Encana Corporation (ECA): Date:1/15/2006 9:59:31 AM 'A line in th...

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Sunday, 01/15/2006 11:13:05 AM

Sunday, January 15, 2006 11:13:05 AM

Date:1/15/2006 9:59:31 AM
'A line in the sand'
EnCana, military at odds over drilling on ecologically sensitive base

Claudia Cattaneo
Financial Post

Saturday, January 14, 2006

One of Canada's largest army bases is taking on oilpatch heavyweight EnCana Corp. over the firm's aggressive drilling plans on its ecologically sensitive lands in Southeastern Alberta.

For the past 30 years, Canada's largest natural gas producer and CFB Suffield, located 50 kilometres northwest of Medicine Hat, have worked side by side to share the use of a vast expanse of hydrocarbon-rich land, where many of EnCana's wellheads are held in underground culverts capped by a steel plate to allow tanks to move freely on top.

The Department of National Defence owns the surface rights on the 2,690-square-kilometre property, while the Alberta government owns the mineral rights.

Now, the base is pushing back on an escalation of oil and gas activity -- including plans by EnCana to double the number of wells in an area in the eastern part of the range designated in 2003 as a wildlife refuge.

The base says industry is harming the native Prairie habitat and has the potential to get in the way of war games.

The Suffield natural gas play is one of EnCana's top fields and a big part of its strategy to focus on resource plays in North America. The strategy involves drilling a large number of wells to produce natural gas from so-called tight reservoirs.

Already, there are 9,500 EnCana wells on the base and another 1,154 in the refuge. EnCana wants to increase the concentration of wells on the base by 550 a year, and to more than double the wells in the refuge in the next three years.

Lt.-Col. Daniel Drew, the base's new commander, said he's "drawing a line in the sand" and will not allow more than 16 wells per section on the base.

"There has been a tidal wave of gas drilling in the last five years," said Lt.-Col. Drew, a paratrooper, U.S. Army Ranger and graduate of the Royal Military College of Canada and the United States Marine Corps Command and Staff College. His past assignments included tours of duty in Bosnia, Croatia and Cyprus.

"We have gone from drilling 50 wells a year to now up to 1,000 wells a year. I have a responsibility to the people of this country and to the environment to find out a little bit more before we make rash decisions and allow people to take measures that will effectively destroy the environment."

But Florence Murphy, spokeswoman for EnCana, said the firm can do the additional drilling without disturbing the land or the need for new infrastructure such as roads and compressors, maintaining the same high standards it has used in 30 years of activity at Suffield, the field that launched its predecessor, Alberta Energy Co.

She said EnCana helped establish the wildlife refuge on the understanding it could continue to conduct development.

As for activity on the rest of the base, she said EnCana is abiding by rules of Alberta's energy regulator, the Alberta Energy and Utilities Board.

EnCana wants to continue to be on good terms with the base because "it's an important relationship," she said.

"We also recognize that within this area there are some special places that need to be taken care of and we realize that we are part of a shared-use area."

Ms. Murphy said the field is an important part of EnCana's portfolio and the company hopes to find an outcome that benefits everyone.

Lt.-Col. Drew said the huge surge in drilling and follow-up activity is interfering with the base's primary purpose -- military training and defence research -- because it results in heavy traffic.

CFB Suffield is one of the largest live-fire training facilities in the Western world. British forces conduct the most important part of their mechanized training at Suffield, he said, with nearly 400 armoured vehicles such as tanks, personnel carriers and artillery pieces. They account for about a quarter of CFB Suffield's 1,000-strong military and civilian population.

To compound the base's angst toward the sector, Lt.-Col. Drew said EnCana and other producers do not want to fairly compensate the base for access to its lands.

EnCana is by far the most active company at CFB Suffield, but 10 other companies also operate 500 wells.

The companies made a "low-ball" access fee offer of $300 a year per well, down from $1,800 per well obtained in the past five years, he said.

"I don't understand it," he said. "These guys are pulling money out of the ground hand over fist. I tried to negotiate with them and got nowhere.

"We have a moral and ethical obligation to the landowners of Southern Alberta not to accept $300 per well. If the largest land owner in Southern Alberta, that being us, takes $300 per well, then you know they will use that to force others to take $300 per well as well."

Ms. Murphy said discussions with the base on the fees have been underway for 18 months and are expected to move to mediation in February.

"With the former base commander, they were looking at different methodologies for assessing the fees and this is something that the mediation will draw out," she said.

Lt.-Col. Drew admitted one of the reasons the base has a "situation" with the oilpatch is the federal government did not take its landowner responsibilities seriously enough in the past, or failed to be clear with industry about its expectations.

That, he warned, will change, and the base is now developing a set of guidelines for oil companies working on the property.

EnCana's drilling plans for the Suffield National Wildlife Area are also opposed by environmental organizations such as Nature Canada and the Alberta Wilderness Association.

The company applied late last year to drill 1,275 shallow gas wells over three years, in addition to 1,154 drilled in the past 30 years.

Nature Canada says the refuge has more than 1,100 catalogued species of plants and animals, including 14 species at risk. It is also the last remaining unploughed block of mixed-dry grass in Canada.

The groups say the government would set a dangerous precedent if it allows the drilling. They are calling for a major federal government review of EnCana's plans.

"It is time to put a moratorium on further development on the Suffield NWA," the Alberta Wilderness Association says in a recent article. "If a financial giant like this cannot afford to leave one National Wildlife area to its wildlife, who can?"

Lt.-Col. Drew said he hopes to resolve the disputes using the same principles he applied in his military career: "You have to have a little bit of moral courage and stand on your principles," he said.

Before and after satellite images show the damage oil and gas traffic has done.
© National Post 2006
http://www.canada.com/nationalpost/financialpost/story.html?id=5f972b16-08ac-4cad-a92c-3db9736ffd4d

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