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Dave McCaffrey, No Drilling Lethbridge spokesman, lead a group that gathered more than 13,000 signatures in a petition opposing a controversial urban drilling project by Goldenkey Oil Inc.

Goldenkey Oil Inc.'s plan was to drill three exploratory oil wells in a farmer's field in Southern Alberta – something that used to be a straightforward undertaking in a province that relies on underground resources for its economic well-being.

But in this case, the field sits within the city limits of fast-growing Lethbridge, home to 90,000 people. The land is destined to become a new subdivision and is less than a kilometre from existing houses. And the downwind homeowners were furious about the planned wells, given the possibility for more drilling, noise, traffic and pollution, not to mention a drop in property values.

Last week, after two years of sustained opposition from city council, local businesses and residents – along with the likelihood of a protracted public hearing and the possibility of new provincial rules governing such projects – Goldenkey dropped its plan to drill the wells.

Opponents are hailing Goldenkey's decision as a victory of the common will, especially since the Alberta Energy Regulator has the final say on where and when oil and gas wells can be drilled, even in places where the municipal council and community oppose the plans.

"The community of Lethbridge is very relieved," said Dave McCaffrey, a spokesman for the community group No Drilling Lethbridge. "Public sentiment won out."

Calgary-based Goldenkey, a small private company, will likely have to forfeit the $500,000 paid for the mineral rights, and hundreds of thousands of dollars spent on public consultations and planning are a sunk cost. David Hill, a company spokesman, said Goldenkey is not interested in pursuing any urban drilling project again. "It's a risky business," he said.

Albertans are used to the oil and gas industry and are less likely than other Canadians to oppose energy projects. But the sheer volume of work, combined with a growing provincial population (four million and climbing), means clashes about the placement of new wells and pipelines are likely to flare more often.

The province currently has more than 180,000 producing oil and gas wells. Although wells in urban areas are relatively rare, they can be high-profile: 650 wells are producing energy in urban centres, and 3,300 are within a one-kilometre radius of the boundaries of urban centres.

Many existing urban wells were drilled before cities grew around them, and some are strategically placed in industrial parks. The Alberta Energy Regulator dictates setbacks for wells from houses, with distances ranging from a minimum of 100 metres for a well with sweet natural gas, to 1.5 km for a sour-gas well, from which a leak could be lethal.

But current drilling rules are weak, warns Calgary Councillor Ward Sutherland. "They're designed for the middle of a wheat field," said Mr. Sutherland, who made his mark as a community association president who led a successful campaign to stop a proposed oil well near a Wal-Mart and houses in his suburban pocket.

"At some point, [oil and gas producers] are going to turn around – maybe 10 years from now – and see there's lots [of oil] underneath the city of Calgary and they're going to want to come in," he said.

The issue is becoming a bigger bone of contention between the provincial government and municipalities. The provincial Liberal and New Democrat parties are calling for a ban on all drilling in urban areas. The Progressive Conservative government began work on a cohesive policy specifically for drilling in urban areas two years ago but has nothing to report so far.

Alberta Energy Minister Diana McQueen, appointed last December, has promised an urban drilling policy by the end of this year. But the PC party's current state of upheaval in the wake of Alison Redford's resignation as premier – and focus on a September leadership vote – means another potential cabinet shuffle.

Ms. McQueen said giving municipalities a veto over oil and gas projects isn't in the cards: "These resources are there for all Albertans," she said in an interview. She said the Alberta Energy Regulator does take into account the concerns of residents and municipalities, noting that in 2012, the regulator denied 5,400 applications out of a total 36,000 submitted.

"It's not just about urban drilling but it's about making sure we have regulatory process in place … for all Albertans, whether you're drilling in urban or rural Alberta," Ms. McQueen said. "I do believe that we have a very strong regulatory process in Alberta, but this is a time to review policies."

Lethbridge Mayor Chris Spearman said no one is opposed to oil and gas development: "We understand it's the economic backbone of the province." But he said municipalities should have a say in any kind of industrial project within their boundaries, even when it comes to resources.

"The Alberta Energy Regulator and resource industry's plans can trump municipal plans, and we'd like that to change," Mr. Spearman said. "I don't think Lethbridge is alone. And I think the provincial government has to recognize that this issue is not going to go away."

Follow Kelly Cryderman on Twitter: @KellyCrydermanOpens in a new window

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