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BC Royalty Programs June 2006

BC Royalty Programs June 2006. Introduction. 1 st 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 June 2006

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  1. BC Royalty ProgramsJune 2006

  2. 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

  3. BC Royalty Programs Overview

  4. 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)

  5. 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

  6. 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: • ($2,400,000+$199,500)*0.35 =$909,825

  7. Deep Royalty

  8. Deep RoyaltyHorizontal Well Depth Calculation • Horizontal Well Depth • MDTP+HLF*(TMD-MDTP) • Horizontal Length Factor (HLF) Calculation • MDTP is between 2300m & 2875m • HLF=(30-0.035*(MDTP-2300))/100 • MDTP >2875m 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))/100=0.195 • Horizontal Well depth: 2600+0.195*(2800-2600)=2639m

  9. Deep RoyaltyRe-Entry Well • Qualification • Application to Alter a Well must be submitted and approved before re-entry • TVD of the re-entry > 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

  10. Deep Re-Entry Well • Calculation • Determine incremental distance • Use Tables • Formula (CV+AD)*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 • $150,000+$75,000 = $225,000

  11. Deep Discovery Well Exemption • Qualifying Criteria • New gas pool • TVD > 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

  12. Marginal Royalty Program • Qualifying for the Marginal Royalty • Well Production Rate • 1st Qualifier • First 12 month average rate < 80 mcf/d/100m (23m3/d/m) • 2nd Qualifier • Average Monthly Production Rate < 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 • Production start after July 01, 2003 • Application • BC - 08 Monthly Production Statement

  13. 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 • 27% * (1 – 0.1024) • Marginal Rate = 24.24%

  14. Ultra Marginal Royalty Program • Qualifying for the Ultra-Marginal Royalty • Development & Exploration Outpost Wells • 12 month average Rate < 40 mcf/d/100m (11m3/d/m) • Exploratory Wildcat Wells • 12 month average Rate < 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 • Calculation • 27% * (1 – LPRF) • Implementation • Spud date after January 01, 2006. • Application • BC – 08 Monthly Production Statement

  15. 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 > 1000m • UMD = MDTP+1000+(TMD-(MDTP+1000)/2) • UMD: 1200+1000+((2300-(1200+1000))/2) = 2250m • Step 2: Check Eligibility • (5,000,000/4000)*24/2250 = 13.3 m3/d/m • The calculation is less than 17m3/d/m the well event qualifies as a ultra-marginal well event. • Ultra-Marginal Royalty Calculation • Step 3: Calculate Ultra-marginal Reduction Factor, URF • URF: ((60,000-S)/60,000)1.5 • ((60,000-20,000)/60,000)1.5 = 0.544 • Step 4: Calculate the Ultra-marginal Royalty Rate, UMRR • UMRR: 27% * (1 – 0.544) = 12.3%

  16. 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)

  17. 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_handbook.htm • Ministry of Energy, Mines and Petroleum Resources - Titles Division: • http://www.em.gov.bc.ca/subwebs/Landsale/default.htm

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