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ALBERTA NATURAL GAS AND NGL ROYALTY CHANGES

ALBERTA NATURAL GAS AND NGL ROYALTY CHANGES. Economics Society of Calgary Luncheon February 24, 2000. Mark R. Thomas Manager, Natural Gas Acquisition. ROYALTIES IN ALBERTA TODAY CHANGES BEING IMPLEMENTED - WHAT, WHEN & HOW WHY ISSUES TO BE DEALT WITH (HAVEN’T THOUGHT OF THEM ALL)

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ALBERTA NATURAL GAS AND NGL ROYALTY CHANGES

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  1. ALBERTA NATURAL GAS AND NGL ROYALTY CHANGES Economics Society of Calgary Luncheon February 24, 2000 Mark R. Thomas Manager, Natural Gas Acquisition

  2. ROYALTIES IN ALBERTA TODAY • CHANGES BEING IMPLEMENTED - WHAT, WHEN & HOW • WHY • ISSUES TO BE DEALT WITH (HAVEN’T THOUGHT OF THEM ALL) • IMPLICATIONS J://gasgroup/keg/mrt/economics.ppt

  3. ROYALTIES IN ALBERTA TODAY • THE CROWN LEASES THE RIGHT TO PRODUCE CRUDE OIL, NATURAL GAS AND NATURAL GAS LIQUIDS (NGL’S) BUT MAINTAINS ITS OWNERSHIP RIGHT • ROYALTY IS THE PORTION OF THE RESOURCE THAT BELONGS TO THE CROWN THROUGH ITS OWNERSHIP RIGHTS • ROYALTY SYSTEMS NEED TO DETERMINE THREE THINGS: • CROWN’S SHARE OF THE PRODUCT • THE VALUE OF THE SHARE • COSTS TO BE “PAID” BY THE CROWN FOR PROCESSING IT’S SHARE J://gasgroup/keg/mrt/economics.ppt

  4. ROYALTIES IN ALBERTA TODAY • CURRENT AVERAGE ALBERTA ROYALTY RATES: CRUDE OIL x% - TAKEN IN KIND AND MARKETED BY AGENTS NATURAL GAS 17% - CASH (SLIDING SCALE) (includes ethane and coastituent NGL’s) NGL’S 30% - CASH (FLAT RATE) (propane, butane) J://gasgroup/keg/mrt/economics.ppt

  5. CHANGES BEING IMPLEMENTED - WHAT, WHEN AND HOW • WHAT ? • THE CHANGES AFFECT THE MANNER IN WHICH THE CROWN CALCULATES THE ROYALTY SHARE AND VALUE OF NATURAL GAS AND NGL’S • IDENTIFY ETHANE AS A DISTINCT RESOURCE • RECOGNIZE ETHANE AND OTHER NGL’S IN RESIDUE GAS • CALCULATE ROYALTY AND ALLOWABLE COSTS ON NGL’S EXTRACTED AT STRADDLE PLANTS • PROVIDES THE GOVERNMENT WITH THE OPTION TO BE ABLE TO COLLECT ALBERTA’S SHARE OF GAS AND NGL’S AS ROYALTY-IN-KIND (AS IT CURRENTLY DOES FOR OIL) J://gasgroup/keg/mrt/economics.ppt

  6. CHANGES BEING IMPLEMENTED - WHAT, WHEN AND HOW • WHAT ? (con’t) • THE CHANGES ARE TO BE IMPLEMENTED IN TWO PHASES, WITH THE FIRST PHASE TO BE COMPLETED BY JULY 2001 • ROYALTY-IN-KIND IMPLEMENTATION IS PHASE 2 • WILL NOT BE IMPLEMENTED PRIOR TO NOV 2003 • TWO YEAR NOTICE PROVISION J://gasgroup/keg/mrt/economics.ppt

  7. CHANGES BEING IMPLEMENTED - WHAT, WHEN AND HOW • PHASE 1 SCHEDULE J://gasgroup/keg/mrt/economics.ppt

  8. CHANGES BEING IMPLEMENTED - WHAT, WHEN AND HOW • HOW ? • THE CHANGES ARE NOT “PROPOSED”, THEY ARE ALBERTA GOVERNMENT POLICY • WHAT REMAINS IS IMPLEMENTATION • MINISTER WEST APPOINTED A NATURAL GAS LIQUIDS ROYALTY ADVISORY COMMITTEE TO GUIDE IMPLEMENTATION J://gasgroup/keg/mrt/economics.ppt

  9. CHANGES BEING IMPLEMENTED - WHAT, WHEN AND HOW • HOW ? (con’t) • ADVISORY COMMITTEE TARGETED MEMBERSHIP • ALBERTA PUBLIC • UPSTREAM NATURAL GAS EXPLORATION & PRODUCTION • MIDSTREAM / NGL EXTRACTION INDUSTRY • NATURAL GAS PIPELINES DELIVERING ALBERTA GAS • PETROCHEMICAL INDUSTRY • INDUSTRIAL GAS USERS • DEPARTMENT OF RESOURCE DEVELOPMENT - CHAIR • RECOMMENDATIONS TO MINISTER BY JUNE 2000 J://gasgroup/keg/mrt/economics.ppt

  10. CHANGES BEING IMPLEMENTED - WHAT, WHEN AND HOW • HOW ? (con’t) • THREE SUB-COMMITTEES • COSTS • VOLUMETRICS & REPORTING • ROYALTY RATES & PRICING J://gasgroup/keg/mrt/economics.ppt

  11. WHY ? • ALBERTA RESOURCE DEVELOPMENT’S DECEMBER 9, 1999 NEWS RELEASE ENUMERATED THE GOVERNMENT’S OBJECTIVES. AMONGST THESE WAS A REFERENCE TO THE FINAL REPORT OF THE ETHANE AND NGL’S TASK FORCE (JULY 1999) WHICH CONFIRMED ALBERTA’S OBLIGATION TO ENSURE ALBERTA’S ETHANE AND NATURAL GAS LIQUIDS OBJECTIVES WILL CONTINUE TO BE ACHIEVED IN A CHANGING BUSINESS ENVIRONMENT J://gasgroup/keg/mrt/economics.ppt

  12. WHY ? • DR. WEST HAS STATED THAT “THE ALBERTA GOVERNMENT’S GOAL IS TO MAXIMIZE THE ECONOMIC BENEFITS FROM GAS PRODUCTION AND VALUE ADDED GAS LIQUIDS UPGRADING RIGHT HERE IN ALBERTA IN SUPPORT OF THE ALBERTA ADVANTAGE”. • PETROCHEMICALS PROVIDE ALBERTA WITH THE OPPORTUNITY TO UPGRADE NGL’S BY APPROXIMATELY 10 TIMES THEIR FUEL VALUE. J://gasgroup/keg/mrt/economics.ppt

  13. WHY ? • ALBERTA’S ABILITY TO UPGRADE RESOURCES IS KEY TO OUR ECONOMY’S DIVERSIFICATION • ALBERTA’S GDP IS ROUGHLY EQUALLY SOURCED FROM THREE SECTORS • CONVENTIONAL OIL AND GAS • AGRICULTURAL • MANUFACTURING J://gasgroup/keg/mrt/economics.ppt

  14. WHY ? • ECONOMIC IMPACTS OF ALBERTA’S INDUSTRIAL GAS CONSUMING • SECTOR IN 1997 • DIRECT EMPLOYMENT 140,000 • TOTAL DIRECT, INDIRECT & INDUCED • EMPLOYMENT 450,000 • VALUE OF SHIPMENTS $37 BILLION • DIRECT GROSS DOMESTIC PRODUCT (GDP) $12 BILLION • TOTAL DIRECT, INDIRECT & INDUCED GDP $30 BILLION • PROVINCIAL GOVERNMENT REVENUES $3.6 BILLION J://gasgroup/keg/mrt/economics.ppt

  15. ISSUES TO BE DEALT WITH J://gasgroup/keg/mrt/economics.ppt

  16. IMPLICATIONS • THE PREVIOUS NGL ROYALTY METHODOLOGY ACTUALLY CREATES AN INCENTIVE TO LEAVE LIQUIDS IN THE RESIDUE STREAM • THIS CREATES A MARKET DISTORTION THROUGH THE ROYALTY INCENTIVE TO PUT EXTRACTION FACILITIES OUTSIDE THE PROVINCE • OPPORTUNITY TO ADDRESS IF THERE IS A NEED TO CHANGE THE NGL ROYALTY RATE FROM FIXED TO SLIDING • THE GOAL OF MAXIMIZING PRODUCTION AND VALUE ADDING UPGRADING OF NATURAL GAS AND NGL’S IS IN EVERY ALBERTAN’S BEST INTEREST J://gasgroup/keg/mrt/economics.ppt

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