IN THE MATTER OF the Utilities Commission Act and IN THE MATTER OF an Application by the British Columbia Petroleum Corporation DECISION September 26, 1980 Before M. Taylor, Chairman D. B. Kilpatrick and J. D. V. Newlands, Commissioners
TABLE OF CONTENTS APPEARANCES LIST OF EXHIBITS INTRODUCTION . . THE ISSUES . . THE DECISION Effective Date Method and Timing of Allocations in the Pool . . . Method and Timing of Reallocations in the Pool . . IMPLICATIONS FOR FUTURE COMMON PURCHASER ORDERS APPENDIX I Order U-COJ11-l-80 Pa2 l 2 3 . 7 . 9 10
APPEARANCES R.J. LUDGATE D. MORLEY J.B. LOWERY W.F. STRECKER D. CRAIG R. PERRIN J.T. DAINES P. BRETZLOFF W.F. MUSCOBY J. PAWELEK J. STEPHURE V.Y. WOO I. MOLLER T. L. C. ~VILLIAMS D. HADLEY M. I. AZZAM D. KESTEVEN Commission Counsel for British Columbia Petroleum Corporation for Sabine Canada Ltd. for Wainoco Oil & Gas Limited for Suncor Inc. Resources Group for Hudson's Bay Oil & Gas Company Limited for Esso Resources Canada Ltd. for Union Oil Company of Canada Limited for Texaco Canada Resources Ltd. for Petro-Canada for Westgrowth Petroleums Ltd. for Orbit Oil & Gas Ltd. for Dome Petroleum Limited for Czar Resources Ltd. for Canadian Superior Oil Limited for Home Oil Company Limited for Woods Petroleum of Canada, Ltd.
LIST OF EXHIBITS 1. British Columbia Energy Commission Order No. COM-15-80. 2. Submission on behalf of the British Columbia Petroleum Corporation In Matters Relating to the September 17, 1980 Hearing regarding Common Purchaser Orders September 10, 1980. 3. British Columbia Energy Commission Draft Contract - Fort St. John Reserve Common Purchaser. 4. British Columbia Energy Commission Draft Contract - Fort St. John Deliverability - Reserve - Common Purchaser. 5. Letter to the British Columbia Petroleum Corporation from the Alberta Energy Resources Conservation Board and attachment of sections of the Oil and Gas Conservation Act of Alberta RSA 1970, c. 267 pertaining to Common Purchaser Matters. 6. Submission on behalf of Sabine Canada Ltd. September 9, 1980 and September 12, 1980. 7. Submission on behalf of Suncor Inc. Resources Group September 16, 1980. 8. Submission on behalf of Esso Resources Canada Limited September 9, 1980. 9. Submission on behalf of Westgrowth Petroleums Ltd. September 15, 1980.
COMMON PURCHASER HEARING September 17-18, 1980 DECISION DATED SEPTEMBER 26, 1980 Introduction This decision results from an application by the British Columbia Petroleum Corporation ("B.C.P.C.") on August 15, 1980, for an Order under Section 83(4) and 83(5) of the Energy Act and heard under the Utilities Commission Act, clarifying several issues arising from Commission Orders COM-4-80, COM-5-80, COM-6-80 and COM-7-80. The Commission rejected the application per se and on its own initiative called a public hearing to explore the unresolved issues alleged by B.C.P.C. to be obstacles to implementation of the said previously issued Orders and Orders COM-13-80 and COM-14-80. The public hearing, attended by representatives of B.C.P.C., the natural gas producers concerned and other interested parties, was held in Vancouver on September 17, 1980. The decision was reserved when the public hearing concluded on September 18, 1980.
2 The Issues The hearing was called primarily to hear evidence on the following matters: I. The effective date on which a new producer will be entitled to share in the production and revenues from the common pool. II. The manner in which the portion of the production allocated to the new producer is to be taken from the existing contracts in the Pool. III. The manner of reallocating any volumes which have been allocated to the new producers in the event that they are unable to produce the volumes allocated to them. The hearing produced evidence on a large number of ancillary but related issues of importance to both B.C.P.C. and the intervenors with respect to the practicalities of day-to-day operations under the common purchaser legislation. This has given rise to an overriding issue to be addressed in this decision, namely - to what extent the clarifying Order emerging from this hearing must establish the detailed modus operandi required for effective implementation of common purchaser legislation. This question is addressed in the preamble to the Commission's decisions with respect to items II and III above.
3 THE DEClSION I. Effective Date As in most of the matters canvassed in the hearing, the evidence presented was conflicting and the position taken by the producers present was far from unanimous. If there was any pattern from the industry representation it was that the smaller and financially weaker independents advocated that the effective date of entitlement to a share of the pool production by a new producer should be the date of the Commission•s common purchaser Order. B.C.P.C., supported by some of the larger producers, advocated that the effective date, as is traditional industry practice for conventional contracts, be the date on which the new producer is tied-in and producing gas. On the basis of the evidence and in light of the very different factors motivating B.C.P.C., the existing producers in the pool and the new producer, the Commission has concluded that neither of these two possible effective dates offers the fairest overall treatment of the interested parties. The date of the common purchaser Order, as a possible
4 effective date, fails to sufficiently motivate the new producer to make maximum effort to achieve the earliest possible connection and production capability and imposes upon B.C.P.C. the possibility of unnecessarily frequent accounting for and scheduling of credits and catch-up volumes. Such an effective date would admittedly serve to eliminate or reduce the reluctance of the existing producers to cooperate in the achievement of early connection and production by the newcomer and would fully compensate the new producer for on-going drainage. The Commission, however, concludes that it is difficult to justify the imposit.ion, before the actual deli verabili ty of the new producer is even known, of reallocation and reduced contracts on existing producers and of the additional computation and record-keeping involved. Moreover, the possibility of protracted cut-backs of existing producers, possible subsequent line capacity problems during catch~up, and the virtual elimination of motivation for the new producer 1 rule against adoption of the date of common purchaser declaration as the effective date of entitlement to share. On the other hand, adoption as the effective date of entitlement, of the date on which the new producer is tied-in
5 and capable of delivering gas, in the Commission'· s view is unduly prejudicial to the new producer. The hearing produced ample evidence as to the obstacles facing the new producer attempting to minimize on-going drainage of his gas reserves by achieving the earliest possible connection and deliverability. The hearing produced no evidence of tangible motivation of either the existing producers or the common purchaser to that end. Indeed, the opposite appears to be the case and in view of the fact that the forces arrayed against the new producer can be both formidable and largely outside of his power to control and that the intent of the Act is to minimize the impact of drainage, adoption of the date of connection and deliverability is neither appropriate nor equitable with respect to common purchaser situations. The Commission has concluded that an appropriate effective date, and one providing a compromise solution reflecting, at least in part, the interests of all the parties involved, is the date on which the new producer has physically completed all the facilities required to be provided him, to effect the necessary connection and production of gas from his well.
6 Such a date would minimize both the frequency and duration of situations calling for production credits and catch-ups and would provide motivation for the early conclusion of negotiations with existing producers and/or Westcoast Transmission for the required connection. It is a date which is easy to establish by physical inspection. On that date when the necessary facilities are completed by the new producer he shall so advise the owners of the intended connection by registered letter, with a copy to B.C.P.C. Failure to negotiate successfully for final connection within 30 days of the effective date, would give the new producer recourse to an immediate common carrier application. If such application were successful in his favour, his entitlement to share in pool production would date from the day on which he had completed his facilities for connection and production. The Commission will therefore order that, with respect to the heretofore identified common purchaser Orders issued to date, the effective date on which the new producer will be entitled to share in the production and revenues from the common pool will be the date on which the new producer has completed all the facilities required to be provided by him to effect the necessary connection and production of specification gas from his well.
7 The Commission will further order that if, within 30 days of the above effective date, the new producer has failed to negotiate actual connection and makes a common carrier application, the said application, if successful, will establish his entitlement as of the effective date defined above. II. Reduction of Exis Contracts To effect the necessary reductions in existing contracts made necessary by its common purchaser Orders, the Commission will specifically order B.C.P.C. to re-open all the existing contracts affected by the common purchaser Orders issued to date. The precise manner in which the necessary reductions to existing contracts are to be made is another matter. To minimize the intrusion of regulation into what are the normal day-to-day business responsibilities of parties to a contract 1 there is a limit to the degree to which the Commission can or should order specifics on extremely complex and technical matters which can be effectively dealt with by negotiation. The hearing produced ample evidence that no serious efforts have been made to date by either B.C.P.C. or the affected producers to negotiate the specific details for implementation of common pu.rchase Orders, such as contained in B. C, P. C. 's
8 submission in Schedules "A" and "B" therein. The hearing also produced evidence that in Alberta, where experience with common purchaser legislation is more extensive than in B. C., negotiation between interested parties plays a useful role in the settlement or resolution of common purchaser matters. In the present circumstances, the Commission is not prepared to determine the appropriate common purchaser practices for B. C. by fiat, in the detail proposed by B.C.P.C. The Commission will maintain the view, until actual experience proves otherwise, that there is a useful and appropriate role for negotiation in B. c. Accordingly, the Commission Order with respect to allocation of the required reductions in existing contracts, the reallocation to existing producers of delivery short-falls by new producers, and all the other lesser issues raised at the hearing, will be broad and general in nature. Such an Order will focus on the end results expected, leaving the details of implementation to be resolved by negotiation between the parties involved. Acknowledgement by counsel for B.C.P.C. that such an Order will indeed serve to permit B.C.P.C. to commence accepting
9 deliveries under the new contracts and would solve their major hurdles, are matters of record to be found on page 372 of the transcript. The Commission will, therefore, Order as follows: That portion of total pool production (MDVO) allocated to the new producer will be taken from the existing contracts in the pool in such proportions as will maintain the relative share of pool production of each existing producer prior to the effective date (as defined heretofore) applicable to the new producer, by such method and timing as may be agreed upon by the interested parties to achieve that result. III. Reallocation of Shortfalls New Producers On the basis of the evidence and the position taken by the majority of intervenors at the hearing, the commission has concluded that equitable treatment of the existing producers in the pool requires reallocation back to them of any volume of gas which the new producers fail to deliver under common purchaser circumstances in the pool, and the Commission will so order. Such reallocation, as in II above, will be made so as to maintain the relative share of pool production of each existing producer prior to the effective date (as defined
10 heretofore) applicable to the new producer, by such method and timing as may be agreed upon by the interested parties to achieve that result. This decision and the related Order which amends the heretofore identified common purchaser Orders already issued by the Commission, should be viewed only as a guide to the direction in which future decisions are likely to move in the still evolving B. c. experience with common purchaser legislation. It is the Commission's hope, in light of the technical, legal and operating complexities inherent in oil and natural gas exploration activity, that both the producers and the common purchaser will make maximum use of the negotiation process to resolve common purchaser problems. DATED at the City of Vancouver, in the Province of British Columbia, this 26th day of September, 1980. M. D. B.
APPENDIX I -<..., c::,'r\ COt..u1 1, ~ <S>,. BRITISH COlUMBIA ~ "~' v UTiliTIES COMMISSW:; c. 'If~-~ ~ .. 1 .. : ~~~~0 <& ~·ccr-q "".>-/~ .~,c, S CONI\"' ORDER NUMBER O-COM-l-80 PROVINCE OF BRITISH COLUMBIA BRITISH COLUMBIA UTILITIES COMMISSION IN THE MATTER OF the Utilities Commission Act SBC 1980, c. 60 and IN THE MATTER OF Common Purchaser Orders COM-4-80, COM-5-80, COM-6-80, COM-7-80, COM-13-80 and COM-14-80 BEFORE M. Taylor, Chairman; D. B. Kilpatrick, September 26, 1980 Commissioner; and J. D. v. Newlands, Commissioner 0 R D E R WHEREAS the British Columbia Energy Commission issued Orders declaring the British Columbia Petroleum Corporation ("B.C.P.C.") to be a common purchaser of natural gas from several natural gas pools in British Columbia; and WHEREAS the B.C.P.C. alleged that it required clarification of several matters before such Orders could be properly implemented; and WHEREAS all powers under the EN.E.RGY ACT with respect to common purchaser legislation have been conferred upon the British Columbia Utilities Commission by the Utilities Commission Act; and WHEREAS pursuant to Order COM-15-80 the British Columbia Utilities Commission ("the Commission") considered the following: (a) The effective date on which a new producer will be entitled to share in the production and revenues from the common pool. . .. /2 WE3'7 3il:lEE'7 Y?E '::~EP'-!ONE TElEX
BRITISH COlUMBIA UTILITIES COMMISSION ORDER NUMBER U-COM-1-80 2 (b) The manner in which the portion of the production allocated to the new producer is to be taken from the existing contracts in the Pool. {c) The manner of reallocating any volumes which have been allocated to the new producers in the event that they are unable to produce the volumes allocated to them. at a public hearing in Vancouver on September 17, 1980 and September 18, 1980; and WHEREAS from the evidence presented, the Commission concludes that it must vary the subject Orders under Section 83(4) of the Utilities Commission Act. NO%' THEREFORE the Commission hereby orders as follows: 1. The effective date on which a new producer's well, which has been determined to be in-a common purchaser pool, is entitled to share in the production and revenues from the common pool shall be the date on which the new producer has completed all required of him to effect delivery of specification gas from the new well. If within thirty days of this effective date, the new producer has failed to negotiate actual connection and makes a common carrier application, the said application, if successful, will establish his entitlement to share in the production and revenues from the common pool as of the effective date. 2. That portion of total pool production allocated to the new producer will be taken from the existing contracts in the pool in such proportions as will maintain the relative share of pool production of each existing producer prior to the effective date applicable to the new producer, by such method and timing as may be agreed upon by the interested parties to achieve that result. 3. Where a new producer proves unable to produce the gas volume allocated to hirn, the volume which the new producer fails to deliver shall be reallocated back to the producers whose contracts were reduced to accomodate him. Such reallocation will be made so as to maintain the relative share of pool production of each existing producer prior to the ... /3
BRITISH COLUMBIA UTILITIES COMMISSION ORDER NUMBER U-COM-l-80 3 j effective date applicable to the new producer, by such method and timing as may be agreed upon by the interested parties to achieve that result. DATED at the City of Vancouver, in the Province of British Columbia, this 26th day of September, 1980. BY ORDER vi~~ Chairman
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