PJVA/CAPL PAD SHARING AGREEMENT

CAPLA Lunch ‘N Learn
March 15, 2016
Michael Bruch
Lorraine Grant
Jim MacLean
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An understanding of:
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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.
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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.
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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.
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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.
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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.
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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.
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Minimize effort to negotiate and administer pad site sharing agreements.
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Align document with evolving business needs to mitigate risk.
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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
 Health, Safety
Use
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!