Investigation Summary Report 2015-013: Murphy Oil Company Ltd. Multiple Licences

November 2016

Investigation number: 2015-013

Responsible parties: Murphy Oil Company Ltd., BA code 0063

Field centre of origin: Grande Prairie

Incident location (nearest town): Multiple locations, Seal Lake, Alberta

Contravention date: June 16–18, 2015

Authorization numbers and relevant Multiple licences (F41295, F39631, F41667, legislation, regulations, and rules: F36795, F41611, F40899, F41300, F41598, F42626, F41301, F44036, F41346, F41634, F41297, F41648, F35514) Oil and Gas Conservation Act

Investigator: Jonathan Sinclair

ISR 2015-013 Alberta Energy Regulator

Alberta Energy Regulator Investigation Summary Report 2015-013: Murphy Oil Company Ltd.; Multiple Licences

November 2016

Published by Alberta Energy Regulator Suite 1000, 250 – 5 Street SW Calgary, Alberta T2P 0R4

Telephone: 403-297-8311 Inquiries (toll free): 1-855-297-8311 Email: [email protected] Website: www.aer.ca Alberta Energy Regulator

Contents

Summary of Facts ...... 1 Company Overview ...... 1 Regulatory Background ...... 1 Incident Overview ...... 2 Investigation Findings ...... 4

Contraventions ...... 5 Contravention 1: Failure to Comply with the Oil and Gas Conservation Rules ...... 5

Compliance History ...... 5

Recommended Counts ...... 6 Counts 1–16 ...... 6

Investigation Summary Report 2015-013: Murphy Oil Company Ltd.; Multiple Licences i

Summary of Facts

Company Overview Murphy Oil Company Ltd., the Canadian subsidiary of Murphy Oil Corporation, is engaged in crude oil and natural gas exploration and production in western and offshore eastern Canada, as well as in the extraction and sale of synthetic crude oil from Alberta’s oil sands.

Regulatory Background In the Peace River area, cold heavy oil production (CHOP) is the primary technique used to extract heavy oil. In CHOP operations, oil, gas, water, and sometimes sand are produced from an underground reservoir. This oil is then placed in heated production tanks at the surface before being transported by truck for further processing. Natural gas is also recovered and may be either conserved or flared, incinerated, or vented. Gas produced from the well casing is referred to as casing gas and gas given off from heavy oil while in production tanks is referred to as solution or tank-top gas. To meet the requirements of Directive 017: Measurement Requirements for Oil and Gas Operations, fluids are sent to a test tank, measured, and returned to production tanks. As of November 2013, about 910 (five per cent) of Alberta’s 18 250 licensed CHOP wells and about 170 (four per cent) of its 4325 licensed single- or multiwell CHOP batteries were located in the Peace River area.

Complaints from residents about hydrocarbon odours in the Peace River area began to increase in 2009. In February 2010, these complaints escalated. Between January 1, 2009, and November 1, 2013, the AER received a total of 881 odour complaints, of which 715 came from 4 residences. Forty per cent of the complaints included statements of human health impact. These 881 complaints represent 80 per cent of all odour complaints from areas with CHOP operations in the province. The AER has also received odour complaints from residents in the Reno and Seal Lake areas.

In January 2014, the Alberta Energy Regulator (AER) conducted a proceeding to address the effects, including health effects, of odours and emissions from heavy oil and bitumen operations in the Peace River area of Alberta. More information on the Peace River Proceeding and the resulting actions taken by the AER can be found on the AER website under About AER > Spotlight On… > Proceeding 1769924.

On March 31, 2014, the proceeding panel released Decision 2014 ABAER 005: Report of Recommendations on Odours and Emissions in the Peace River Area. The panel found that odours caused by heavy oil operations in the Peace River area need to be eliminated to the extent possible as they have the potential to cause health issues for some area residents.

The panel also accepted that the bitumen deposits in the Peace River area are unique in that the Gordondale-sourced bitumen deposits produce heavy oil that has higher levels of sulphur and aromatic

Investigation Summary Report 2015-013: Murphy Oil Company Ltd.; Multiple Licences 1 Alberta Energy Regulator

compounds compared to other areas of the province, and these aromatic compounds could cause some health symptoms of the area residents. The panel recognized the distinct geological and geochemical aspects of the Gordondale-sourced bitumen deposits and recommended a localized or “play-based” regulatory approach to heavy oil development in the Peace River area.

The AER accepted all of the panel’s recommendations within its jurisdiction, including recommendation 5 of the Operations section of the report, which stated

That toward the objective of conserving all captured gas, the AER require that by October 31, 2014, operators, either collectively or independently, provide a feasibility study to the AER into options and timelines to conserve all gas at sites in the Peace River area. The Panel expects that the AER, after considering the information in the feasibility study, will require operators to implement an appropriate conservation plan.

On May 1, 2014, the AER released new emissions management requirements for all operators within the Peace River area, including Murphy, through revisions to Directive 060: Upstream Industry Flaring, Incinerating, and Venting; the requirements were also outlined in Bulletin 2014-17: New Requirements for the Capture and Flaring, Incinerating, or Conserving of All Casing Gas and Tank-Top Gas by New and Existing Operators in the Peace River Area. The bulletin and the directive require licensees, operators, and approval holders in the Peace River area to capture and flare, incinerate, or conserve all casing and tank-top gas, effective August 15, 2014,1 or as directed by the AER upon consideration of a filed report.

Directive 060 requires licensees of existing operations in the Seal Lake and Walrus areas to submit a feasibility studies to the AER outlining an implementation schedule for eliminating all routine venting and preventing nonroutine venting. The AER required all Peace River area operators to submit these studies by October 31, 2014, describing options, associated timelines, and costs for conserving all casing and tank-top gas. The AER reviewed the studies and worked with operators to implement an appropriate gas conservation plan specific to each of the operators in the Peace River area.

Incident Overview On June 15, 2014, Murphy submitted an initial draft of its feasibility study, the Seal Lake Venting Control Plan. In the plan, Murphy provided a list of facilities that it considered already compliant with Directive 060 and provided a list of facilities and dates when the remainder of wells would be compliant with Directive 060.

On February 25, 2015, Murphy provided a revised venting control plan, detailing its plan and implementation schedule for eliminating all routine venting and preventing nonroutine venting at its Seal Lake operations. The plan also included a list of its 95 well pads within the Seal Lake area listed by

1 This August 15, 2014, deadline was subsequently extended to October 31, 2014, and the area of consideration was expanded to include the entire Peace River area (i.e., Three Creeks, Reno, Walrus, and Seal Lake).

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location and the date the wells would be compliant with section 8.7.3 of Directive 060. This also included the original implementation schedule that the AER received on June 15, 2014, for wells already in compliance with Directive 060. On March 20, 2015, the AER sent a letter to Murphy approving the implementation schedule.

Between June 16 and 18, 2015, the AER conducted a “compliance sweep” of the Peace River area to confirm compliance with Directive 060. The inspections found that 16 of the multiwell pads inspected at Murphy’s Seal Lake operations did not comply with Directive 060. The AER observed gas being vented from the tank tops through visual observations and the use of a forward-looking infrared (FLIR) camera. A Murphy operator was contacted by the AER and requested to attend one of the multiwell pads. The operator was shown a copy of Murphy’s implementation schedule, and the operator indicated that he was not aware that Murphy was not permitted to vent gas from the multiwell pads.

After discovering the noncompliances, the AER visited Murphy’s field office and instructed Murphy to shut in the 16 multiwell pads that the AER stated were in contravention of Directive 060 and inspect its remaining multiwell pads listed on the implementation schedule approved by the AER. Murphy voluntarily agreed to shut in the 16 multiwell pads and inspect the remaining multiwell pads. Murphy found an additional 19 sites in noncompliance with Directive 060 and voluntarily shut in those sites. Murphy documented the facilities and licence numbers and forwarded them to the AER by email on June 19, 2015. The following table is a list of the 16 multiwell pads that the AER found during the compliance sweep to be in contravention of Directive 060.

Table 1. List of multiwell pads Facility licence Pad surface location F41295 09-30-082-14W5M F39631 12-21-082-15W5M F41667 12-24-083-15W5M F36795 15-03-083-15W5M F41611 16-08-083-14W5M F40899 16-20-082-15W5M F41300 16-30-082-14W5M F41598 01-05-083-14W5M F42626 01-10-083-15W5M F41301 01-22-083-15W5M F44036 02/03-27-083-15W5M F41346 02-10-083-15W5M F41634 04-13-083-15W5M F41297 04-16-082-15W5M F41648 05-24-083-15W5M F35514 08-08-083-14W5M

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Investigation Findings In response to an information request from the AER, Murphy submitted a letter on September 11, 2015, that contained the following:

• During the planning process, Murphy was aware that venting was occurring from test tanks at various well pads as noted in the venting control plan submission to the AER, dated October 31, 2014.

• Although the venting was very small and infrequent, those volumes should have also been identified and addressed in the venting control plan. These volumes, however, were not included in the venting control plan.

• Murphy was in error when it eventually advised the AER that the 60 flow line well pads were already in compliance with Directive 060.

• Murphy understands that based on the information provided, the AER assumed no further actions would be required for those sites to be in compliance with the new requirements.

• Murphy confirmed that once the AER issued its approvals, it was Murphy’s responsibility to carefully examine those approvals and raise potential sources of misunderstanding with the AER.

• Murphy should have identified at this point any discrepancy between the AER’s requirement and Murphy’s venting control plan, which most likely would have been rectified by amending or seeking to have the venting control plan amended by the AER.

• On March 1, 2015, three weeks before the venting control plan approvals were issued, Murphy experienced a major condensate leak from its 08-34-082-15W5M pipeline. Almost all of Murphy’s resources were focused on the containment of that release, and a full review of its operations to ensure that no other pipeline owned or operated by Murphy was at similar risk.

• Then on March 14, 2015, Murphy experienced a tank fire at its 01-26-083-15W5M treatment facility. During the ensuing weeks, Murphy personnel had to address the substantial regulatory and investigative operations.

• In summary, Murphy determined that it had not thoroughly reviewed the AER approvals for the venting control plan due to the spill and tank fire. Murphy believed that the work needed to meet the 2015 deadline in the venting control plan was already under way on those well pads.

• As a result, Murphy’s management and other involved personnel failed to appreciate the AER’s overall expectations with respect to routine venting from the 60 flow line well pads, and the requirement of meeting the deadlines in the venting control plan approval letter.

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Contraventions The investigation demonstrated contraventions of legislation under the jurisdiction of the AER, some of which are also offences that can be prosecuted by the Crown. The following contravention is also an offence:

Contravention 1: Failure to Comply with the Oil and Gas Conservation Rules Section 7.035 of the Oil and Gas Conservation Rules:

The licensee, in the case of a well or facility, the operator, in the case of a facility that is exempted from the requirement to obtain a licence or approval, and the approval holder, in the case of an oilfield waste management facility, must comply with the requirements of Directive 060 and Directive 039.

Section 8.7.3 of Directive 060:

1) Unless otherwise directed in Bulletin 2014-17, licensees, operators, and approval holders that produce heavy oil and bitumen in the Peace River area, as illustrated on figure 10, must

a) capture and flare, incinerate, or conserve all casing gas and tank-top gas; or

b) shut in all wells that are venting casing gas or tank-top gas.

Note: Contravention of section 7.035 of the Oil and Gas Conservation Rules is also an offence under section 180(2).

Due Diligence The due diligence defense if applied to contraventions that are subject to administrative penalties. The defense requires the AER to consider whether an operator can establish on a balance of probabilities that the operator took all reasonable steps to prevent the commission of a contravention. Having established the contravention above, it is necessary to determine whether the facts support any due diligence defense to the contraventions.

After a review of all information available, it was found that there was a lack of evidence to support due diligence by Murphy.

Compliance History No relevant compliance history to be considered.

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Recommended Counts The following counts are recommended.

Counts 1–16 On or about June 16–18, 2015, in the Province of Alberta, Murphy Oil Company Ltd. failed to capture and flare, incinerate, or conserve all casing gas or tank-top gas, or shut in the 16 multiwell pads listed in table 1, in contravention of section 7.035 of the Oil and Gas Conservation Rules.

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