CAPP’s new guidelines for Canadian shale gas producers: A review of key requirements

CAPP’s new guidelines for Canadian shale gas producers: A review of key requirements by Paula Barrios, Senior Research Analyst, February 2012, Shareholder Association for Research & Education
Another potential difficulty with the CAPP Operating Practice is that it relies significantly on regulatory compliance, on the assumption that “hydraulic fracturing processes are strictly regulated by various provincial government agencies.” This assumption may be unfounded, however, and several recent reports suggest that regulatory gaps still exist in virtually every Canadian Province…. CAPP’s release of Hydraulic Fracturing Guiding Principles and Operating Practices marks a positive development in Canada’s shale gas industry, since it evidences a commitment by CAPP member companies to implement practices that mitigate environmental and other potential risks associated with shale gas production, and to publicly report on their risk mitigation efforts. It is not evident, however, that implementation of most Practices will lead to actual improvements in performance, or generate the detailed disclosure of performance data that investors and other stakeholders need to assess whether companies are effectively mitigating risk across their unconventional gas operations, or implementing best practices in all key plays (or otherwise explain why different practices are followed in certain locations). Some of the Operating Practices, in particular those associated with pre-drilling water testing and wellbore construction and integrity verification, promise to help mitigate environmental risks associated with unconventional gas extraction, provided that companies implement them consistently across their shale and tight gas operations.

Other Practices, however, in particular those regarding water use, management of risks associated with fracturing fluids and management of wastewater (flowback and produced water), are not stringent or specific enough to reassure investors that their implementation will actually serve to mitigate risk, or bring about public disclosure of relevant, comparable and comprehensive information with which to measure performance and benchmark companies in order to make more sound investment decisions (e.g., invest in lower-risk companies, or engage with companies whose performance or risk management strategies and practices appear to be lagging behind their peers).

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