IN DEPTH: N.B. shale gas industry

History

New Brunswick is not a new player in the oil and gas sector. While the provinces first oil well was drilled near Dover in 1859, New Brunswick has never emerged as a major player in the lucrative industry. The provincial government is budgeting for$21 millionin mining royalties in 2011-12.

New Brunswick is best known for a few smaller, traditional oil and gas wells. For instance, the Stoney Creek Field produced oil and natural gas from 1909 to 1991 and oil production once again started in 2007.

A 2011 report written by Fundy Engineering and the Atlantica Centre for Energy estimated the Stoney Creek Field has producedroughly 800,000 barrels of paraffinic oil and three billion cubic feet of sweet natural gas.

A renewed interest in the provinces natural gas sector was sparked in recent years, particularly in regards to shale gas deposits and the use of new mining techniques to extract that gas.

By comparison, the Marcellus shale gas play in West Virginia, Pennsylvania, and New York is estimated to have 1,500 tcf of shale gas.

There are multiple shale reservoirs in the province that are possible sites for future development. The New Brunswick governmentclaims the province has the thickest shale gas reservoir in North America.

Companies operating in southern New Brunswick also have relatively close access to the Maritimes & Northeast Pipeline, which was built in 1999.

The pipeline was constructed to transport natural gas from Sable Island to New England. But the pipeline is positioned to be a benefit to shale gas companies if future development were to occur.

McCully Field play

Corridor Resourceswas the first company to start discussing a test site that would use the controversial mining practice known as hydraulic fracturing or hydro-fracking. The company announced in 2010 that it found more natural gas in place in southern New Brunswick than is available in all of western Canada's proven reserves.

Corridor Resources nearly overlooked the gas deposit. The mining company considered the well a dud at first and it was abandoned for 11 years.

Now the well could become a major source of natural gas becausethe technology emerged to extract natural gas from beds of shale.

Corridor Resources partnered with Apache Canada to explore the sites for shale gas. But the initial tests did not generate"sustained shale gas production."

The two companies parted ways in June 2011 but not before Apache Canada had already invested $25 million in the project.

Corridor Resources is still looking for another partner to move forward on the project.

Other shale gas interest

While Corridor Resources was the first company to explore shale gas opportunities in New Brunswick, it is not the only one.

Nine companies hold a Crown licence to search for shale gas deposits in New Brunswick.

Among those nine companies, there are 71 rights agreements, covering more than 1.4 million hectares for the exploration and production of oil and natural gas.

Since 1990, the New Brunswick governments statistics show 40 natural gas wells and 40 oil wells have been drilled. Another 49 wells have undergone hydraulic fracturing and nine of the wells have been drilled horizontally. The provincial government says no major incidents have been reported at those sites.

So far, the provincial government estimates that 3,400 km of two-dimensional and 116 square-kilometres of three-dimensional seismic testing have been completed in New Brunswick.

Development steps

Oil and gas companies interested in exploring New Brunswick for shale gas deposits are required to navigate through a lengthy development stage.

The Department of Natural Resources awards licences to search through a competitive bidding process. The licences are given out for a period of three years.

After that initial licence period expires, the company can be eligible for a five-year lease if it can show that it fulfilled its work commitments.

The provincial government also requires companies to obtain a series of permits before a new well can be drilled. For instance, companies may need permits to conduct surveys or to approve drilling plans. Further, a company may also need a water withdrawal or injection permit.

After the company has received the necessary permits from the provincial government, it can begin the construction of roads to its well and the construction of the actual well pad.

The company will have to set up a drilling rig, which will actually drill the well for the natural gas. Additionally, multiple layers of casing must be put into the hole and then cement is used to permanently attach the casing to the hole.

Once the casings are finished, the company is in a position to begin the hydro-fracking process.

How long a well is active can vary. Production can last for decades. However, once a company concludes that the well is no longer economically viable, it must be plugged and abandoned. The government has regulatory standards about how the wells must be capped.

The areas that were once active drilling sites must be fully restored.

Regulatory regime

The emergence of hydro-fracking as a possible addition to New Brunswicks mining landscape has forced the provincial government to adopt new, stricter standards.

The New Brunswick government issued aseries of new regulatory changesin June 2011 after a series of consultations. The provincial government has also been hit by a series of protests across the province opposed to shale gas exploration or hydro-fracking.

The new regulations will force mining companies exploring for natural gas to undertake:

• baseline testing on all water wells within a minimum distance of 200 metres of seismic testing and 500 metres of oil or gas drilling before operations can begin
• offer full disclosure of all fluids and chemicals used, or proposed, in the hydro-fracking process
• set up a security bond to protect property owners from potential accidents

The New Brunswick government is also promising to set up a formula so property owners and local communities can share in the financial benefits of the natural gas industry.

Premier David Alward has promised that New Brunswick will have the strictest hydro-fracking standards in North America if the industry does take hold in the province. He has also said that he wants to see if the industry can be successful.

He said earlier this year that the revenue from shale gas could be used to help deliver needed programs or pay down the deficit.

The provincial government has signalled its intention to haveits natural gas action plan finished by March 2012.

To help in its creation of the action plan, the provincial government has formed a special steering committee of ministers and deputy ministers from the departments of energy, environment and natural resources. As well, a specific group of about a dozen civil servants has been formed that is working exclusively on the natural gas issue.

Environmental Protection Plan

The provincial government is in the process of developing anEnvironmental Protection Plan, which is intended "to help ensure the responsible environmental land-based oil and gas activities in New Brunswick." The Alward government committed in its throne speech in November to release its plan in the spring.

The plan will not focus solely on shale gas exploration. The provincial government's plan will cover all land-based oil and gas activities but it will have a specific focus on drilling and hydro-fracking.

It will be based on existing regulations and include new technical and environmental elements.

Government officials have been reviewing current and proposed activities from across North America and compiling various reports on the issue of hydro-fracking.

New Brunswick's ministers ofnatural resources and environment will also be using information gleaned from meetings withexperts and a natural gas forum that were held in June.

Civic unrest

The potential for hydro-fracking in New Brunswick has stirred a major political debate across the province. The largest rally occurred onAug. 1on the lawn of the legislative assembly in Fredericton. But smaller protests have also been held in Hampton, Sussexand Norton. Some of the protests have extended over several days.

Roughly50 protesters started a blockadein August on a small dirt road about 15 minutes north of Stanley.

The protesters stopped the movement of the company's vehicles that hadseismic testingequipment. The vehicles were stopped from movingtheequipment to another testsite.

The protest lasted for two days and finally broke up after a lengthy meeting with local Progressive Conservative MLA Kirk MacDonald.

Some of the companys equipment was damaged during the same period. SWN Resources Canada announced inAugust that it washalting the remainder of its seismic testingbecause of the protests. The company had been scheduled to do three to four more weeks of testing when the decision came to stop its plans

Thousands of dollars worth of damage was done to the company's equipment during the summer.

There have been persistent calls for New Brunswick to adopt a moratorium on shale gas exploration.

TheGrand Chief of the Maliseet Grand Councilmade a passionate plea in June toban the process of hydro-fracking over fears it could harm the water supply.

New Brunswick's biggest headache so far has come from Windsor Energy. The Calgary-based companyhad a subcontractor move into Sussex to perform some seismic testing before it had received approval from the town council

TheDepartment of Natural Resources filed a complaintagainst Windsor Energy with the RCMP for allegedly violating the Oil and Natural Gas Act.