their (or heirs, executors etc.) expense and these clauses will hopefully serve to protect whomever owns this land after I move on to the big ranch in the sky. They fought this idea with zeal and were very much against putting it in the contract--I also indicated that should the County want to tax these industrial-looking well sites, (at a rate other than ag) that the increase in taxes from ag. to industrial would be covered off by EnCana also. This has been attempted at one point in a County north of us (without success), but I suspect that as times get harder and more infrastructure is needed in these Counties, landowners will again see this tax grab raise its ugly head. Weeds are always an issue--again---I have that in my contracts--not as a letter of intent, but the actual contract that will flow with the land. I don't know that it is bullet-proof, but at least it is a place to start. I have been under the impression for some time that EnCana would want special spacing--even though years ago they stood at meetings in the community and told us that was not in the plans--I suspect they had their fingers and toes crossed and their tongue planted firmly in their cheeks when they made that statement. At this point, they are indicating that it would not be profitable to drill separate wells in the Belly River and separate wells in the Edmonton zones, but would co-mingle these two zones with one well bore, thus we would only have 8 wells per section--the placement of these wells will be the issue--if they were in a straight row it might be okay--but if they are scattered willy-nilly through the section and one had to duck and dodge wells heads--well with 60 ft. of equipment that is most inconvenient and at some points not possible at all if one considers topography, fences and so forth. Thanks for your words of advise mcfarms and for the direction to the great website. We are almost being turned into an industrial area out this way--but by golly they are paying agriculture price for the land--no other developer on the planet would get away with that sort of reasoning--they should be paying industrial land prices b/c with pipelines/generator sites/well heads, it sure does not look much like agriculture--I guess the few cattle that are left to graze in this area will see more grazing areas once the neighbors realize how cut up their land is going to become. I might not mind so much if EnCana were willing to share their windfall from these wells--say even 1% of the revenue--might make it all worth while for those of us eking out a living from the land. Ah, but I dream in Technicolor too!!!!

[checking]

Have any of your companies approached you asking for 20 acre pads that run the full half mile? With it, it gives them all the rights to bury as much underground infrastructure, and place as much above ground as they need with no additional landowner compensation. It gives them as many wellhead locations in a row as they want into the future with a $300.00 annual payment/well for each additional infill.

Secondly, have any of your companies bought land at farmland auction sales, so they don't have to deal with you people?

[sagewood]

Wow, checking--no I have not been approached in this respect and I have not heard of it in this area yet, but that does not mean that it is not happening. I can see that the oilies would have the cash to buy out a cash-strapped landowner and then could rent it back to them without O & G payments--really quite brilliant when you think about it. Which area has this been happening in--do you know?

[checking]

It has happened several times in the Estevan Sk. area. I've attended farm estate sales where the buyer is an oil company. It does not have to buy the whole farm to get what it wants.

In one case, a company did seismic the fall before the spring land auction, then chose a central quarter for a no hassle location for a battery site, and sites for horizontal wells to drill under the eight surrounding quarters. After auction, it turned around and leased the quarter to the major farmer buyer of the other lands. (I'm speculating that it was to smooth over the "this isn't fair competition" feelings expressed at the sale.)

The company runs the risk that an irate RM could assess it industrial taxes, but it gets around it by placing the land in the name of someone that has farmland, and is only indirectly related to the company operations. Lots of ways to skin a cat!

[sagewood]

Thanks for that bit of extra knowledge. I can absolutely see the oilies doing something like and also see some other farmer agreeing to work with them--if he cannot own the land, then he gets to rent it at a cheap rate and thus it is a reasonable solution for both. If the oil and gas prices start to climb to the heady heights they were at a couple of years ago I can see O & G companies doing more of this throughout the country, especially in light of the fact the commodity prices in the ag. sector are not keeping up with the demand on the expense side and so many in ag. are just tired of hanging on for 'next year' and are just to old, too beaten down and too tired to fight the battle any more. The issue of fairness will never be addressed by any government who relies so heavily on the revenues from o & G to balance their books--it is no doubt a sign of the new things to come. Thanks for your input and for sharing your information.