Initial Term Licences Frequently Asked Questions
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General
Who can apply to validate or group a licence?
Where can I find the definition of minimum depth?
Can a grouping and validation application be applied at the same time when drilling over expiry?
Can a licence in its initial term be transferred?
When the department gives one month to respond to a notice or offer, what is meant by one month?
Validation of A Licence
Do I have to apply for validation?
Can a licence be validated early in the initial term?
What happens if the validation application is not submitted prior to expiry of the licence?
Does a well have to be drilled to validate a licence?
Do I have to drill to minimum depth to earn entitlement at Validation?
Does the section the well is drilled on have to be selected when validating the licence?
What information does the department require when submitting a Validation Application?
What wells can be used to validate a licence?
Can a well outside the location of the licence be used as a validating well?
How are sections calculated for a validating well?
Grouping
Why do I have to group licences?
How many licences can be grouped with one well?
Is a well licence required when applying for grouping?
What are the requirements for grouping of licences?
Should I use my grouped or non-grouped wells when applying for validation?
If there are five licences all touching one another, can they all be grouped?
Do all the grouped licences have to have the same rights?
Can a well drilled on a lease or a licence in its intermediate term be used to as a grouping well?
What types of wells qualify for grouping?
Can you group a licence with another licence above or below it?
General
You may apply to group a licence as soon as the well licence has been issued for the proposed grouping well. The deadline for submitting your grouping application depends on the rig release date of the well you wish to use for grouping:
If the rig release date of your grouping well is more than 1 month before expiry, your application to group must be received no later than 1 month after the rig release date.
If the rig release date of your grouping well is after expiry, your application to group must be received no later than 1 month after the rig release date. By drilling the grouping well through expiry, the initial term of the licence is automatically extended to one month after rig release.
However, if the rig release date is less than one month before expiry your application must be received by the expiry date of the licence containing the grouping well. For example if the rig release date was January 10 and the licence expiry date is Jan 20, then the grouping application must be submitted on or before January 20.
All licences in the group must meet the grouping criteria at the time of the grouping application i.e., the licences must be in their initial term and within one section of the licence containing the grouping well. The application must be from the designated representative or an authorized agent.
Who can apply to validate or group a licence?
Only the designated represented or an authorized agent can apply to group or validate a licence.
Where can I find the definition of minimum depth?
Minimum depth is 150 metres in the Plains region and Northern Region and 300 metres in the Foothills region, as stated in Section 1(m.1) of the Petroleum and Natural Gas Tenure Regulation.
Can a grouping and validation application be applied at the same time when drilling over expiry?
Yes. The grouping application will be processed and responded to first. A validation response will follow within 2-months of the receipt date of your application.
Can a licence in its initial term be transferred?
A licence in its initial term can be transferred only as an entire agreement. Partial transfers are not allowed for a licence that is still in the initial term as each licence carries with it an obligation to evaluate the licence. If the area of a licence were split there would be an obligation to evaluate each of the agreements.
What will happen to the rights not evaluated in a licence that was purchased after December 31, 2001?
Licences purchased after December 31, 2001 are subject to severance. Deeper rights that were not evaluated will be severed below the deepest rights evaluated. This is based on the deepest zone penetrated more than 15 meters by a grouping or validating well. Severed rights are returned to the Crown to become available in a future land sale.
Severance of rights for Plains licences came into effect in January 2004. Severance of rights for Northern licences commenced in January 2006. Severance of rights in Foothills licences will commence in January 2007.
When the department gives one month to respond to a notice offer, what is meant by one month?
For petroleum and natural gas tenure purposes, when the department specifies one or more months by which to respond or take action, the department means a calendar month. The expiry date falls on the corresponding date in the expiry month. For example, if an offer letter is dated March 15, the one month response period expires on April 15. Therefore, a response or action after April 15 is late. However, if the expiry date does not occur in the expiry month, then the last day of the one month response period is the last day of the following month. For example, if a letter is dated March 31, the last day of the one month response period is April 30. If a letter is dated January 30, the one month response period is February 28 (or February 29 in a leap year.)
Validation of A Licence
Do I have to apply for validation?
If you wish to retain the licence in its intermediate term an Application for Validation must be received in the department within the three months prior to expiry.
Can an application to validate a licence be sent in as soon as the drilling of a well validates the licence?
An application for Validation received prior to the three-month period before will be returned for resubmission.
Can an application to validate a licence be sent in as soon as the drilling of a well validates the licence?
An Application for Validation received prior to the three-month period before expiry will be returned for resubmission.
A licence cannot be validated early in its initial term, even if drilling occurred early in the initial term. Applications for validation are only accepted by the department within the last 3 months of the initial term, in accordance with Section 11(2)(a) of the P&NG Tenure Regulation. Applications received before or after the last 3 months of the licence term will be rejected. Validation of a licence into its intermediate term is finalized by the department after the initial term expires.
Does an Application for Validation have to be submitted for each licence validated when all the licences have the same expiry date?
Yes, a separate Application for Validation must be submitted for each licence.
What happens if the validation application is not submitted prior to expiry of the licence?
If a well has been drilled or re-entered on the location during the term of the licence, a notice will be sent giving the licensee one month to apply for validation, subject to payment of the late application penalty of $5,000.00, rent at $3.50 per hectare and GST.
Does a well have to be drilled to validate a licence?
Under Section 9 of the Petroleum and Natural Gas Tenure Regulation, petroleum and natural gas licences carry an obligation to evaluate the rights in the licences. Rights can be evaluated by:
- Drilling a well on the licence,
- Drilling a grouping well to evaluate grouped licences and minimize drilling,
- Drilling a well during the initial term of the licence,
- Re-entering an existing well bore and deepening it to at least the minimum depth, or
- Re-entering a productive zone in the spacing unit.
If a well is drilled in the initial term of the Licence and subsequently abandoned, can it still be used as a grouping/validating well?
The status of the well does not matter as long as the well has been drilled in the initial term of a licence.
Can one well evaluate two licences that are not grouped?
The licences are stacked. One licence is for shallow rights and other licence is for deeper rights.
In such a situation, the depth of the well will be pro-rated to the rights in each licence, and the sections earned will be calculated based on the pro-rated depth in relation to each licence. The well must evaluate the deeper rights licence. You are required to provide the well log.
Do I have to drill to minimum depth to earn entitlement at Validation?
If minimum depth as described in Section 1(m.1) of the Petroleum and Natural Gas Tenure Regulation is not reached, you are required to submit the well logs and the department will confirm if the well evaluated the rights and the depth and will advise you of the entitlement
Does the section the well is drilled on have to be selected when validating the licence?
The section containing the validating well does not have to be selected when validating the licence. However, if the section is not selected then the well must be abandoned. If it is not abandoned, the well will be addressed at the time of validation, and the Energy Resources Conservation Board (ERCB) will issue a notice ordering the abandonment of the well.
What information does the department require when submitting a Validation Application?
Licences purchased after December 31, 2001 are subject to severance. This has been in effect for initial term licences in the Plains Region and the Northern Region since January 2004 and January 2006, respectively. For licences subject to severance, you must submit a full set of open hole logs (e.g., Resistivity/Sp and Gamma Ray/Neutron density logs.) Formations should be clearly marked on the logs. Well logs will be evaluated by the department’s Geology unit in order to determine the deepest zone evaluated by the well. Rights will then be severed below the base of that zone.
Licences purchased before January 1, 2002 are not subject to severance. This now only applies to initial term licences in the Foothills regions which expire before January 1, 2007. The information on the Validation Application and Administrative form is often sufficient. However, if a licence contains only deeper rights, a full set of logs must be submitted for evaluation by the department’s Geology Unit, in order to confirm if the rights in the licence have been evaluated.
Please ensure the ERCB well status information is up to date. The department relies on the ERCB information to confirm the well validates the licence.
What wells can be used to validate a licence?
Under Section 9 of the Petroleum and Natural Gas Tenure Regulation, validating wells may include the following:
- A well drilled on location to minimum depth.
- A well re-entered on location with additional drilling of at least minimum depth.
- A well drilled outside the location (not on another licence), but part of the spacing unit falls within the location of the licence and the well is drilled to minimum depth.
- A well re-entered on location but with less than minimum depth of additional drilling and in the opinion of the Minister, the drilling operation provides significant new information.
- A well re-entered on location, no new drilling but becomes productive. Only the spacing unit is validated to the base of the productive zone.
Can a well outside the location of the licence be used as a validating well?
A well drilled outside the location (not on another licence) and outside the spacing unit is not a validating well unless prior approval has been granted by the department. Data must be submitted prior to drilling the well, proving the well evaluates the licence and that the well could not be drilled on the licence because of surface conditions or environmental concerns.
How are sections calculated for a validating well?
Sections earned are based on the Total Measured Depth of the well and are calculated in accordance with Schedule 2 Well Depth CalculationTable in the Petroleum and Natural Gas Tenure Regulation.
Grouping
Why do I have to group licences?
Grouping licences can eliminate the necessity of drilling a well on each licence in order to validate the licence.
How many licences can be grouped with one well?
An unlimited number of licences may be grouped provided the distance from the boundary of the licence with the grouping well is no more than one intervening section, including corners.
Is a well licence required when applying for grouping?
Yes. The Department requests the well licence number on the Grouping Application Form. The Department uses the well licence information to determine if the intended drilling target supports the evaluation of the rights in the licences to be grouped. At the time of validation, the grouping well is reviewed again to confirm that it has met the grouping criteria under Section 10 of the Petroleum and Natural Gas Tenure Regulation, so it can be used for validation under Section 11
What are the requirements for grouping of licences?
As per Section 10 of the Petroleum and Natural Gas Tenure Regulation, the grouping well must meet the following criteria:
- The grouping well must be spud during the initial term of all the grouped licences;
- The grouping well evaluates the petroleum and natural gas rights within the grouped licences; and
- The location of each grouped well is not more than one intervening section away from the location of the licence containing the grouping well.
An application for grouping must be received in the department no later than one month after the rig release date for the grouping well. All licences in the group must meet the grouping criteria at the time of the grouping application i.e., the licences must be in their initial term and within one section of the licence containing the grouping well. The application must be from the designated representative or an authorized agent.
What happens if the grouping application is not submitted within the one-month period following rig release?
The Petroleum and Natural Gas Tenure Regulation does not allow for a late application for grouping. The ability to group licences based on the drilling of the well is lost.
Should I use my grouped or non-grouped wells when applying for validation?
Always use non-grouped wells first as they can only be used to validate the licence on which they have been drilled. Use grouped wells only after all the earned sections from non-grouped wells have been applied to the sections to be validated in the licence.
If there are five licences all touching one another, can they all be grouped?
Licences can only be grouped if they are in their initial term and meet the distance criteria of no more than one intervening section away from the licence containing the grouping well.
Do all the grouped licences have to have the same rights?
No, but the rights of each licence must be evaluated. Therefore, the well would have to be drilled to the minimum depth in the shallowest common zone.
Can a well be drilled on a lease or a licence in its intermediate term be used to as a grouping well?
A well drilled in a lease or an intermediate term licence can only be used as a grouping well if that lease or licence completes the spacing unit of the initial term licence, and the well evaluates the rights in the grouped licences.
If the grouping has licences from two regions, the Northern and the Foothills, how would the earned sections be calculated?
The section earned would be calculated based on the location of the well. If the well were drilled on the licence in the Foothills area then the earned sections would calculated based on the section of the regulation governing Foothills licences
What types of wells qualify for grouping?
- A well drilled on location to minimum depth.
- A well re-entered on location with additional drilling to at least minimum depth.
- A well drilled outside the location (not on another licence) but part of the spacing unit falls within the location and the well is drilled to minimum depth.
- A well re-entered on location but with less than minimum depth of additional drilling and in the opinion of the Minister, the new drilling operation provides significant new information (potential productive zone).
Can you group a licence with another licence above or below it?
Licences can be vertically or horizontally grouped, providing the well evaluates the rights in all the licences. The well must penetrate to a zone contained in all the deeper rights licences and drill to at least the minimum depth.
If a well is re-entered and deepened to the minimum depth, how are the total number of earned sections calculated?
If a well is deepened during a re-entry then the new total measured depth is used to calculate the sections earned.
