Off-Target Wells in Alberta

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Overview

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An off-target well is an oil or gas well completed outside the prescribed target area of its drilling spacing unit (DSU). Target areas are intended to promote orderly reservoir development and protect equity between mineral rights owners.

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Under Part 4 of the Oil and Gas Conservation Rules, the standard DSU is generally one quarter section for an oil well and one section for a gas well, unless the Alberta Energy Regulator has prescribed different spacing. A road allowance is not included in the DSU.

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The standard target area is generally:

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• 100 metres from each DSU boundary for an oil well, and

• 150 metres from each DSU boundary for a gas well,​

 

unless a subsurface order, pool order, special spacing approval, holding, unit or other AER order establishes different requirements. For example, Subsurface Orders No. 1 and 3 use a target area located 100 metres from all DSU boundaries for both oil and gas wells.

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There are no well density restrictions for oil or gas well drilling spacing units within the Province of Alberta, unless a special spacing approval, holding, unit or other AER order establishes different requirements.

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A well being off-target does not automatically mean that it will be penalized or shut in. The regulatory outcome depends on:

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• the spacing requirements applicable to the well,

• the location of the productive portion of the wellbore,

• whether the well is producing,

• whether an offsetting licensee is directly and adversely affected,

• whether an offset well is capable of producing from the same pool,

• whether the off-target well qualifies as the first well in the pool,

• whether the well enters or produces from a road allowance, and

• whether the well is in a standard DSU or a buffer zone associated with special spacing.

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Approval Types

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• On-Target Well

 

A well completed entirely within its prescribed target area is considered on-target. Its base allowable cannot be reduced because of its location within the DSU.

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For directional and horizontal wells, the entire productive portion of the wellbore must be considered. A surface location or bottomhole location inside the target area does not necessarily mean that the well is on-target.

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• Off-Target Penalty Application

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An offsetting well licensee may apply to have an off-target penalty imposed when:

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• the offending well is producing,

• it is off-target towards the applicant’s mineral lands,

• the applicant has a well completed in the same pool,

• the applicant’s well is shown to be capable of production, and

• the applicant can demonstrate that it is directly and adversely affected.

 

The encroached-on well does not need to be producing, but it must be completed and capable of producing from the same pool when the application is submitted

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• First Well in a Pool

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A well spudded on or after April 1, 1994, that qualifies as the first well in a new pool is not subject to an off-target penalty.

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The first well is the well with the earliest spud date that is capable of production. For oil wells, the well must be placed on production within six months of its spud date. For gas wells, a suitable test must demonstrate the ability to produce gas at commercial rates on a sustained basis.

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Only one well may receive first-well-in-the-pool status.

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• Special Well Spacing

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The AER may approve a different DSU, target area or well density through a special well spacing application under Directive 065.

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A special spacing approval does not itself authorize drilling. The applicable well licence and any other required approvals must still be obtained.

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• Wells in Buffer Zones

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A well producing from the buffer zone of a holding or unit with special spacing is treated differently from an off-target well in a standard DSU.

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There are generally no off-target penalty factors for wells in these buffer zones. Instead, the AER may require the well to be shut in following a successful complaint from an offsetting licensee. The AER does not normally conduct independent surveillance or shut in a buffer-zone well without a successful complaint.

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• Road Allowance Authorization

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A road allowance is not part of the adjoining DSUs. A well that crosses, terminates in or produces from a road allowance may therefore require a separate mineral-rights review in addition to an off-target assessment.

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Several common scenarios include:

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• Drilling through a road allowance solely to reach leased rights generally does not require prior mineral authorization.

• A well that terminates in or produces solely from a road allowance generally requires prior approval.

• Where Crown rights exist on both sides, authorization may be limited to the rights granted by the adjoining Crown agreements.

• Testing or production may not be permitted beside undisposed Crown rights or where the adjoining leased rights do not match.

• Where Crown and freehold lands adjoin the road allowance, authorization may be available to drill and test, but a Production Allocation Unit Agreement may be required before production.

• A horizontal well crossing a Crown-freehold road allowance may similarly require prior approval and a Production Allocation Unit Agreement.

• Production exclusively from the road allowance requires approval even where merely crossing the road allowance would otherwise be permitted.

 

 Current Crown mineral tenure, road-allowance authorization and production-allocation requirements should be confirmed for each project.

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Application Process

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A practical off-target well review usually follows this process:

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1. Confirm the well UWI, licence type and current status.

2. Identify the producing pool, formation, member or zone.

3. Confirm the DSU applicable to the well.

4. Identify the target area that applied when the well was drilled.

5. Confirm the target area that applies under current requirements.

6. Review any subsurface order, special spacing approval, holding, unit or pool order.

7. Map the productive portion of the wellbore using the directional survey and completion information.

8. Determine the closest approach of the productive wellbore to the DSU boundary.

9. Confirm whether any portion of the productive interval is outside the prescribed target area.

10. Determine whether the well qualifies as the first well in the pool.

11. Identify the offsetting DSUs, mineral ownership and licensees.

12. Determine whether an offset well is completed and capable of producing from the same pool.

13. Review any road-allowance intersection and confirm Crown, freehold or undisposed Crown ownership.

14. Determine whether a special spacing application, off-target penalty application, buffer-zone complaint, road-allowance authorization or PAUA is required.

15. Prepare the geological, engineering, survey and ownership information.

16. Provide a copy of an off-target penalty application to the operator of the offending well.

17. Submit the application through the AER’s Digital Data Submission system.

18. Respond to any supplemental information requests or statements of concern.

 

Off-target penalty applications are publicly posted by the AER. The AER may approve, deny or close an application. An approved penalty and the related allowable generally take effect on the first day of the month following the date the application was registered.

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Data Requirements

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A complete off-target well assessment should include:

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• well UWI,

• licensee and operator,

• well license information,

• spud date,

• rig release date,

• well status,

• oil or gas classification,

• producing pool or formation,

• completion and perforation intervals,

• producing leg or drain information,

• directional survey,

• as-drilled survey,

• productive wellbore coordinates,

• surface and bottomhole coordinates,

• applicable DSU boundaries,

• prescribed target area,

• applicable subsurface orders,

• special spacing approvals,

• holding or unit approvals,

• historical spacing requirements,

• current spacing requirements,

• closest wellbore approach to the DSU boundary,

• applicable Schedule 14 penalty factor,

• base allowable or maximum rate limitation,

• horizontal well modifier, where applicable,

• producing gas-oil ratio and applicable GOR penalty,

• production history,

• first-well-in-the-pool chronology,

• offset well information,

• evidence that the offset well is capable of production,

• mineral ownership,

• common ownership information,

• Crown and freehold rights,

• pooling or unit agreements,

• road-allowance configuration,

• depth rights adjoining the road allowance,

• any undisposed Crown rights,

• PAUA or production-allocation information,

• geological interpretation,

• structure map,

• net pay isopach map,

• pressure or communication evidence, where applicable, and

• supporting correspondence and previous AER decisions.

 

For horizontal wells with multiple legs, the status and location of every productive leg should be reviewed. The AER may penalize the entire reported production from the well even where only one leg is off-target.

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Geological Requirements

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The geological review must establish whether the offending well and the encroached-on well are completed in and capable of producing from the same pool.

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Typical geological information includes:

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• producing formation and pool,

• completion intervals,

• formation tops,

• net pay,

• reservoir structure,

• lithology,

• porosity and permeability,

• fluid contacts,

• reservoir continuity,

• potential barriers or compartmentalization,

• offset well logs,

• pressure information,

• production behaviour, and

• communication between the wells.

 

An off-target penalty application should normally include a geological interpretation and net pay isopach map. If the offending well is confidential, the applicant may explain that it cannot confirm the exact completion, but it must still demonstrate that the offending well is likely communicating with and producing from the same pool.

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In a play-based development where the traditional pool concept may not apply, the applicant must demonstrate reservoir communication using geological interpretation and other evidence such as pressure data.

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Geological proximity alone is not necessarily sufficient. The technical submission should explain why the productive interval of the offending well can reasonably drain reserves associated with the applicant’s mineral lands or well.

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Engineering Requirements

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• Off-Target Penalty Factor

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Schedule 14 of the OGCR contains the penalty-factor diagrams used for different DSU configurations. Depending on the well’s position, the applicable factor may reduce the base allowable.

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Directive 007-1 explains how the factor is applied for wells subject to maximum rate limitation administration:

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1. Determine the monthly base MRL.

2. Apply the off-target penalty factor.

3. Apply any applicable GOR penalty factor.

 

The off-target calculation itself cannot reduce the base MRL below the equivalent of 5.0 cubic metres per day. A subsequent GOR penalty may further reduce the final adjusted MRL.

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• Horizontal Well Modifier

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For oil wells subject to MRL administration, a horizontal well modifier may increase the base MRL based on the productive horizontal length.

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Directive 007-1 calculates the horizontal well modifier as:

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HWM = square root of (1 + L ÷ 100)

where L is the horizontal length in metres from the pay top of the productive zone to total depth or plugback depth. The result is truncated to one decimal place.

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The off-target penalty is then applied to the resulting base MRL in accordance with the applicable allowable administration.

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• Multiple Horizontal Legs

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Where a well has multiple producing legs, one leg being off-target may result in the entire well’s reported production being penalized. Production cannot necessarily be separated by leg for penalty purposes.

This should be reviewed before placing an additional leg or drain on production.

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• Road Allowances

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Because a road allowance is excluded from the DSU, a productive interval in a road allowance requires both:

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• an AER spacing and off-target assessment, and

• confirmation of the underlying mineral rights and authority to test or produce.

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Regulatory Requirements

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Off-target wells should be reviewed against the following requirements:

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• OGCR section 4.010: establishes standard DSUs and excludes road allowances from the DSU.

• OGCR section 4.021: addresses well density and common ownership.

• OGCR section 4.030: establishes standard oil and gas target areas.

• OGCR section 4.040: allows the AER to prescribe special DSUs, target areas or well density.

• OGCR section 4.050: addresses fractional tracts and potential production or off-target penalties.

• OGCR section 4.060: addresses off-target penalty administration, first-well status and the AER’s ability to modify a penalty.

• OGCR section 4.070: requires the penalty factor to be determined under Schedule 14 and establishes the measurement point.

• OGCR section 4.090: addresses wells that become off-target because spacing requirements subsequently change.

• OGCR Schedule 14: contains off-target penalty-factor diagrams.

• Directive 007-1: explains allowable and MRL calculations involving off-target penalties.

• Directive 065: contains requirements for special well spacing applications.

• Bulletin 2014-27 and associated FAQ: clarify off-target penalties, buffer-zone complaints and horizontal well scenarios.

• Applicable subsurface, pool and spacing orders: may modify the standard DSU or target area.

 

An off-target penalty does not authorize mineral trespass. Conversely, obtaining mineral rights or a PAUA does not automatically make a well on-target under the OGCR. The spacing and mineral-rights reviews must both be completed.

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Stakeholder Engagement

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An applicant requesting an off-target penalty must provide a copy of the application to the operator of the off-target well.

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The AER posts applications through its Public Notice of Application process. A person who believes they may be directly and adversely affected may submit a statement of concern.

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Early engagement with the potentially affected operator can help clarify:

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• the applicable pool,

• completion intervals,

• directional survey information,

• mineral ownership,

• spacing requirements,

• first-well status,

• whether the wells are in communication,

• potential drainage concerns, and

• whether an operational or commercial solution is available.

 

For road-allowance wells, engagement may also be required with:

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• Alberta Energy and Minerals,

• Crown mineral-agreement holders,

• freehold mineral owners,

• working-interest owners,

• royalty owners, and

• parties to a PAUA, pooling agreement or unit agreement.

 

Stakeholder discussions do not replace the formal AER application or approval process.

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Common Deficiencies

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Common off-target well deficiencies include:

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• assuming that every off-target well is automatically penalized,

• checking only the surface or bottomhole location,

• failing to map the entire productive portion of a horizontal well,

• using an incomplete or inaccurate directional survey,

• overlooking an off-target drain or secondary leg,

• using the wrong DSU or target area,

• failing to review the spacing requirements that applied when the well was drilled,

• failing to review current spacing requirements,

• overlooking a subsurface order or special spacing approval,

• confusing a standard DSU target area with a holding buffer zone,

• failing to establish that the offending well is producing,

• failing to establish that the applicant’s well is capable of production,

• insufficient evidence that both wells are in the same pool,

• missing geological interpretation or net pay isopach mapping,

• failing to evaluate first-well-in-the-pool status,

• failing to evaluate mineral ownership beneath a road allowance,

• producing from a Crown-freehold road allowance without addressing production allocation

 

One of the most common practical issues is reviewing spacing only after the well has been drilled. Target areas, common ownership, road allowances and special spacing should be reviewed during well planning and before the final directional program is approved.

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Frequently Asked Questions

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• What is an off-target well?

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An off-target well is an oil or gas well with some portion of its productive wellbore outside the prescribed target area of its DSU.

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• Is an off-target penalty automatic?

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No. The AER normally applies a penalty following a successful application from an offsetting well licensee that is directly and adversely affected.

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• Can the AER penalize a well if the offset well is not producing?

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Yes. The encroached-on well does not need to be producing, but it must be completed and shown to be capable of producing from the same pool.

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• Is the first well in a pool subject to an off-target penalty?

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A well spudded on or after April 1, 1994, that qualifies as the first capable well in a new pool is not subject to the off-target penalty factor.

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• How is a horizontal well assessed?

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The closest approach of any productive portion of the horizontal wellbore to the relevant DSU boundary is used. The surface location and final bottomhole location are not sufficient by themselves.

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• What happens if only one horizontal leg is off-target?

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The AER may penalize the entire reported production from the well, even if only one producing leg or drain is off-target.

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• Can a horizontal well cross two DSUs?

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A horizontal well may generally cross laterally adjoining standard DSUs where common mineral ownership exists and standard well-density requirements are not exceeded. A special spacing application may not be necessary in that circumstance.

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• Is a road allowance part of the DSU?

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No. Section 4.010 of the OGCR expressly excludes the road allowance from the DSU.

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• Can a well produce from a road allowance?

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It may be possible, but the operator must confirm mineral ownership, adjoining depth rights, Crown or freehold status and any required authorization or production-allocation agreement.

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Producing solely from a road allowance generally requires prior approval. Certain Crown-freehold configurations may require a PAUA before production.​​

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• What is a PAUA?

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A Production Allocation Unit Agreement is an agreement used to allocate production and royalties where one well produces from lands involving different royalty ownership, commonly Crown and freehold interests.

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• What is the difference between an off-target well and a buffer-zone well?

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An off-target well in a standard DSU may be subject to a production penalty. A well producing from a buffer zone associated with a holding or unit with special spacing may instead be shut in following a successful complaint.

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• Can special spacing be used to change a target area?

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Yes. The AER may approve a modified DSU, target area or well density through a Directive 065 special well spacing application. The approval should normally be obtained before drilling or producing under the modified spacing.

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• What happens if spacing rules change after a well is drilled?

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If an on-target well becomes off-target solely because the AER later changes the DSU or target area, the base allowable is not generally reduced unless the AER directs otherwise. Additional protection applies to certain wells spudded on or before January 1, 1992.

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Related Technical Tools

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Related technical tools may include:

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• Benoit Decline Analysis Tool

 

Need Assistance?

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Off-target well assessments can involve well spacing, directional surveys, reservoir interpretation, mineral ownership, production allowables and road-allowance rights.

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Benoit Regulatory can help operators:

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• determine the applicable DSU and target area,

• review directional surveys and productive wellbore locations,

• assess first-well-in-the-pool status,

• evaluate potential off-target exposure,

• prepare or respond to off-target penalty applications,

• prepare special well spacing applications,

• review buffer-zone issues,

• evaluate road-allowance configurations,

• coordinate geological and engineering support,

• identify potential PAUA requirements, and

• respond to AER supplemental information requests.