CAPLA Lunch ‘N Learn
March 15, 2016
Michael Bruch
Lorraine Grant
Jim MacLean
An understanding of:• Why the document has been created.
• What the major principles are.
• When the document will be completed.
• How you can help.
Your belief that early participation in the comment process offers significant positive near-term payoffs for you and your employer.
A greater sense of comfort as you review the draft.• The thought that went into them.
• A sense that we’ve tried to “do the right thing”.
Addressing reasonably foreseeable issues with solutions that you believe are reasonable
The Current State Increasing number of shared well pads in which wells and
facilities are not held in common interests. Many shared pads already exist without any documentation in
place. Looming issues and risks that are not widely appreciated at this
time.
The Opportunity Work collaboratively across industry associations to create a
precedent agreement for the typical pad site sharing arrangement.
• Enhance awareness of issues.
• Critical industry review to optimize business outcomes.
• Create consistency, certainty and a more timely and simplified completion of required documentation.
“Doing nothing is not an option.”
A cross-section of industry stakeholders with diverse experience directly represented on the joint task force currently.
Michael Bruch, Chairman, ConocoPhillips (PJVA) Lorraine Grant, Drafting Chair, ConocoPhillips (PJVA) Keith Brereton, Brereton and Associates (PJVA) Jeff Brewer, Shell (CAPL) Jonathan Cassetta, Cenovus (PJVA) Steffany Colvinns, Vermilion (PJVA) Danica Doucette-Preville, Gowlings (Legal) Rein Evelein, Jupiter (PJVA) Richard Grant, Gowlings (Legal) Susan Levy, Velvet (CAPL) Jim MacLean, Repsol (CAPL) Gord McLean, Chevron (PJVA) Amy Oliverio, Enerplus (PJVA) Earl Robins, Independent (PASC) Gary Shepherdson, Apache (Land) Beth Swift-Hill, Westbrick (PJVA)
Other ongoing linkages into CAPL, CAPLA, PASC, PJVA and the AER.
Project comprised of three components-engagement, the document and “after care”, to create a final document that will be used by industry.
Initial draft to be issued in the next three to four weeks.• Web enabled release through PJVA, CAPL, CAPLA and PASC.
• Plan to issue second draft in the fall.
• Subsequent schedule dependent on the nature of the comments.
• Planned completion by mid-2017.
Emphasis on awareness, education, engagement, transparency and responsiveness over the project.
• Extensive annotations to facilitate review and understanding.
• Rollout to more active companies in conjunction with release.
• Early morning education sessions through PJVA.
• Sharing of verbatim comments on each draft and our responses.
• Additional discussions with commenting parties.
Address substantive issues by building on familiar industry standards.
• Starting point is 1999 PJVA CO&O Agreement, as modified to reflect
modern CAPL updates to 1990 CAPL type provisions.
• Breadth and depth of coverage in a user friendly format.
Create a document that will be widely used shortly after completion.
• Build engagement throughout project.
• Demonstrate responsiveness during comment phase.
• Extensive annotations to benefit users of all experience levels.
• Design around the more typical pad site scenarios-80% solution.
• Onus on users to create any special, customized outcomes.
• Provide outcomes that users regard as balanced.
Minimize effort to negotiate and administer pad site sharing agreements.
Align document with evolving business needs to mitigate risk.
A pad sharing may initially appear to be a simple sharing of surface rights to decrease the environmental footprint and lower costs.
• Cost of pad site construction and the associated installation of the shared facility will typically also be very modest relative to the investments in the wells.
The relationship of the Owners is actually much more complex.
• Issues resulting from differences in ownership between the pad site (and the related common facility) and the wells.
Need a relationship between owners of the respective assets.
Likelihood of staged abandonment of the pad site.
Require certainty for respective rights and obligations (e.g., liability and indemnification, conduct of operations).
Foundation of the agreement is the ongoing need to manage the blended interest facility and pad site and the relationship to the wells.
• Co-existence of land interest sets and JV approaches is analogous to a unit agreement.
80% solution
Use of established PJVA and CAPL
approaches and language adds length
• But simpler for users to work with than a
shorter heavily customized document
• Flexible features to accommodate specific
needs
• Offers greater protection with respect to any
incident that damages assets on the well pad
Single Pad Site Operator
Blended Pad Site ownership based on
well count
OPEX shared based on pad ownership
Simple facilities
Owners may address special needs
beyond the 80% solution using flexible
features in the PSSA or through inclusion
of custom content
Annotations will provide assistance
“Off ramp” to a full PJVA CO&O
agreement if Owners regard it as
appropriate
Single Operator on a Pad
Potentially biggest initial concern for PSSA reviewers
OH&S “Prime Contractor” requirements major driver
Operator of shared padsite and facilities controls all operations on the site
Independent operations by a joint operator should be on a separate pad
PSSA modifies JOA rights of other owners to conduct independent ops
Owners can modify PSSA to deliver a different outcome
Relationship to Mineral Land Agreements
PSSA amends mineral land agreements
All well specific activities continue to be under the governing Land Agreement, including operation and well specific reclamation
PSSA creates relationship for all Owners re cross-indemnities
Define What is Shared on a Pad
Surface Lease
Access Road
Surface Facilities to be shared by Pad
Wells (vs. well eq’t for individual well)
Tie-in Pipeline(s) leaving the Pad Site
Determination of Shared Pad Interest
PSSA not needed when all wells are under the same mineral land agreement with same WI, as CAPL would govern
With different well ownerships, blend PSSA pad site interest based on well count/ownership
Important to separately track capital investment in wells versus shared facilities
Sharing of Operating Costs
Ensure individual well costs are applied
to wells and only shared costs to the pad
site
Share OPEX for the typical pad site
based on pad site blended ownership
Modify PSSA to divide shared costs
based on throughput if required.
Enlargement, Termination, Abandonment
New wells on existing pad:- Determine if expansion is required- Owners of new wells pay for expansion- Option to equalize or pay a fee
Well abandonment and reclamation for the account of well owners
Pad and shared facility abandonment- Who pays? Dealing with early departure?
Security? Abandonment Fee?
Permitted/Non-permitted Use
Health, Safety and Environment
Insurance, Liability and Indemnification,
Default and Remedies, Confidentiality
Forecast of Operations, Expenditure
Limitations
Transfer of Ownership Interest
Invest time in the document early in the comment phase. Assess it on its merits and offer feedback to help improve the document. Encourage your peers to do the same. Optimize the quality of the document and the transition to wide use.
Comment in a way in which resources are used most efficiently. Provide a single coordinated response from a company, vs individual
responses or separate, potentially inconsistent JV and Land responses. For other than typo type things, the most helpful comments identify the
concern, why it is a concern and how it might be fixed. Try to minimize little drafting preference type comments that say the
same thing in a slightly different way without actually changing anything.
Together, we can address a major industry issue that is increasingly affecting each of us, where “doing nothing is not an option”.
Thanks for taking this part of the journey with us!