WHO OWNS COALBED METHANE? Janice Buckingham provides insight into the nature of competing claims to cbm ownership and the circumstances in which such claims could arise. PAGE 6 AIPN UPDATE The Association of International Petroleum Negotiators has several model forms available, including the International Operating Agreement and the International Accounting Procedure. PAGE 17 COALBED METHANE OVERVIEW Jacquie Currie explains what CBM is, reviews highlights of the history of CBM exploration in the U.S., and examines some of the land issues related to exploring for this resource. PAGE 2 CAPL 24 th Annual Conference the egotiator The Magazine of the Canadian Association of Petroleum Landmen N May 2002
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WHO OWNS COALBED METHANE?Janice Buckingham provides insightinto the nature of competing claims tocbm ownership and the circumstances inwhich such claims could arise. PAGE 6
AIPN UPDATEThe Association of International PetroleumNegotiators has several model formsavailable, including the InternationalOperating Agreement and the InternationalAccounting Procedure. PAGE 17
COALBED METHANE OVERVIEWJacquie Currie explains what CBM is,reviews highlights of the history ofCBM exploration in the U.S., andexamines some of the land issues relatedto exploring for this resource. PAGE 2
CAPL24th AnnualConference
the
egotiatorT h e M a g a z i n e o f t h e C a n a d i a n A s s o c i a t i o n o f P e t r o l e u m L a n d m e n
Emerging BasinsAppalachian BasinsWarrior BasinSan Juan
Producing CBM Wells
Annual CBM production (Bcf )
990
2,00 0
4,00 0
6,00 0
8,00 0
10,000
12,000
00
14,000U.S. Coal Bed Methane Production
N Pa g e 4may 2002
In an April 2000 publication by Morgan Stanley Dean Witter CBM
production from the mature and emerging basins was estimated to
surpass 2,000 Bcf/year by 2005. Congressional decisions on the
future of the Section 29 Tax Credits could impact this outcome, espe-
cially if the requested extensions are granted.
In CanadaWhen exploration for coal bed methane started in Canada there were
no equivalent tax credits or royalty holidays. What then drove the
quest? New technology certainly – previous attempts at CBM explo-
ration in our province had met with failure. Success in the US
brought technology that said “try again”. More than that, Canadians
too are looking for security of supply . The National Energy Board
has predicted that production from unconventional resources will be
required by 2008 to meet the increasing demands of our population.
With that, in 2000 several companies decided that there would be
an economic market and that we had the tools to be successful in a
new quest.
Finding coal beds and the CBM in them is not a challenge in Canada,
or specifically Alberta and British Columbia. Indeed we have thou-
sands of wells that have drilled through, identified and avoided coal
beds. The challenge for the explorer today is extracting the CBM in a
cost effective manner. To achieve economic CBM production there are
a number of risk factors to be addressed. For this article only
economic and some environmental issues will be discussed
Economic Issues
Mineral Land TenureOwnership of the resources is the first risk to manage - for details of
this complicated issue refer to the Legal Issues article in this publi-
cation. Given the current position of the Alberta Government with
respect to the ownership of coalbed methane it is recommended that
CBM exploration be conducted on Crown lands, or, on freehold lands
with granting documents from the owner of both the coal and natu-
ral gas rights.
In addition to the ownership issue, control of large contiguous
blocks of land are important at the early stage of exploration
because CBM requires significant infrastructure and multiple wells to
be economically viable. Given that most of the coals occur at shal-
lower horizons than the conventional reservoirs in the Western
Canadian Sedimentary Basin, most of the CBM rights are held by
multiple parties. At the 2001 CBM forum one landman was overheard
saying that, from the mineral ownership perspective alone, to
progress one particular exploratory venture 79 parties had to be
dealt with. This fact alone can be a significant impediment to the
launch, much less fruition, of a CBM program. In addition docu-
menting business arrangements when the exact outcomes may not
be known requires us all to revisit our conventional documentation
to refit it for this work. If exploration can progress, separate tenure
and industry form agreements will need to be addressed in the future
to encourage growth.
The final issue on tenure, continuation, will likely be determined
when spacing requirements are determined, and dewatering phases
defined. Industry will need to collaborate closely with their Lessors
to ensure regulations are met or amended.
CostsBecause of the limited information available initial costs for
exploratory wells can be high, in some areas nearing $800k per
well for the drilling, coring, testing and analysis of the first well.
Unlike the exploration programs we are familiar with, this first
well does not determine if a commercial success has been encoun-
tered, this is just the first step. After the exploration stage the
explorer must then decide whether or not to conduct a pilot
(usually a 4 well step out from the exploratory well) and then
proceed to dewater the reservoir for up to 18 months. Five wells,
no cash flow yet. After sufficient dewatering, and the costs asso-
ciated with those operations, the explorer should have a good
indication if there is sufficient reserves to build permanent infra-
structure and move to development – a point conventional gas
exploration can usually determine after one well. It can be
thought of as 5 wells to casing point.
Having moved to development mode, issues can still remain that may
make the project not commercial, such as, escalating water disposal
costs, lifting costs, and processing and transportation fees. The final
costs the explorer faces are the provincial or freehold royalty and tax
levies, all calculated from production that has recently been
projected to be in the 30mcf/d to 200mcf/d range.
Coal Bed Methane (continued)
N Pa g e 5may 2002
EnvironmentCBM is a sweet gas, no risk of H2S here. Small gas volumes may be
flared during initial stages, one person indicated it would look a bit
like your barbecue, perhaps a large one. The major concern will be
maintaining a small footprint in the community, utilizing existing
sites wherever possible, and responsibly managing water produc-
tion. Because exploration in our country is still at an early stage the
full scale of water issues is not yet known. We can expect to learn
from our neighbors to the south and plan for this issue now, in
collaboration with landowners and regulators, to ensure the prize
can be captured.
An interesting sidebar to CBM exploration may be the ability to
sequester carbon dioxide (CO2) in coalbeds. Coal has a better affin-
ity for CO2 than it does for methane resulting in the potential to store
four times as much CO2 in the coal than the volume of methane that
was originally in place. This affinity would also result in CO2 naturally
displacing methane from the coal resulting in increased production.
Although the future of Kyoto Protocol in Canada is not certain, CO2
sequestration could generate significant greenhouse gas credits in
the future.
ConclusionsOur industry seems poised, in the same way the US was in the 80’s,
to be on the brink of a new exploration era. Coal bed methane is a
technically challenging, high risk, capital intensive, modest return,
long term payout resource, whose time has come. There is far to go
and a multitude of questions to be answered before we can confi-
dently say what CBM will look like in Canada. One thing is certain
though, we will not find the solution to these challenges thinking like
conventional oil and gas explorers. It is time to collaborate within
our industry associations, and with the regulatory bodies to launch
CBM exploration’s next steps in a way that will benefit industry and
the people of our country.
Ms. Currie has been a member of the EnCana CBM team since it’s inception in 2000.
She gratefully acknowledges the contributions of team members Heather Telasky, and Chris
Mundy as well as input from EnCana’s JV partner MGV Energy Inc.
EnCana is one of the world’s largest independent oil and gas companies driven to be the
industry’s best-of-class benchmark in production cost, per-share growth and value creation.
Feeling the heat?
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drilling and the excitement of bringing in a “gusher”.
Guide 56/60
June 12 & 13, 2002
8:30a.m. – 4:30p.m.
The Board believes that appropriate notification and public consulta-
tion must be conducted well in advance of the submission of an
application to the Board. An “indepth” educational seminar which will
explore and amplify the full impact of the G56/60 requirement on all
land agents, land administrators and engineers as well as their compa-
nies who may be responsible for AEUB applications.
Well Log Analysis For Landmen
June 25 & 26, 2002 (Revised Date)
Day 1: 8:30a.m. – 4:30p.m.
Day 2: 8:30a.m. – 12:00p.m.
This seminar is designed for support staff who wish to have a qualita-
tive understanding of well logs. Candidates will learn to recognize
obvious zones of interest and understand the importance of the basic
log curves.
Get Smart
For further information or to register, please contact the CAPL by phone (237-6635) or email ([email protected]), or complete the registration form
provided on the blue insert and fax it to 263-1620. Please visit the CAPL website at www.landman.ca for full course descriptions.
N
N Pa g e 1 6may 2002
The following excerpt is the fifth in the series of historical accounts
by Oil & Gas Geologist and Historian, Aubrey Kerr.
Ray Walters – Planner Par ExcellenceA follow-up to a discovery well is usually located so as to extend the
reservoir. Not so at Redwater!
Imperial Redwater #2 well was deliberately located by Ray Walters,
Imperial Oil’s Chief Geophysicist, to be off-reef. (See plat).
Walters had Jack Armstrong (later to be President of Imperial Oil)
fabricate the reason for drilling: “separated from Imperial Redwater #1
by a structural low”. Ray felt the information from this dry hole was
sufficiently important for him to circumvent bureaucratic roadblocks.
This was typical Ray Walters, never taking anything for granted.
Tip Moroney, Imperial Oil’s Drilling Superintendent, was told to line
up a rig to start drilling. Imperial Redwater #2 spudded September
28, 1948. Imperial Redwater #1, completed September 26, 1948, had
drilled into a productive D-3 reef.
Results from the #2 were predictable – no D-3. It enabled Walters to
say without contradiction “now we know we have a reef”.
The geophysical information from #2 eliminated any guesswork in the
critical task of selecting Imperial’s lease blocks several months later.
Aubrey Kerr was Imperial Oil’s Leduc District geologist from 1947–1949. Hewas at the Leduc discovery February 13, 1947 and helped plan the 50thAnniversary held February 13, 1997. He is the author of several oil industryhistory books, titled Atlantic No. 3 1948, Corridors of Time, Leduc, Redwater,Judy Creek and Beyond and Corridors of Time II. In September of 1998, Kerrwas inducted into the Canadian Petroleum Hall of Fame.
For further historical accounts, stay tuned to The Negotiator. All of Kerr’s booksare available at $20 each, no GST at 912 – 80th Avenue S.W. (253-8900). N
Negotiator HistoryNews, views and excerpts from previous May issues
by Delona Butcher
1992The 1992 President’s Spring Ball was a raving success … so sorry to
those of you who missed it! The evening began with T&T Organettes,
who dazzled the guests during the champagne reception, certainly
the right way to start a festive affair! Once the guests were seated,
the program unfolded with the piping-in of the Past Presidents, 20 in
attendance (notably a larger contingent than ever before) followed by
entertainment by the delightful St. Lucia Youth Dancers.
(1992 President’s Spring Ball, Elizabeth Burke Gaffney, Chairman)
1996… Greg Strachan’s Member Services Committee was working on devel-
oping an award for CAPL members with 25+ years of service. The Board
has endorsed in excess of 160 such awards for all of these senior nego-
tiators which will have been presented at the March 19, 1996 Merit
Awards Night. The award is a beautiful gold lapel pin which features a
zircon for 25 years of service and an additional zircon for each and
every five years of continuous service beyond 25 years.
(Board Briefs, Jim Moore, Secretary)
1998Bob Bachynski advised that Gloria Boogmans of the Public Relations
Committee has reviewed the CAPL documents at the Glenbow Museum
and has suggested that the material be catalogued for future reference.
Bob further noted that the CAPL materials at the Museum are a matter
of public record and are no longer owned by the CAPL.
(Board Briefs, Kevin Burke-Gaffney, P.Land, Secretary)
N
N Pa g e 1 7may 2002
The Association of International Petroleum Negotiatorsis a non-profit, professional organisation founded in 1981 to
enhance the professionalism of its members through contin-
uing education, networking opportunities and promotion of
the understanding of negotiations work in the international commu-
nity. The AIPN now serves more than 1000 members world-wide helping
them to deal with the wide variety of legislation, agreements and
cultural/business styles that are encountered around the world.
AIPN Leadership,Structure andMembershipThe AIPN is governed by a volunteer
board of directors comprised of
association members committed to
participate actively in AIPN busi-
ness and activities during their term
in office. Board members are chosen
to represent the wide range of
professional backgrounds and
regional affiliations of its members.
The elected board includes seven
officers, eighteen directors and four
regional directors chosen annually
by the general membership. In addi-
tion, appointed committee
chairmen are encouraged to participate in board discussions as impor-
tant links between AIPN administration and the various committees that
provide the energy for most of the AIPN’s recognised accomplishments.
The concentrations of AIPN members around the world are served by
four regional chapters (United States, Canada, South America – SARC,
and Europe/Africa/Middle East/CIS – EAMC). Each regional chapter
promotes AIPN activities within the regions and provides networking
and educational opportunities for AIPN members in the regions
through meetings, informative programs and other activities. Activities
in each of the regional chapters are co-ordinated by a regional direc-
tor who is generally assisted by a steering committee.
AIPN membership is open to individuals primarily engaged in or
actively supporting the negotiations of commercial transactions relat-
ing to the international mineral and energy industries. The membership
includes representatives from energy companies, legal firms, other
support groups and governments. While AIPN membership is on an
individual basis, AIPN activities are made possible through the gener-
ous sponsorship of many organisations.
AIPN Website and CommunicationsThe AIPN website provides members access to all key AIPN informa-
tion and documents. For instance, an expansive membership directory
presents a comprehensive list of members which can be accessed
alphabetically or by affiliation. The website directory will also feature
in the coming months a host government section with complete
petroleum ministry and national oil company contact information.
A listing of AIPN officers, directors, regional directors and committee
chairmen, and each AIPN model form agreement are also included on
the website for ready reference.
The Advisor newsletter keeps
members apprised of AIPN initia-
tives, upcoming events, new
members and changes in members’
company affiliation or contact infor-
mation, as well as upcoming
licensing rounds, updates on country
laws and government contract
terms. Special interest articles are
featured as well. The Advisor is
available in electronic or paper copy.
An important opportunity for AIPN
members to communicate is
provided by the meetings held
within the regional chapters. Meetings of the United States and Canadian
regional chapters are held in Houston (on a monthly basis) and Calgary
(on a bi-monthly basis); meetings of the EAMC and SARC are held three
times a year at various venues within the regions. The meetings typically
feature guest speaker(s), a luncheon, brief association announcements,
and networking opportunities before and after the meeting.
AIPN Model FormAIPN’s Model Form international contractual agreements are tools for
negotiators that promote and facilitate sound transactions. At any
given time, the AIPN has drafting committees working on new Model
Forms or the updating of existing Model Forms. Sometimes the drafting
is done in collaboration with other professional associations.
The currently available AIPN Model Forms are the Confidentiality
Agreement, the International Study and Bid Agreement, the
International Operating Agreement, the International Accounting
Procedure, the Lifting Agreement and the International Consultant
Agreement for Business Development in a Host Country. In addition,
the International Petroleum Service Contracts, an update of the
Association of InternationalPetroleum Negotiators
N Pa g e 1 8may 2002
International Operating Agreement and a Secondment Agreement will
be published in the coming months, and work is starting on Farmout
and Pipeline Gas Sales Model Forms.
The Model Forms are intended to be balanced and cohesive and include
specific previsions (or alternative or optional clauses) desired by the
parties involved in the particular type of transactions represented by
the forms. These Model Forms are widely accepted and used in the
international oil and gas community.
Continuing Education, Conferences and NetworkingThe AIPN produces two major professional conferences annually, each
featuring influential key note speakers and a seasoned speaker panel
offering insight into emerging trends and issues impacting interna-
tional negotiators. These events also provide enjoyable forums for
networking and developing new business opportunities.
The Annual Meeting and Spring Conference is typically held in Texas, home
to many AIPN members and a key business centre for international energy
ventures. To take advantage of AIPN’s geographically diverse membership,
fall international conferences are held in major cities in other parts of the
world and have a regional educational emphasis and networking opportu-
nity. The 2001 international conference was held in Calgary (this is the
second time Calgary has hosted this conference) and the 2002 interna-
tional conference will occur in Paris from October 13-16. The theme of the
Paris Conference is the “Crossroads of Energy and Politics”. The 2003
International Conference will be held in Buenos Aires.
Additionally, the AIPN produces a summer workshop focusing on inter-
national agreements. These interactive workshops have sparked
discussions and debates among experts from multinational companies,
large and small, and host governments, which contribute to the devel-
opment and improvement of AIPN’s Model Forms. This year’s model
contract workshop will be held in Banff from July 8-10, and it will
focus on the Model Forms which are presently being finalised (update
of International Operating Agreement, the Secondment Agreement and
the International Petroleum Service Contracts) and the new Model
Forms (Farmout and Pipeline Gas Sales Agreements).
Other educational programs of the AIPN include the co-sponsoring of
training courses and seminars. An industry recognised course on
Upstream and Midstream E+P Contracts, cosponsored by the AIPN and
two sister organisations, is held annually in the fall. Last year, the orig-
inal course, focusing on basic upstream petroleum contracts, was
expanded to include midstream agreements. In addition, the AIPN co-
sponsors and supports a number of other conferences and seminars
with sister professional associations.
In 1996, the AIPN established a Publications Grant Program whereby
the AIPN offers an annual 7,500 USD grant to selected qualified
authors for preparation of punctual, thoroughly researched, papers on
industry issues of concerns to AIPN members. The resulting desk refer-
ences are becoming an important and valuable member and industry
resource. The AIPN also encourages and sponsors student participation
in AIPN initiatives through presentations at universities and student
participation at conferences.
Finally, as a service to its members, the AIPN offers an ongoing confi-
dential resume reference service for members seeking career changes
and companies recruiting negotiators.
If you would like to obtain further information on the AIPN or inquire about join-
ing the association, please visit our website at http://www.aipn.org or contact our
In a competitive play, the difference between leasing the land or losingit can be the broker you choose! Find out why more and more success-ful oil and gas companies use Scott Land & Lease. For moreinformation call 261-1000 or visit us at www.scottland.ca.
Call us to discuss your next important play!
Gregg Scott , President
900, 202-6th Avenue SWCalgary, Alberta T2P 2R9Telephone: 403-261-1000Fax: 403-263-5263