1. Natural Gas Liquids Royalty Framework Changes
Production Month
Implementation

2. NGL Royalty Framework Changes - May, 2004
Agenda
Introductions
Background
Key Outcomes
Implementation Details
In-Stream Component (ISC) Reporting
Royalty Calculation using Facility Averages
Facility Average Illustration
NGL Royalty Framework Changes - May, 2004

3. List of Acronyms/Abbrev.
BT Battery
C1 Methane
C2 Ethane
CAP Corporate Average Price
CGF Corporate Gas Factor
CSO Common Stream Operator
FAP Facility Average Price (Net of Gas Trans Adj)
FARR% Facility Average Royalty Rate
GJ gigajoules
GP Gas Plant
GRP Gas Reference Price
GS Gathering System
NGL Royalty Framework Changes - May, 2004

4. List of Acronyms/Abbrev.…
IATD Intra-Alberta Transportation Deduction
IF Injection Facility
ISC In-Stream Component Within Residue Gas
MS Meter Station
NGL Natural Gas Liquids
OAF Owner Allocation Factor
PL Pipeline
R% Royalty Rate
RARR% Raw Gas Average Royalty Rate
RGA Raw Gas Allocation
Registry The Petroleum Registry of Alberta
SAF Stream Allocation Factor
NGL Royalty Framework Changes - May, 2004

5. NGL Royalty Framework Changes - May, 2004
Background
Policy Announcement Dec 1999 to align royalty framework with Industry and market developments.
Key Changes:
Distinct royalty treatment for recovered Ethane (Field Ethane)
Royalty recognition of NGL components (In-Stream Components or ISC) in residue gas
Sub-Committees (Industry/Gov’t) established between Jan 2000 – July 2001 to define business rules.
NGL Royalty Framework Changes - May, 2004

6. NGL Royalty Framework Changes - May, 2004
Key Outcomes
Field Ethane will be assessed at C2 R% and C2 Net Reference Price ($/gj) that will be different from the Gas R% and Gas Net Reference Price.
Royalty rates for Propane and Butanes will change from the flat rate of 30%. Subject to an expected maximum rate of 30% and minimum rate of 15%, the following formula will be used:
R% = 15SP + 40(PP-SP) PP
SP is the select price for the product
PP is the Propane par price for the Propane royalty rate and the Butanes par price for the Butanes royalty rate.
NGL Royalty Framework Changes - May, 2004

7. NGL Royalty Framework Changes - May, 2004
Key Outcomes…..Cont’d
No change to royalty trigger points.
Gas royalty will be assessed on the basis of In-Stream Components (ISC). This will be achieved by assessing royalty on product GAS using facility averages (rate and price) that are based on the ISC compositions of the royalty trigger volumes.
Gas royalty for CAP clients will be based on facility average rates but valuation continues to be based on CAP, where monthly CAP estimate is Client CGF x GRP.
NGL Royalty Framework Changes - May, 2004

8. NGL Royalty Framework Changes - May, 2004
Key Outcomes…..Cont’d
Each ISC product will have its own distinct royalty rate, reference price and adjusted IATD which will be used in the facility average royalty rate and price calculations.
Department of Energy (DOE) will invoice royalty on product GAS using the SAF/OAF and volumetric details from the Registry.
Implementation coinciding with the Registry – Production Month
NGL Royalty Framework Changes - May, 2004

9. NGL Royalty Framework Changes - May, 2004
Gas & ISC Relationship
Gas View
Product Code
Gas* Gas
*has old/new vintage
ISC View of Gas
Product Code
Methane ISC* C1-IC
Ethane ISC* C2-IC
Propane ISC C3-IC
Butanes ISC C4-IC
Pentanes Plus ISC* C5+-IC
Carbon Dioxide ISC** CO2-IC
Helium ISC** HE-IC
Hydrogen ISC** H2-IC
Nitrogen ISC** N2-IC
Oxygen ISC** O2-IC
Sulphur ISC** Sul-IC
Hydrogen Sulphide ISC**H2S-IC
*has old/new vintage
**inert
NGL Royalty Framework Changes - May, 2004

10. Implementation Details
Current
C2 R% = Gas R%
C2 Ref Price = GRP ($/gj)
Gas Royalty based on Gas Gas R% and GRP
Gas GJ subject to Old/New Gas R%
At Implementation
C2 R%  Gas R%
C2 Ref Price = C2-IC Ref Price ($/gj)
Gas Royalty based on Gas Gas R% (=FARR%) and FAP
Gas GJ subject to Old/New Gas R% (=FARR%)
NGL Royalty Framework Changes - May, 2004

11. NGL Royalty Framework Changes - May, 2004
FARR% & FAP for Gas
Facility level royalty rate and valuation price for Gas.
Used to assess royalty trigger Gas quantities at charge facility.
Uses the ISC compositions (excluding inerts) of royalty trigger quantities at the charge facility to calculate that facility’s weighted average royalty rate and valuation price (see example illustration).
ISC compositions are reported to the Registry by meter station operators, common stream operators and some facility operators (see Registry ISC Reporting Table slide).
NGL Royalty Framework Changes - May, 2004

12. FARR% & FAP for Gas…..Cont’d
The royalty rates for the individual ISC products will be the same as the royalty rates for the extracted products (e.g. C2-IC R% = C2 R%).
The vintage for the individual ISC products will be the same as the old/new vintage for the extracted products.
The reference prices for the individual ISC products will differ from the reference prices of Gas and the extracted products (exception C2 Ref Price=C2-IC Ref Price).
NGL Royalty Framework Changes - May, 2004

13. Low Productivity Allowance Adjustment
No change to low productivity well allowance eligibility.
Low productivity allowance adjustment continues to apply to eligible Gas and Ethane production.
For eligible Gas and Ethane production, the Crown royalty rate is calculated as:
R% = RC – (RM – 5) x (16.9 – ADP)2
16.92
ADP is the average daily production of gas for the well event for the production month (103m3).
RC is the Old/New FARR if production is Gas and the Ethane Old/New royalty rate if production is Ethane.
RM is the Old/New royalty rate for Methane ISC
NGL Royalty Framework Changes - May, 2004

14. Registry ISC Reporting
ISC volume and energy information are reported in the Registry, as a further breakdown of the Gas volume and energy.
ISC factors are reported on Registry RGA submissions.
Submissions to the Registry can be online entry or batch file entry, along with other volumetric submissions.
Not all volumetric activities in the Registry require ISC reporting (see Registry ISC Reporting Table slide).
NGL Royalty Framework Changes - May, 2004

15. Registry ISC Reporting…..Cont’d
ISC volume and energy must be reported to 3 decimal places for desired precision.
Where ISC reporting is required, aggregate ISC volume and energy must equal corresponding Gas volume and energy (within a tolerance of m3 and gj) or both ISC and Gas volumetric submissions will be rejected.
ISC heat value (gj/103m3) must be within the specified heat value range for each ISC product (see ISC Heat Range Table slide).
NGL Royalty Framework Changes - May, 2004

16. NGL Royalty Framework Changes - May, 2004
ISC Heat Range Table
NGL Royalty Framework Changes - May, 2004

17. Registry ISC Reporting Table
ISC Reporting Table Legend
AB Alberta
IF Injection Facility
BT Battery
IN Industrial
CO Commercial
MS Meter Station
DISP Disposition
PL Pipeline
EG Electrical Generation
RE Residential
GP Gas Plant
REC Receipt
GS Gathering System
R1/R2 Residential Pipeline
MC Miscellaneous
OT Other
CT Custom Treatment Plant
NGL Royalty Framework Changes - May, 2004

18. Registry ISC Reporting Table…..Cont’d
For activity at reporting facility and from/to location, submitter must report ISC, along with the Gas volumetric submission to the Registry.
Submitter
Reporting Facility
Activity
From/To Location
Pipeline/Meter Station Operator
AB MS subtype 631 or 637 where Registry auto population flow through is not elected
DISP
AB PL auto-created REC (no ISC)
Common Stream Operator
REC
AB BT/GS/GP/IF auto-created DISP
NGL Royalty Framework Changes - May, 2004

19. Registry ISC Reporting Table…..Cont’d
For activity at reporting facility and from/to location, submitter must report ISC, along with the Gas volumetric submission to the Registry.
Submitter
Reporting Facility
Activity
From/To Location
Pipeline/Meter Station Operator
AB MS subtype 631 or 637 where Registry auto population flow through is elected
DISP
AB PL auto-created REC (no ISC)
AB MS auto-created REC
AB BT/GS/GP/IF auto-created DISP
AB MS subtype 632 or 638 where Registry auto population flow through is not elected
AB BT/GS/GP/IF auto-created REC
(ISC created for IF only)
NGL Royalty Framework Changes - May, 2004

20. Registry ISC Reporting Table…..Cont’d
For activity at reporting facility and from/to location, submitter must report ISC, along with the Gas volumetric submission to the Registry.
Submitter
Reporting Facility
Activity
From/To Location
Common Stream Operator
AB MS subtype 632 or 638 where Registry auto population flow through is not elected
REC
AB PL auto-created DISP (no ISC)
AB MS subtype 632 or 638 where Registry auto population flow through is elected
AB MS auto-created DISP
AB BT/GS/GP/IF auto-created REC
(ISC created for IF only)
NGL Royalty Framework Changes - May, 2004

21. Registry ISC Reporting Table…..Cont’d
For activity at reporting facility and from/to location, submitter must report ISC, along with the Gas volumetric submission to the Registry.
Submitter
Reporting Facility
Activity
From/To Location
Pipeline/Meter Station Operator
AB MS subtype 633 or 639 where Registry auto population flow through is not elected
DISP
AB BT/GS/GP/IF auto-created REC
(ISC created for IF only)
Common Stream Operator
REC
AB PL auto-created DISP (no ISC)
NGL Royalty Framework Changes - May, 2004

22. Registry ISC Reporting Table…..Cont’d
For activity at reporting facility and from/to location, submitter must report ISC, along with the Gas volumetric submission to the Registry.
Submitter
Reporting Facility
Activity
From/To Location
Pipeline/Meter Station Operator
AB MS subtype 633 or 639 where Registry auto population flow through is elected
DISP
AB PL auto-created DISP (no ISC)
AB MS auto-created REC
AB/BC/SK/Any
AB BT/GS/GP/IF auto-created REC
(ISC created for IF only)
Mainline Straddle Plant Operator
AB GP subtype Mainline Straddle
REC
AB BT/GS/GP auto-created DISP
NGL Royalty Framework Changes - May, 2004

23. Registry ISC Reporting Table…..Cont’d
For activity at reporting facility and from/to location, submitter must report ISC, along with the Gas volumetric submission to the Registry.
Submitter
Reporting Facility
Activity
From/To Location
Field Straddle Plant Operator
AB GP subtype Field Straddle (terminated effective )
REC
AB BT/GS/GP auto-created DISP
Injection Facility Operator
AB IF
AB/BC/SK Any (except MS)
Battery, Gathering System or Gas Plant Operator
AB BT/GS/GP
DISP
Non reporting AB MS/PL
AB RE/CO/IN/EG/R1/
R2/MC/OT/CT
NGL Royalty Framework Changes - May, 2004

24. Registry ISC Reporting Table…..Cont’d
For activity at reporting facility and from/to location, submitter must report ISC, along with the Gas volumetric submission to the Registry.
Submitter
Reporting Facility
Activity
From/To Location
Battery, Gathering System or Gas Plant Operator
AB BT/GS/GP
DISP
Any non AB location
Raw Gas Seller
Report ISC factors of raw gas stream on RGA submission.
NGL Royalty Framework Changes - May, 2004

25. ISC Volumetric Submission in Registry
Illustration of ISC Reporting at MS
NGL Royalty Framework Changes - May, 2004

26. ISC Volumetric Submission in Registry
Illustration of ISC Reporting at MS
NGL Royalty Framework Changes - May, 2004

27. Raw Gas Sale and ISC Factor Reporting on RGA
Raw Gas Sales are identified on Registry RGA submissions.
Raw Gas Sales that are subsequently processed or used as lease fuel are assessed royalty at RARR%, rather than FARR%.
All other Raw Gas Sales will be assessed at FARR %.
RARR% is based on the ISC factors (excluding inerts) identified by the seller on the RGA, rather than the ISC composition of the facility.
Old/New RARR% =  (ISC Product Factor on RGA x ISC Product Old/New R%) /  ISC Product Factor on RGA (see example illustration).
NGL Royalty Framework Changes - May, 2004

28. Raw Gas Deliveries To Injection
Crown royalty for raw gas delivered to injection (reported in Registry at a Battery or Gathering System as a disposition to an Injection Facility) is assessed at the FARR% of the Injection Facility and the FAP of the Reproducing Facility.
NGL Royalty Framework Changes - May, 2004

29. Royalty Variables for Crown Royalty and Injection Credit Calculations
Charge Type
Product
Unit R%
Valuation Price
Crown Royalty
Gas GJ
FARR% of Producing Facility
(based on all ISC royalty trigger dispositions at producing facility)
FAP of Producing Facility
Injection Credit
FARR% of Injection Facility
(based on all ISC royalty trigger receipts at injection facility)
FAP of Reproducing Facility
(based on all ISC royalty trigger dispositions at reproducing facility)
NGL Royalty Framework Changes - May, 2004

30. NGL Royalty Framework Changes - May, 2004
Royalty Variables for Crown Royalty and Injection Credit Calculations…..Cont’d
Charge Type
Product
Unit R%
Valuation Price
*Crown Royalty Exceptions -
Raw Gas Delivered to Injection
Gas GJ
FARR% of Injection Facility
(based on all ISC royalty trigger receipts at injection facility)
FAP of Reproducing Facility
(based on all ISC royalty trigger dispositions at reproducing facility)
Raw Gas Sale Subsequently Processed
RARR%
(based on ISC composition factors on RGA)
80% GRP
NGL Royalty Framework Changes - May, 2004

31. Royalty Variables for Gas Crown Royalty and Injection Credit…..Cont’d
Charge Type
Product
Unit R%
Valuation Price
*Crown Royalty Exceptions -
Raw Gas Sale Used as Lease Fuel
Gas GJ
RARR%
(based on ISC composition factors on RGA)
100% GRP
Special Agreements
e.g. Medicine Hat Agreement
FARR% of Producing Facility
(based on all ISC royalty trigger dispositions at producing facility)
% GRP based on Agreement
NGL Royalty Framework Changes - May, 2004

32. NGL Royalty Framework Changes - May, 2004
Rate/Price Defaults
If no….
Use…
RARR%
FARR%
C1-IC R%
FAP (for Crown royalty)
100% GRP
FAP of Reproducing Facility (for injection credit and Crown royalty of raw gas delivered to injection)
FAP of Injection Facility
(based on all ISC royalty trigger receipts at injection facility)
If defaults are used, they will be identified on the Default Report. (see sample report)
NGL Royalty Framework Changes - May, 2004

33. ISC Balancing and FARR%/FAP Using ISC Default
Effective December 2004 calendar month, the ISC receipts at meter stations reported by meter station operators or common stream operators (CSO), must equal the meter station disposition activities reported by pipeline operators. Meter station receipts impact the FARR% and FAP calculations.
For ISC imbalances that existed prior to this change, the DOE continues to perform ISC Balancing and uses the ISC default in calculating the FARR%/FAP calculations.
NGL Royalty Framework Changes - May, 2004

34. ISC Balancing and FARR%/FAP Using ISC Default…..Cont’d
If there is a discrepancy in meter station receipts for an ISC product, the C5+-IC R% and C5+-IC Net Ref Price will be used for that product in the FARR% and FAP calculations. (see example illustration)
The meter station operator or CSO who submitted the meter station receipts will receive a discrepancy notice from DOE. Notice is generated on day 35 following month of production. (see sample report)
Royalty clients will be notified in Default Report and in supporting reports of FARR%/FAP calculations where ISC default values have been used. (see sample report)
NGL Royalty Framework Changes - May, 2004

35. FARR%, RARR%, FAP Illustration
See Excel attachment
NGL Royalty Framework Changes - May, 2004

36. FARR% Calculation for Gas
Old FARR% =
 (ISC Product Energy x ISC Product Old R%) /
 ISC Product Energy
New FARR% =
 (ISC Product Energy x ISC Product New R%) /
ISC product energy refers to ISC dispositions at the charge facility that are royalty triggers. If charge facility is an injection facility, ISC product energy refers to ISC receipts rather than dispositions.
Energy from inerts are not included in FARR% calculation.
NGL Royalty Framework Changes - May, 2004

37. RARR% Calculation for raw gas sales
Old RARR% =
 (ISC Product Factor on RGA x ISC Product Old R%) /
 ISC Product Factor on RGA
New RARR% =
 (ISC Product Factor on RGA x ISC Product New R%) /  ISC Product Factor on RGA
ISC factors of inerts are not included in RARR% calculation.
NGL Royalty Framework Changes - May, 2004

38. FAP Calculation for Gas
Facility Reference Price – Facility Gas Transportation Adjustment
Facility Reference Price =
Σ (ISC Product Energy x ISC Product Ref Price) /
Σ ISC Product Energy
Facility Gas Transportation Adjustment =
[Royalty Trigger Factor – 1] x Facility Adjusted IATD
Royalty Trigger Factor =
Σ (ISC Product Energy x Meter Station Factor) /
NGL Royalty Framework Changes - May, 2004

39. FAP Calculation for Gas…..Cont’d
Facility Adjusted IATD =
Σ (ISC Product Energy x Adjusted IATD of ISC) /
Σ ISC Product Energy
ISC product energy refers to ISC dispositions at the charge facility that are royalty triggers. If charge facility is an injection facility, ISC product energy refers to ISC receipts rather than dispositions.
ISC product energy in FARR% and FAP calculation is the same.
If the delivery/receipt location of the ISC product energy is not an included pipeline meter station, the meter station factor for the product energy will be 1.00.
NGL Royalty Framework Changes - May, 2004

40. Sample Crown Royalty Calculation Detail Report
NGL Royalty Framework Changes - May, 2004

41. Sample Crown Royalty Calculation Detail Report (Raw Gas)
FAP,
80% GRP, 100% GRP,
FARR%, RARR%, C1-IC R%
NGL Royalty Framework Changes - May, 2004

42. NGL Royalty Framework Changes - May, 2004
Sample FARR Report
NGL Royalty Framework Changes - May, 2004

43. NGL Royalty Framework Changes - May, 2004
Sample RARR Report
NGL Royalty Framework Changes - May, 2004

44. NGL Royalty Framework Changes - May, 2004
Sample FAP Report
NGL Royalty Framework Changes - May, 2004

45. NGL Royalty Framework Changes - May, 2004
Sample Default Report
NGL Royalty Framework Changes - May, 2004

46. Sample ISC Balancing Discrepancy Notification
NGL Royalty Framework Changes - May, 2004

47. NGL Royalty Framework Changes - May, 2004
The End
NGL Royalty Framework Changes - May, 2004