Notice of appeal 3 30 17

TSX-V: CE

March 30, 2017 To:

Oil & Gas Appeal Tribunal 4th Floor – 747 Fort Street Victoria, BC V8W 3E9

RE:

NOTICE OF APPEAL OGC General Order 2017-008

Appellant:

URGENT: Stay Requested

Canada Energy Partners Inc. 650 – 669 Howe St. Vancouver, BC V6C 0B4 Telephone: 225-388-9900 ext 101 Fax: 225-388-9903 bjones@canadaenergypartners.com

Appellant’s Representative: Benjamin M. Jones 343 Third St., Ste 412 Baton Rouge, La. 70808 Telephone: 225-388-9900 ext 101 Fax: 225-388-9903 bjones@canadaenergyparters.com Address for Service: 343 Third St., Ste. 412, Baton Rouge, La. 70808 Decision to be Appealed:

OGC General Order 2017-008 (c.f. attached) Enforcement File 17-046

Reasons for Appeal: Canada Energy Partners (CEP or the Permit Holder) is the holder of BC Oil & Gas Commission (OGC) Order 08-02-008 (Amendment #1) and is the owner of WA#22031 located at a-20-D/094-A-04 (the Subject Well). A copy of Order 08-02-008 (Amendment #1) is attached (the Permit). In reliance on and in compliance with the terms and conditions of the Permit, and all applicable rules and regulations, CEP had been operating water disposal well WA#22031 in compliance with OGC. On March 16, 2017, the OGC, without affording CEP due process, prior notice or the opportunity for any input, issued General Order 2017-008 (the "Suspension Order"), which mandated the Appellant to cease disposing of water in said well immediately. The General Order notes that Appellant had “met the further (additional) conditions” required to dispose of water.

The OGC based their Suspension Order on BC Hydro’s complaint dated March 15, 2017 that Appellant’s water disposal activities could cause “an induced event sufficient to generate the peak ground accelerations necessary to cause damage to the Peace Canyon Dam.” Such complaint was made on March 15, 2017, one day before the issuance of the Suspension Order and with no opportunity for CEP to review that complaint or respond. While BC Hydro informed the OGC that the Peace Canyon Dam is susceptible to relatively low level peak ground accelerations, no information was referenced in the Suspension Order as to what level of peak ground accelerations might cause some impact, or whether that impact was to the integrity of the dam itself or to related operations. Moreover, no information was referenced in the Suspension Order as to whether the Peace Canyon dam is constructed to and meets modern dam safety standards and is able to withstand naturally occurring seismic events.

650-669 Howe Street Vancouver, BC Canada V6C 0B4

Telephone: 778.725.1489 info@canadaenergypartners.com www.canadaenergypartners.com

1

Following the issuance of the Suspension Order, the Appellant requested any empirical evidence the OGC may have of increased seismic activity in proximity to Appellant’s well or BC Hydro facilities; the OGC responded, “the Commission does not have empirical evidence of enhanced seismicity associated with the subject well or in the immediate vicinity of the Peace Canyon Dam.” (email dated 3-23-17) This complaint is controverted by the disposal history of the Appellant’s disposal well, which disposed of 102,000m3 of water from 2008-2010, and 16,056 m3 from Jan 4th-March 16th, 2017 without any adverse effects to BC Hydro facilities, nor to Appellant’s and OGC’s knowledge, any increased seismic activity in the vicinity of its disposal well nor the Peace Canyon Dam. Said Suspension Order was issued with no additional empirical evidence emerging after December 1st, 2016, when Appellant initiated approximately $400,000 of expenditures in preparatory testing and compliance with OGC demands, upgrading the facility, and operating said well. Such expenditures were incurred in reliance upon the Permit. No objection to the Permit was made by BC Hydro and no issues were raised by the OGC when Amendment #1 was approved previously. So with no new scientific data, the OGC suspended Appellant’s rights with devastating financial repercussions to Appellant. Part of the Mission of the OGC is: “Through the active engagement of our stakeholders and partners, we provide fair and timely decisions within our regulatory framework.” Appellant believes this General Order is neither “fair” nor “timely”.

Said Suspension Order was issued even though the OGC’s 2014 Seismicity Study in the Montney Trend showed that only 2 out of 104 active water disposal wells had recorded seismic events associated with them and that “Recorded ground motions associated with these events shows they are below damage thresholds for surface structures and no injuries or property damages were reported.” http://www.bcogc.ca/node/12291/download Said Suspension Order was issued even though the OGC applied greater restrictions on the Appellant’s disposal well than other disposal wells in the area. Appellant’s well was limited to 6,200 kPa injection pressure and pressure has never exceeded 5,200 kPa. The nearest analog disposal well (WA#27473) was granted a maximum limit of 14,000 kPa and recent actual injection rates have been 14,134 kPa. Attached is a spreadsheet that shows 6 water disposal wells in NE BC that have had seismic events in proximity to them, although only 2 have been confirmed to be related to water disposal. As can be seen, every one of these wells had peak injection pressures from 75%-175% higher than the Appellant’s well. Therefore, the Appellant’s well has had a large safety factor built in relative to other disposal wells in the region. The OGC’s 2014 Study concluded, “Preliminary results indicate induced events triggered by injection at wastewater disposal wells may be mitigated by reducing disposal rate and pressure.” Ibid.

The OGC’s 2014 Seismic Study concluded, “The vast majority of wastewater disposal wells in northeast B.C. do not generate induced seismic events. Induced seismic events have been noted at two disposal wells, occurring in marginal reservoir quality rock in proximity to existing faults.” Ibid. The Appellant’s disposal well has good reservoir quality and disposal history that indicates there are no kinetic faults nearby.

BC Hydro, on their website and in interviews, have repeatedly, publicly declared their dams to be strong enough to endure much stronger earthquakes than those potentially generated by fracking. A sampling of these declarations are as follows: Are BC Hydro’s dams at risk due to fracking? Answered by Stephen Rigbey (BC Hydro Director of Dam Safety): “No. Fracking is not a direct threat to BC Hydro's dams. We have seismographs at all of our dams, and we have never recorded any seismic event related to fracking. Our dams are built to withstand much larger ground motions associated with higher magnitude events that are much longer in duration. They could withstand events 10 to 100 times larger than those associated with fracking. For example, our WAC Bennett dam is expected to withstand a one in 10,000 seismic event. Site C is being built to withstand a one in 10,000 seismic event.” https://www.bchydro.com/energy-inbc/our_system/generation/dam-safety/dam-safety-faq.html

-2-

2

“In an interview following the release of the FOI materials, Rigbey said that Gilliss and other dam safety officials operating in the field are paid to worry, but that he himself has no concerns that fracking operations would trigger any catastrophic failure at BC Hydro’s Peace River dams. https://www.policyalternatives.ca/sites/default/files/uploads/publications/BC%20Office/2016/08/CCPABC_Big-fracking-problem_print.pdf “Would it [fracking] bring the dam down? Not a hope. Would it do damage and cost me a lot of money?

Absolutely. It would cost me a lot of time and a lot of money and that’s what I don’t want to occur,” Rigbey said. https://www.policyalternatives.ca/sites/default/files/uploads/publications/BC%20Office/2016/08/CCPABC_Big-fracking-problem_print.pdf From Chris O’Reilly, Deputy CEO of BC Hydro, "We understand our dams very well, and we understand the seismic risks to our dams. We've come to a very strong conclusion that this is not a dam safety issue and this is not a public safety issue." http://www.cbc.ca/news/canada/britishcolumbia/hydro-responds-fracking-1.3724534 “The five kilometer exclusionary zone around dams are not because of concerns to dam integrity, he said, but to address concerns about operational and maintenance issues that could arise as the result of fracking.” O’Reilly, Ibid The OGC’s Seismic Study confirmed that the induced seismicity from water disposal is of a lower magnitude than that induced by fracking; c.f. attached graph. The peak magnitude generated by water disposal has been 2.9 and the peak generated by fracking is 4.4. Therefore the foregoing public declarations of safety from fracking should apply to water disposal with an additional safety margin. These public declarations are diametrically opposed to the complaint filed by BC Hydro with the OGC on March 15th. It is not reasonable that the Appellant should be shut down when the complainant has issued conflicting opinions that directly underlay the complaint.

BC Hydro operates a number of dams on the Cascadia Subduction Zone, which is a part of the larger “Ring Of Fire”. 90% of the world’s earthquakes occur on the Ring Of Fire, including 81% of the world’s largest earthquakes (USGS). Alison Bird, Earthquake seismologist with Natural Resources Canada says, “[But] if you look at the crustal earthquakes in the Vancouver region [plus] any strong earthquake that could hit Vancouver, you're looking at a one in five chance in the next 50 years. For Vancouver Island, it's about a one in three chance of a strong damaging earthquake.” October 2016, http://www.cbc.ca/news/canada/british-columbia/fault-linesbig-one-1.3795416 Appellant believes that BC Hydro operates dams in areas with much higher risk of a large earthquake. Therefore, negation of Appellant’s disposal rights would constitute a discriminatory safety standard relative to that applied to BC Hydro.

Attached is an “Earthquake Hazard Map” produced by Natural Resources Canada that shows the Appellant’s well location as being in an area of low to moderate earthquake risk.

Requested Results from the Appeal First, CEP respectfully seeks an immediate “stay” of the Order issued by OGAT to the OGC. CEP has asked the OGC if they would agree to a stay but have not received a reply. CEP’s submissions with respect to the factors relevant to the issuance of a stay are as follows: 1. Whether the appeal raises a serious issue: The appeal raises serious issues regarding the continued operation of a fully permitted facility, in the absence of impacts arising from prior operations, and in the absence of various other relevant information as noted above.

-3-

3

In addition to the unsubstantiated basis for the Suspension Order, the appeal raises serious issues regarding the lack of due process and procedural fairness afforded to the Appellant in respect of the immediate issuance of a Suspension Order one day after some unknown information was provided by BC Hydro to the OGC. The appeal raises serious questions as to the reliance that an Operator can place upon its compliance with a current operating permit, particularly where significant investment and effort were expended in reliance upon same; with no history of adverse impacts arising from past operations.

All of the foregoing could have a bearing on the development of the Montney Shale, one of British Columbia’s largest natural resource deposits, and the multiple proposed LNG facilities, several of which are on the cusp of a FID (“Final Investment Decision”).

2. Whether the Applicant for a stay will suffer irreparable harm? a. “Irreparable harm”, defined as: “Where one party will be put out of business by the court’s decision.”

The subject disposal well comprised 100% of the Appellant’s revenues. The Appellant’s viability as an ongoing concern is seriously threatened by this General Order. b. Irreparable harm, defined as: “Where one party will suffer permanent market loss or irrevocable damage to its business reputation.” 57 million shares, equal to 63% of the Appellant’s outstanding shares, have traded since the announcement of initiation of water disposal operations at the subject well, at a trading price equal to 2.5X – 9X the pre-announcement trading price. Commercial water disposal activity was the prime driver in these trading volumes and appreciated prices. The Appellant had standing commercial contracts in hand with third parties to dispose of significant volumes of produced water over the next year that have now been neutralized and jeopardized. The Appellant had skilled, trained contractors operating this well, whose livelihoods have been severely impacted by this Order; and the Appellant is at risk of losing access to these skilled personnel.

3. Whether the harm that the Applicant will suffer if a stay is refused (see above), exceeds any harm that may occur if a stay is granted (the “balance of convenience” test)?

As noted previously in this Notice of Appeal, no information has been provided as to the likelihood of an impact, which has not arisen to date. In particular, there is no evidence as to the likelihood of induced seismicity nor any indication of what the alleged "susceptibility" in relation to the dam or its operations might be. On the other hand, as discussed immediately above, the impacts upon CEP will be extreme.

Appellant believes that it has proven by performance and history that disposal of water volumes up to 100,000m3 has not adversely affected the Dam and most likely will not precipitate increased seismicity in the area around its water disposal well. This was the volume disposed during 2008-2010. In the 6.75 years of shut-in (2010-2017), the disposal aquifer equilibrated to approximate pre-disposal conditions, as confirmed by reservoir pressure. Therefore, we believe up to 100,000m3 is confirmed to be noncatalytic to seismicity and therefore the stay is justified. Conversely, denial of the stay will be financially devastating to the Appellant.

Secondly, Appellant respectfully requests a rescission of the subject Order, or alternately such further direction or conditions as may facilitate the continued operation of the Subject Well.

CEP requests an opportunity to file such further information as may be appropriate having regard to the above request for a stay and a rescission of the Suspension Order.

If the Tribunal refuses to grant the above, Appellant would propose the following as an alternate: 1. The Subject Well will be plugged and abandoned.

-4-

4

5

6

7

COMMISSION

Enforcement File

March 16, 2017

Canada Energy Partners Inc. 3123-595 Burrard Street Vancouver, BC V7X 1J1 Attention: Mr. Benjamin Jones, CEO

Re; General Order 2017-008 Dear Mr. Jones, Please find attached General Order 2017-008. This Order is related to the suspension of disposal operations at WA# 22031 near Hudson’s Hope, BC. If Canada Energy Partners Inc. has any questions regarding the Order requirements, do not hesitate to contact the Oil & Gas Commission.

Thank you in advance for your attention to this matter.

R.A. Workman Manager, Enforcement BC Oil & Gas Commission

Enforcement Section Compliance & Enforcement

6534 Airport Road Fort St. John BC V1J4M6

T (250) 794-5200 F (250) 794-5389

www.bcogc.ca

8

GENERAL ORDER 2017-008 Section 49 Oil and Gas Activities Act

Issued to: Canada Energy Partners Inc. PO Box 49139, Three Bentall Centre 3123-595 Burrard Street Vancouver, BC V7X 1J1 Attention: Mr. Benjamin Jones, CEO Order: Pursuant to section 49(1)(b) of the Oil and Gas Activities Act (the Act), I, Lance Ollenberger, order that Canada Energy Partners Inc. must: 1. Suspend all disposal activities at WA# 22031, (the Subject Well) located at a-20D/094-A-04.

Conditions: A. This order shall remain in effect until amended or terminated in whole or in part by the Commission.

Reasons: I make this order for the following reasons: i.

Canada Energy Partners Inc. is the permit holder of the Subject Well.

ii.

A special project disposal order for disposal of produced water into the Baldonnel formation for the Subject Well was issued in 2008 (the Special Project Order).

iii.

Disposal activities occurred between December 2008 and April 2010. In August 2011 the Subject Well was suspended. In March, 2014, the Special Project Order was amended to add further conditions that needed to be met before the Subject Compliance & Enforcement Compliance Operations

6534 Airport Road Fort St. John BC V1J 4M6

T (250) 794-5200 F (250) 794-5390

www.bcogc.ca

9

General Order 2017-008 Well could be used for disposal. Canada Energy Partners Inc. has met the further conditions and has recently commenced disposal operations. iv.

The Subject Well is located approximately within 3.3 km of the Peace Canyon dam near Hudson’s Hope.

v.

Faulting is known in the area surrounding the Peace Canyon dam. Disposal activities have been known to trigger movement of pre-existing faults resulting in induced events.

vi.

The disposal zone in the Subject Well is the Baldonnel formation. Induced seismic events have been noted in association with Baldonnel water disposal in the Altares area to the north.

vii.

During the disposal activities occurring between December 2008 and April 2010 at the Subject Well, the Natural Resources Canada regional grid was not sufficient to detect low level seismicity as such there would be no record of whether or not those disposal activities did in fact cause low level seismicity.

viii.

BC Hydro informed the Oil and Gas Commission on March 15, 2017, that the Peace Canyon dam is susceptible to relatively low level peak ground accelerations.

ix.

Increased cumulative volumes of disposal, including disposal operations at the Subject Well, increases the risk of seismic events where faults exist.

x.

There is a risk of an induced event sufficient to generate the peak ground accelerations necessary to cause damage to the Peace Canyon dam. This level of ground motion has already been recorded in association with induced seismicity in other areas of north east BC. If such an event were to occur the consequences would be severe.

xi.

I am of the opinion that disposal activities must be suspended pending a review of additional technical information, including, if desired, a meeting with Canada Energy Partners Inc. as soon as practicable. In my opinion this action is necessary to mitigate a risk to public safety and to protect the environment.

Review and Appeal Canada Energy Partners Inc. may request a review of this order under section 70 of the Act by submitting a request for review to: ogc.determinationreviews@bcogc.ca.

Page 2 of 3 10

General Order 2017-008 Canada Energy Partners Inc. may appeal this order to the Oil and Gas Appeal Tribunal under section 72 of the Act. The process for appeals may be found at www.ogat.gov.bc.ca and a notice of appeal may be sent to the Oil and Gas Appeal Tribunal at: Oil and Gas Appeal Tribunal PO Box 4925 Stn Prov Govt Victoria, BC V8W 9V1

________________________________ Lance Ollenberger Vice President, Compliance Operations Oil and Gas Commission

DATED AT Fort St. John, in the Province of British Columbia, this 16th day of March 2017.

Page 3 of 3 11

Peace Canyon Dam

12

WA # AREA FORMATION 27473 ALTARES BALDONNEL 8093 GRAHAM BALDONNEL 22061 SEPTIMUS CADOMIN 12191 GRAHAM DEBOLT 14126 KOBES DEBOLT 26800 PINTAIL DEBOLT

22031

PORTAGE

BALDONNEL

LOCATION B15-01-085-26 D-006-C/94-B-09 A07-05-082-19 D-A006-C/94-B-09 A-A087-G/94-B-09 B-H094-I/094-B-01

MAX WELLHEAD PRESS (kPa) 14134 10073 12901 11997 9012 11000

A-020-D/94-A-04

5134

13

Water Disposal Well Economics Month 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44

Disposed m3 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200

$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $

Gross $ 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452

$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $

LOE 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000

$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $

Net CF 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 14

45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 Total=

7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200

$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $

190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452 190,452

$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $

50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000

604,800 $ 15,997,935

Assumes flat pricing; flat volumes.

$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $

140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452 140,452

$ 11,797,935 NPV15%=

$7,485,916

15

Comparison of Magnitude of Seismic Events - Water Disposal vs Hydraulic Fracturing

16 From: BC OGC "Investigation of Observed Seismicity in the Montney Trend" December 2014

Approximate location of CEP's Water Disposal Well

17