Frequently Asked Questions for Offsets

I did not respond to an offset notice by expiry.  Have I lost the rights under notice?  How can I get them back?
I received two gas offset notices, one for each quarter section lease that I hold within the spacing unit. If I choose to pay offset compensation, do I pay on 100% of the section or 50%?
If I spud a well on the 5th of the month, and the offset notice expires on the 20th of the month, what happens if I can't put the well on production by that date?
What happens if I have drilled a well and it is not productive from the offset zone?  Is this enough evidence to get the offset notice withdrawn?
If I elect to pay offset compensation, then put a well on production before the offset compensation commencement date, will I be liable to pay offset compensation?
If I put a well on production in the month in which the liability to pay offset compensation commences, when does the liability end?
I received an offset notice on January 3, 2002 and I already have a well drilled on the Crown spacing unit. If I put it on production from the offset zone, will that satisfy the offset obligation?
I am surrendering the lands under offset notice but there is a suspended well on those rights.  Do I have to do anything with this well?
Is there any specific time when I may apply to have offset compensation terminated if I have concluded there are no hydrocarbons from the offset zone?
I am electing to pay offset compensation.  How is it calculated?
I am having problems getting a surface lease agreement from the landowners to drill a well to satisfy offset.  What do I have to do to get the Crown to extend the offset notice?
I would like to surrender the rights under notice but have a productive shallower well.  Can I keep all rights to the base of this shallower productive zone?
I was served two offset notices on the same zone on the same lands.  Can we produce from one well to satisfy both offsets?
I was served more than one offset notice on more than one zone on the same lands.  How many wells do I have to produce to satisfy the offsets?
I was served an offset notice for oil and I plan on putting a well on production from the offset zone but not in the spacing unit that you served.  It would be in an adjoining spacing unit in the same section.  Will this well satisfy the offset?
If the freehold well is suspended, does the Crown close the offset compensation file?
I put a well on production to satisfy offset.  What information does the Crown need in order to know the offset has been satisfied?
The offset notice expires on a Sunday.  Will you accept a response on the following Monday?
I have a well producing from the offset zone on the Crown spacing unit.  Why did the Crown serve an offset?
I want to surrender the rights under notice.  There is a unit agreement in a shallower zone.  Can I keep all the rights to the base of the unitized zone?
There was a previous well producing from the offset zone on my lease and it had watered out.  Why did the department serve an offset notice?
If I elect to pay offset compensation as I think I am going to drill a well in the next few years, can I elect to surrender at a later date if our plans change?
Is the calculation of offset compensation based on the production of all the freehold wells in a section or just on the freehold well that created the offset drilling obligation?
If two freehold wells each create an offset drilling obligation on the same Crown lands, do you calculate the liability on the highest producing freehold well only?
If offsets are served on all eight locations adjoining the freehold spacing unit, does offset compensation apply on all eight sections individually?
If I choose to surrender the lands under notice, will I be able to keep the offset zone since I have a gas capped well?
How does billing work once I make an election to pay offset compensation?
When will offset compensation end in the event that I have put a well on production?  Will I be reimbursed?
I have just drilled a well to the offset zone.  Does this satisfy the offset obligation?
An offset notice was issued under the pre-1998 regulations and I am currently paying offset compensation. Should I now wish to cease paying compensation, what right do I have to surrender?
Why can't I just surrender the offset zone?  Why do I have to surrender all the rights to the base of the offset zone?
I have recently taken over another company and found out that, in the confusion of the change, I missed responding to an offset notice. The notice has now expired but I do not want to lose the rights. What can I do now?
Under what grounds can I ask for an extension to act on an offset notice? I don't feel the offset zone is productive and want a review of the serving of the notice. What data do I need to send in with my request?
If I was served an oil offset and I want to surrender to the base of the offset zone, can I surrender only the oil?

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 I did not respond to an offset notice by expiry.  Have I lost the rights under notice?  How can I get them back? 

If you have failed to respond to an offset notice, the rights in your agreement down to the base of the offset zone will be deleted. You have 60 days from the date of the cancellation letter to request re-instatement of those rights. You will also be expected to make a pay election and you will have to pay a $5,000.00 + GST reinstatement penalty. If you are beyond the 60-day period, you will have to re-acquire the rights through the P&NG Sales process.

I received two gas offset notices, one for each quarter section lease that I hold within the spacing unit.  If I choose to pay offset compensation, do I pay on 100% of the section or 50%?

Offset compensation is calculated on a spacing unit basis. Since you have been served with a gas offset notice the spacing unit would be a full section (barring special spacing). Each notice will generate an obligation equal to the share of the section. In other words, each of your quarter-section leases will be responsible for their share, or 25% of the offset compensation.

If I spud a well on the 5^th of the month, and the offset notice expires on the 20^th of the month, what happens if I can't put the well on production by that date?

You must have placed the well on production by the expiry of the notice in order to satisfy an offset notice. If you don't put a well on production within that time you will lose the rights unless you take some other action.  You should elect to pay offset compensation until you can get your well on production. The only other alternative would be to request an extension of the offset notice. An extension would only be granted in unusual circumstances, such as being delayed for reasons outside your control in obtaining a well license. 

What happens if I have drilled a well and it is not productive from the offset zone? Is this enough evidence to get the offset notice withdrawn?

A non-productive well does not necessarily mean that the offset zone does not exist on the Crown lease. There are different reasons a well may not be productive (such as not having drilled in an ideal location, or technical problems with the well). However if you have enough evidence (through geological, geophysical or engineering data) to prove that the freehold offset well is not draining the Crown spacing unit or alternatively the offset zone is not on the Crown spacing unit, you may request a review of the notice. Technical data must accompany your request and if we agree with your interpretation the notice will be withdrawn.

If freehold well is still draining the Crown spacing unit, the notice will remain in effect. In order for you to keep the rights under notice you have to elect to pay offset compensation. Otherwise you can surrender the affected rights.

If I elect to pay offset compensation, then put a well on production before the offset compensation commencement date, will I be liable to pay offset compensation?

This would depend entirely upon the expiry of the offset notice and when you notify us the well is on production. If you elect to pay compensation in the middle of one month, and don't notify us within the same month that you have a well on production you will be responsible for at least one month of compensation. For example your notice expires March 2^nd and you elect to pay offset compensation. Your liability to pay starts April 1. You put a well on production from the offset zone and notify us March 26^th that you have done so. As the compensation liability does not start until the first of the month following the notice expiry, no compensation is owed. However if you do not notify us the well is on production until sometime in May, you would be liable for April's compensation payment.

If I put a well on production in the month in which the liability to pay offset compensation commences, when does the liability end?

The liability to pay ends the first of the month in which you notify us that the well is put on production. If the well is put on production and you don't notify us, you will continue to be liable for compensation.  

I received an offset notice on January 3, 2002 and I already have a well drilled on the Crown spacing unit. If I put it on production from the offset zone, will that satisfy the offset obligation?

If the well is producing from the offset zone within the offset notice period and you notify us that it is, the offset will be satisfied.

I am surrendering the lands under offset notice but there is a suspended well on those rights. Do I have to do anything with this well?

Any time the agreement or portion of the agreement that a well was drilled on is cancelled, you are responsible for the abandonment of that well, in accordance with the Energy Resources Conservation Board (ERCB) regulations. 

Is there any specific time when I may apply to have offset compensation terminated if I have concluded there are no hydrocarbons from the offset zone?

You may request that offset compensation is terminated at any time. At the same time you would have to surrender the affected rights or request a review.  With your review request you must provide data indicating that the freehold offset well is not draining the Crown or that the offset zone is not present on the Crown. 

I am electing to pay offset compensation. How is it calculated?

Compensation is calculated based on the amount of royalty that would owe from the freehold well as if the freehold well was producing on a Crown spacing unit. The value of the Crown's royalty share will be calculated by using 80% of the Gas Reference price or 100% of the Oil Par price.  Refer to Section 23 of the P&NG Tenure Regulations for more information. If you do not have the full spacing unit your royalty will be decreased accordingly. For example, a quarter-section lease served with a gas offset would only be responsible for one-fourth of the offset compensation owed.

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I am having problems getting a surface lease agreement from the landowners to drill a well to satisfy offset.  What do I have to do to get the Crown to extend the offset notice? 

If you have diligently tried to get a surface lease from the landowner, and can prove that, you may request an extension of the offset notice. If, however, you started your negotiations with the landowner close to expiry of the notice, you may not qualify for an extension.

I would like to surrender the rights under notice but have a productive shallower well. Can I keep all rights to the base of this shallower productive zone? 

When you surrender an offset, you keep only the shallower zones that are proven productive. If the shallow zone is only potentially productive it will be lost. The only way to keep potentially productive shallower zones is to pay offset compensation until such time as you have proven the zones productive.

I was served two offset notices on the same zone on the same lands.  Can we produce from one well to satisfy both offsets? 

Yes, only one producing well is required.

I was served more than one offset notice on more than one zone on the same lands.  How many wells do I have to produce to satisfy the offsets?

Each offset notice is a separate obligation and requires its own response; therefore each offset requires production from the offset zone in order to be satisfied. The number of wells drilled to do this is not the concern. For example, if you had two offset zones served to you, you might be able to produce both zones from one well, or conversely, you might have to drill two wells and have each produce one of the zones.

I was served an offset notice for oil and I plan on putting a well on production from the offset zone but not in the spacing unit that you served. It would be in an adjoining spacing unit in the same section.  Will this well satisfy the offset? 

You were served a notice because the freehold well is draining the Crown. Drilling a well in a different spacing unit then you were served on does not prevent the drainage from occurring and therefore this well will not satisfy the offset notice.

If the freehold well is suspended, does the Crown close the offset compensation file?

The offset compensation file is closed when the freehold well has ceased production from the offset zone for a period of at least 6 months and the offset zone is no longer productive or when the freehold well is abandoned as to the offset zone or in its entirety.

I put a well on production to satisfy offset.  What information does the Crown need in order to know the offset has been satisfied? 

In order to verify the producing zone we require a copy of the logs showing the perforated interval, the completion reports and recent production data.

The offset notice expires on a Sunday.  Will you accept a response on the following Monday? 

Any time the office is closed on the last day of your notice, an application may be received on the first working day following the closure.

I have a well producing from the offset zone on the Crown spacing unit.  Why did the Crown serve an offset? 

We use the public records at the ERCB to search for producing wells. If these records do not show us that there is a well currently producing from the offset zone on the Crown spacing unit, a notice will be served.

For example, if there has not been any production reported for the last three months prior to our review, an offset will be served. Another example is that the status of the well may be on confidential status. We would not know what specific zone the well is producing from to determine if the offset is satisfied, so a notice will be served. Your response to the notice would then be to provide us with the evidence that the well is producing from the offset zone.

I want to surrender the rights under notice.  There is a unit agreement in a shallower zone.  Can I keep all the rights to the base of the unitized zone? 

When surrendering for an offset you can keep any shallower productive zones. The unitized zone is classified as a productive zone, and you will get to keep it only.

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