BC Royalty Programs June 2006

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BC Royalty ProgramsJune 2006
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Introduction

• 1st Royalty program 2002
• CBM royalty program
• OGDS 2003
• Deep, Marginal and Summer royalty programs
• OGDS 2006
• Ultra-marginal royalty program
• Currently working on
• Net profit program
• Last year 1427 wells drilled 1Tcf row gas
  produced

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BC Royalty Programs Overview
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Summer Royalty Program

• Condition
• Spud date between April 01 and November 30
• Royalty Credit
• 10 of the drilling and completion cost to a max.
  of 100,000
• Application
• BC 25 Form (Summer Drilling Credit Application)

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Deep Royalty Program

• Mechanism
• Royalty Credit designed to recognize the increase
  costs
• Requirement
• Applicable only for Wells deeper than True
  Vertical Depth
• 2500 m for vertical wells
• 2300 m for horizontal wells
• Horizontal Well factor
• Implementation
• Spud date after December 01, 2003
• Application
• BC - 11 Notice of Commencement or Suspension of
  Operations
• OGC review
• No transfer of royalty credits

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Deep Vertical Well Calculation

• Calculations
• Use tables (BHL east/west line gas composition)
• Royalty Credit (CV AD) PS
• CV Cumulative Value AD Incremental (Depth
  ) PS Interest
• Example
• West special sour well at 3785m working interest
  35
• CV at 3500m 2.4 million
• AD (3785-3500)700 199,500
• Royalty Credit
• (2,400,000199,500)0.35 909,825

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Deep Royalty
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Deep RoyaltyHorizontal Well Depth Calculation

• Horizontal Well Depth
• MDTPHLF(TMD-MDTP)
• Horizontal Length Factor (HLF) Calculation
• MDTP is between 2300m 2875m
• HLF(30-0.035(MDTP-2300))/100
• MDTP gt2875m HLF 0.1
• Total Measured Depth (TMD) Calculation
• Depth reported from the End of Well report
• Example
• MDTP 2600m TMD 2800m
• HLF 30-0.035(2600-2300))/1000.195
• Horizontal Well depth 26000.195(2800-2600)2639
  m

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Deep RoyaltyRe-Entry Well

• Qualification
• Application to Alter a Well must be submitted and
  approved before re-entry
• TVD of the re-entry gt 2300m
• Re-entry date after December 01, 2003
• Application
• BC - 11 Notice of Commencement or Suspension of
  Operations
• OGC review
• No transfer of royalty credits to another well

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Deep Re-Entry Well

• Calculation
• Determine incremental distance
• Use Tables
• Formula (CVAD)SP
• Example
• TMDold 5000m TMDnew 4550m Well location is
  on the west
• CV 300m 150,000
• IV 500/m
• AD (450m-300m)500/m 75,000
• Re-entry Credit
• 150,00075,000 225,000

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Deep Discovery Well Exemption

• Qualifying Criteria
• New gas pool
• TVD gt 4000m
• Rig release date after November 2003
• New well surface location must be at least 20km
  away from the location of any well in a
  recognized pool of the same formation
• Royalty Credit
• Three year royalty holiday or 283,000,000m3
  (10bcf)
• Application
• No application necessary
• OGC will determine if qualification are met

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Marginal Royalty Program

• Qualifying for the Marginal Royalty
• Well Production Rate
• 1st Qualifier
• First 12 month average rate lt 80 mcf/d/100m
  (23m3/d/m)
• 2nd Qualifier
• Average Monthly Production Rate lt 880 mcf/d (25
  e3m3/d)
• Royalty Calculations
• Base 9 Royalty (9 SP 40 (RP SP))/RP Min
  9 Max 27
• Select Price (SP) 50 /m3
• Reference Price 2006 (RP) 285.7 /m3
• Low Productivity Reduction Factor (LPRF)
• LPRF((25-S)/25)2 Units e3m3/d
• Calculation
• 27 (1 LPRF)
• Implementation

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Marginal Royalty Program Calculation

• Example
• Total 12 month production (BC-S1) 7e6m3
• Production hours over that same period 4000hrs
• Well depth 2300m
• Eligibility Calculation
• (7,000,000/4000)24/2300 18.26m3/d/m
• The calculation is less than 23m3/d/m the well
  event qualifies as a marginal well event.
• Royalty Reduction Calculation
• Average daily volume 17,000 m3
• Reference Price 180/m3
• Step 1 LPRF
• ((25,000-17,000)/25,000)2
• LPRF 0.1024
• Step 2 Marginal Royalty Rate

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Ultra Marginal Royalty Program

• Qualifying for the Ultra-Marginal Royalty
• Development Exploration Outpost Wells
• 12 month average Rate lt 40 mcf/d/100m (11m3/d/m)
• Exploratory Wildcat Wells
• 12 month average Rate lt 60 mcf/d/100m (17m3/d/m)
• Shallow Wells Only
• Applicable only for Wells less than True Vertical
  Depth
• 2300 m for horizontal wells
• 2500 m for vertical wells
• Horizontal Well factor 100 of first 1000 meters
  and 50 of remainder
• Royalty Calculations
• Base 9 Royalty (9 SP 40 (RP SP))/RP (min
  9 max 27)
• Select Price (SP) 50 /m3 Reference Price 2005
  (RP) 285.7 /m3
• Low Productivity Reduction Factor (LPRF)
• LPRF((60-S)/60)1.5 Unit e3m3

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Ultra-Marginal Royalty Calculation

• Example
• Horizontal Exploratory Wildcat well, 2300m deep
• Total 12 month production (BC-S1) 5e6m3
• Production hours over that same period 4000hrs
• Average daily volume 20,000 m3
• Eligibility Calculation
• Step 1 Ultra-marginal well depth (UMD)
• Horizontal Length Calculation
• TMD MDTP 2300 1200 1100m
• Hz section gt 1000m
• UMD MDTP1000(TMD-(MDTP1000)/2)
• UMD 12001000((2300-(12001000))/2) 2250m
• Step 2 Check Eligibility
• (5,000,000/4000)24/2250 13.3 m3/d/m

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Coalbed Methane Royalty Program

• Condition
• Coalbed methane wells only
• Royalty Credit
• 50,000 drilling credit
• Produced water management allowance (PCOS)
• Royalty bank transferable to other CBM wells
• Royalty Reduction
• Low Productivity Reduction Factor
• LPRF ((17 S)/17)2 Units e3m3
• Calculation
• 27 (1 LPRF)

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BC Oil Gas Useful Links

• Related organizations
• Oil and Gas Commission Background
• http//www.ogc.gov.bc.ca/background.asp
• Ministry of Energy, Mines and Petroleum Resources
  Oil and Gas Division Responsibilities
• http//www.em.gov.bc.ca/subwebs/oilandgas/overview
  /ogd.htm
• Ministry of Small Business and Revenue- Mineral,
  Oil and Gas Revenue Branch
• http//www.rev.gov.bc.ca/mog/oil_gas/royalty_handb
  ook.htm
• Ministry of Energy, Mines and Petroleum Resources
  - Titles Division
• http//www.em.gov.bc.ca/subwebs/Landsale/default.h
  tm