Alberta’s protracted fight between natural gas producers and oilsands developers is finally drawing to a close.

It now looks like this dispute – about sacrificing natural gas production to safeguard oilsands development – will be settled at a public hearing next month and through taxpayers’ wallets.

The Alberta Court of Appeal, in a ruling last week, denied a request by a group of natural gas producers (including Paramount Energy Trust, BP Canada Energy Company, Canadian Natural Resources Limited, Devon Canada Corporation and Progas Limited) for a “stay” or halt to an Alberta Energy and Utilities Board (EUB) order last July.

The EUB had ordered 938 gas wells in the Wabiskaw-McMurray geological formation to be permanently closed down. The EUB wants to preserve the pressure in the underground reservoirs, needed to coax the Athabasca area’s bitumen deposits out of the ground with steam-injection technology.

Court of Appeal Justice Neil Wittmann did rule that the gas producers can appeal the EUB order, but only if there are still unresolved legal issues following an EUB public hearing scheduled to start March 8. The hearing’s aim is to arrive at a final decision on which gas wells will be shut in and which will be allowed to continue producing. In advance of the hearing, EUB staff submitted their recommendations in a report last week to the regulatory body.

The EUB staff recommend closing down 485 gas wells in the Wabiskaw-McMurray field in order to ensure the extraction of 25.5 billion barrels of bitumen-derived oil.

The wells recommended for permanent closure produce 136 million cubic feet a day of gas, or about 0.7 per cent of Alberta’s remaining accessible natural gas reserves.

That amount represents a significant pullback from the EUB’s original order last summer to close down 938 wells, or two per cent of Alberta’s gas production, in the region.

If March’s hearing upholds every single well shut-in recommended by the EUB staff, Paramount Energy Trust would lose 24.5 million cubic feet a day of its Wabiskaw-McMurray gas production.

That’s still a lot of lost gas. However, it’s only a little more than half the volume that Paramount feared it would lose as a result of the EUB’s original order. Investors also breathed a sigh of relief over the EUB staff report.

Paramount’s trust units rose 7.6 per cent the day after the report’s release, in contrast to the units plummeting 37 per cent in the wake of the EUB’s order last July.

But don’t look for forgiveness and a group hug at next month’s hearing.

Paramount has already shut in on an interim basis 7.9 million cubic feet a day of its Wabiskaw-McMurray gas production as a result of the EUB’s original order.

Adopting the EUB staff recommendations would mean the company forfeiting another 16.5 million cubic feet a day of production. Susan Riddell Rose, Paramount’s president, says her firm intends at the hearing to challenge the EUB staff’s reasons for almost all of the 250-plus Paramount wells identified for shutdown.

Expect some of the oilsands developers, which include Petro-Canada Oil and Gas Ltd., Imperial Oil Resources Ltd., Nexen Inc. and Japan Canada Oil Sands Inc., to argue for even more gas wells to be permanently shut in than the EUB staff recommends.

The key to ending this battle, which began in 1996, will be an offer by the Alberta government to financially compensate the gas producers. Riddell Rose says an industry-wide compensation package could be worth up to $1 billion.

So far, the province hasn’t said ‘No’ to that kind of peace settlement.

PLAYING NICE

The acrimonious gas-versus-bitumen fight could use a little help from C2C.

C2C, or the Company-to-Company Dispute Resolution Task Force, is the “only known multi-disciplinary, business-driven ADR (alternative dispute resolution) task force in North America,” says C2C chair Dave Savage of Triquest Energy.

C2C has issued a guidebook on why conflicts within the oilpatch occur and how they can be avoided, managed and resolved.

Thirteen organizations met last week at the Calgary offices of the Bennett Jones law firm to endorse the C2C guide. They included eight Canadian oil and gas associations (including the Canadian Association of Petroleum Producers), the Alberta Energy and Utilities Board, the National Energy Board, the Calgary Chamber of Commerce, a section of the Canadian Bar Association’s Calgary chapter, the Alberta Arbitration and Mediation Society, and the ADR Institute of Canada.

The guide includes “methods of principled negotiation in which parties look beyond positional bargaining in search of mutual gains based on exploring interests and the application of fair and objective standards.”

But writing the good words on conflict management is one thing. Walking the talk – as the gas versus bitumen battle illustrates – is quite another.

For more on C2C, visit www.capp.ca/ default.asp?V_DOC_ID=837

WELLS-A-POPPIN' The Petroleum Services Association of Canada (PSAC) is forecasting that 20,005 oil and gas wells will be drilled in 2004.

That’s five per cent higher than PSAC’s original 2004 estimate of 18,965 wells, released in late October last year.

The main reason for the increase is continued strong drilling activity – especially for shallow natural gas – in Alberta, where PSAC estimates a total of 14,790 wells will be drilled this year. The projection for B.C. is 1,100 wells and for Saskatchewan 3,900.

“Drilling activity has not abated in the shallow gas areas of southeastern Alberta, southwestern Saskatchewan and northeast B.C.,” says PSAC president Roger Soucy.

Overall, the 2004 forecast is slightly lower than the 2003 well count, due to an expected five-per-cent reduction this year in industry’s capital expenditures on oil and gas exploration.

DOLLAR DAZE

One thing that could put a damper on drilling prospects is the soaring Canadian Loonie, which is cutting into some companies’ fourth-quarter earnings and could trim capital spending this year.

Imperial Oil Ltd. is blaming the higher Canadian dollar, which bites into commodity earnings based on U.S. dollars, for a 44-per-cent drop in the company’s fourth-quarter profits.

Earnings fell to $255 million or 71 cents a share, down from $457 million or $1.21 a share during the same period last year.

Despite the profits dip, higher prices for natural gas and oil pushed Imperial’s earnings for 2003 to an all-time high of $1.68 billion, up from $1.22 billion in 2002.

Suncor Energy Inc. also reported record earnings for 2003, breaking the billion- dollar mark for the first time.

Suncor’s net earnings jumped 42 per cent last year, to $1.08 billion ($2.43 a share), compared with $761 million ($1.64 a share) in 2002.

Expect similar stellar 2003 results from other majors, such as Petro-Canada, Shell Canada Ltd. and EnCana Corp., reporting this month.

HORIZON MOVES CLOSER

Canadian Natural Resources Limited’s (CNRL) $8.5-billion Horizon oilsands project north of Fort McMurray has received the green light from regulators.

A joint review panel of the Alberta Energy and Utilities Board and the federal Canadian Environmental Assessment Agency approved the proposed oilsands mine, bitumen-extraction plant and bitumen upgrader – albeit with 17 conditions related to mining operations, resource conservation and management of the mine’s waste rock tailings.

CNRL plans to make a final decision by year-end on proceeding with Horizon, which would produce 232,000 barrels of oil a day by 2012.

Horizon could also create 2,400 permanent jobs in the area – among the 32,000 jobs that an Alberta Chamber of Commerce report predicts could be created by the province’s oilsands doubling production within 10 years.