To an oil company, it is a field of promise, a tract of bare land in northwest Calgary that could yield several hundred thousand barrels of oil – perhaps even a million.

Even in Alberta, whose underground is filled with energy, that makes it "a pretty big site," said Ned Beattie, the general manager for Kaiser Exploration Ltd., the privately owned U.S. company looking to bring that oil to surface.

But in Calgary, a city whose skyline is dominated by oil companies and whose people draw substantial parts of their living from the energy industry, the site has taken on an importance far beyond the crude it contains.

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An erupting controversy over drilling inside city limits has led to a provincial pledge to bring in new urban oil and gas rules – and is illustrating how even to those supposedly most friendly to oil and gas, the industry's work can touch off a not-in-my-backyard battle.

At a time when the province is asking its neighbors to the west and south to accept Alberta crude in pipelines, it is discovering its growing population has qualms of its own.

The land Kaiser is after lies several hundred metres from jails, houses, a municipal water reservoir, wildlife rehabilitation centre, university buildings, shopping centre and restaurants. Some 17,000 people call the nearby Rocky Ridge Royal Oak neighbourhood home, and to many of them, the well is a menace that threatens to bring oil tankers to local roads and energy development to a place it doesn't belong.

"The potential for an accident happening is not far-fetched," said Ward Sutherland, who has led the local community associations' opposition to the well. "And then 500 metres away from the drill site is the watershed reserve."

In Alberta, 500 metres is plenty. Rules in the province say oil wells shouldn't be drilled within 100 metres of houses or water. The Kaiser well, which is shielded from the local shopping mall by a berm and would lie largely out of sight, is comfortably outside those limits. As a result, it was approved by the provincial oil and gas regulator, the Energy Resources Conservation Board, in December.

The approval was met with furor. Residents hired legal representation. The city of Calgary declared its opposition. Kaiser suspended work pending a regulatory review. Now the province is pledging change. Officials at the Department of Energy have begun work on an urban oil and gas policy that should be ready by the end of this year, Energy Minister Ken Hughes told The Globe and Mail.

"We're going to try to anticipate what the conflicts are, and try to deal with them from a policy perspective as opposed to a one-off basis," he said. Among the issues that will be considered: How close can wells be drilled to houses? What emergency response plans should be required of companies operating in urban areas?

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Mr. Hughes said it is too early to discuss details of coming changes, but the need for such rules is clear.

"Let's be realistic here. What we're talking about is facing the prospect of another million people moving to Alberta over the next 10 years," he said. To suggest the Kaiser well will be the only urban conflict "would be naive. It certainly will not be the only one in the next decade."

These will not be easy issues to sort out. For one, oil and gas wells inside city limits aren't unusual in Alberta. Calgary itself has roughly two dozen. Edmonton has them, too – there, a well sits on a golf course. The city of Medicine Hat actually produces its own gas, including from 136 wells within municipal boundaries. But even there, drilling inside city limits has been halted since 2005.

"It doesn't make sense to do that work within city limits when there's ready supply everywhere else around us," said Wilbur McLean, a city spokesman.

Across North America, different jurisdictions have taken different approaches to urban drilling. In Oklahoma, for example, it's up to each city – Tulsa bans its, Oklahoma City welcomes it and even has active wells on the state capitol grounds – and often city councils must sign off on drilling, which must abide by local laws. In Oklahoma City, companies are required to erect fencing; in Edmond, an upscale suburb, wells must be drilled farther from houses than the state requires, and companies are often told to use landscaping to mask the facilities. Even there, though, there are incidents: In 2009, a 17-year-old in Oklahoma City lost his arm after attempting to ride an oil pumpjack. In 1996, three children died after a match they lit at an oil facility triggered an explosion.

Alberta faces other issues: If it drafts a provincewide policy that, for example, raises the required distance from houses, it faces a potential backlash from rural areas, where homeowners are no more fond of oil wells on their property. Oil companies, too, aren't keen on new rules that could add to the time and expense of drilling in a place that is already among the most costly in the world to operate.

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Plus, they argue industry has acted responsibly. Kaiser, for example, has spent three years working on this well, which could form the first of four on the site. It drafted an emergency plan with local corrections facilities, though one wasn't required. It notified and consulted with landowners and neighbours far outside the mandatory 100-metre zone.

"We've taken that special care," Mr. Beattie said, adding that the provincial regulator has told him Alberta has never seen an incident at a sweet oil well, like the one Kaiser is hoping to drill, "that has caused any impact at all to the public off the lease site."

Local residents, he said, "are creating a monster and a menace out of something that is benign."