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Ministry of Energy, Mines and Petroleum Resources Page 1. BC Royalty Programs June 2006.

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Presentation on theme: "Ministry of Energy, Mines and Petroleum Resources Page 1. BC Royalty Programs June 2006."— Presentation transcript:

1 Ministry of Energy, Mines and Petroleum Resources Page 1. BC Royalty Programs June 2006

2 Ministry of Energy, Mines and Petroleum Resources Page 2. IntroductionIntroduction 1 st Royalty program st Royalty program 2002 – CBM royalty program OGDS 2003 OGDS 2003 – Deep, Marginal and Summer royalty programs OGDS 2006 OGDS 2006 – Ultra-marginal royalty program Currently working on Currently working on – Net profit program Last year 1427 wells drilled & 1Tcf row gas produced Last year 1427 wells drilled & 1Tcf row gas produced

3 Ministry of Energy, Mines and Petroleum Resources Page 3. BC Royalty Programs Overview BC Royalty Programs Summer Royalty Program Condition: Spud Date between April 01 & November 30 Deep Royalty Programs Deep Deep Discovery Deep Re-entry Conditions: Vertical Well Depth > 2500m Horizontal Well Depth > 2300m Marginal Royalty Program Conditions: 12 month average Rate < 80 mcf/d/100m Monthly Production below 880 mcf/d Ultra-Marginal Royalty Program Condition: 12 month average Rate < 40 mcf/d/100m Low Productivity Royalty Program Condition: Production < 175 mcf/d Coalbed Methane Condition: Production < 600 mcf/d Net Profit Royalty Program Condition: Under Construction

4 Ministry of Energy, Mines and Petroleum Resources Page 4. Summer Royalty Program Condition Condition – Spud date between April 01 and November 30 Royalty Credit Royalty Credit – 10% of the drilling and completion cost to a max. of $100,000 Application Application – BC 25 Form (Summer Drilling Credit Application)

5 Ministry of Energy, Mines and Petroleum Resources Page 5. Deep Royalty Program Mechanism: Mechanism: – Royalty Credit designed to recognize the increase costs Requirement Requirement – Applicable only for Wells deeper than True Vertical Depth 2500 m for vertical wells 2300 m for horizontal wells – Horizontal Well factor Implementation Implementation – Spud date after December 01, 2003 Application Application – BC - 11 Notice of Commencement or Suspension of Operations – OGC review – No transfer of royalty credits

6 Ministry of Energy, Mines and Petroleum Resources Page 6. Deep Vertical Well Calculation Calculations Calculations – Use tables (BHL east/west line & gas composition) – Royalty Credit = (CV + AD)* PS CV = Cumulative Value; AD = Incremental (Depth * $); PS = Interest Example Example – West special sour well at 3785m working interest 35% – CV at 3500m= $2.4 million – AD: ( )*$700 = $199,500 – Royalty Credit: – ($2,400,000+$199,500)*0.35 =$909,825

7 Ministry of Energy, Mines and Petroleum Resources Page 7. Deep Royalty

8 Ministry of Energy, Mines and Petroleum Resources Page 8. Deep Royalty Horizontal Well Depth Calculation Horizontal Well Depth Horizontal Well Depth – MDTP+HLF*(TMD-MDTP) Horizontal Length Factor (HLF) Calculation Horizontal Length Factor (HLF) Calculation – MDTP is between 2300m & 2875m – HLF=( *(MDTP- 2300))/100 – MDTP >2875m HLF= 0.1 Total Measured Depth (TMD) Calculation Total Measured Depth (TMD) Calculation – Depth reported from the End of Well report Example Example – MDTP = 2600m & TMD = 2800m – HLF: *( ))/100=0.195 – Horizontal Well depth: *( )=2639m

9 Ministry of Energy, Mines and Petroleum Resources Page 9. Deep Royalty Re-Entry Well Qualification 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 Application – BC - 11 Notice of Commencement or Suspension of Operations – OGC review – No transfer of royalty credits to another well

10 Ministry of Energy, Mines and Petroleum Resources Page 10. Deep Re-Entry Well Calculation Calculation – Determine incremental distance – Use Tables – Formula (CV+AD)*SP Example Example – TMD old = 5000m; TMD new = 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 Ministry of Energy, Mines and Petroleum Resources Page 11. Deep Discovery Well Exemption Qualifying Criteria 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 Royalty Credit – Three year royalty holiday or 283,000,000m3 (~10bcf) Application Application – No application necessary – OGC will determine if qualification are met

12 Ministry of Energy, Mines and Petroleum Resources Page 12. Marginal Royalty Program Qualifying for the Marginal Royalty Qualifying for the Marginal Royalty – Well Production Rate 1 st Qualifier – First 12 month average rate < 80 mcf/d/100m (23m 3 /d/m) 2 nd Qualifier – Average Monthly Production Rate < 880 mcf/d (25 e 3 m 3 /d) Royalty Calculations Royalty Calculations – Base 9 Royalty: (9 * SP + 40 * (RP – SP))/RP; Min 9% & Max 27% Select Price (SP) = 50 $/m 3 ; Reference Price 2006 (RP) = $/m 3 – Low Productivity Reduction Factor (LPRF) LPRF=((25-S)/25) 2 Units = e 3 m 3 /d – Calculation 27% * (1 – LPRF) Implementation Implementation – Production start after July 01, 2003 Application Application – BC - 08 Monthly Production Statement

13 Ministry of Energy, Mines and Petroleum Resources Page 13. Marginal Royalty Program Calculation Example Example – Total 12 month production (BC-S1): 7e 6 m 3 – Production hours over that same period: 4000hrs – Well depth 2300m Eligibility Calculation Eligibility Calculation (7,000,000/4000)*24/2300 = 18.26m 3 /d/m – The calculation is less than 23m 3 /d/m the well event qualifies as a marginal well event. Royalty Reduction Calculation Royalty Reduction Calculation – Average daily volume: 17,000 m 3 – Reference Price: $180/m 3 – Step 1 LPRF ((25,000-17,000)/25,000) 2 LPRF = – Step 2 Marginal Royalty Rate 27% * (1 – ) Marginal Rate = 24.24%

14 Ministry of Energy, Mines and Petroleum Resources Page 14. Ultra Marginal Royalty Program Qualifying for the Ultra-Marginal Royalty Qualifying for the Ultra-Marginal Royalty – Development & Exploration Outpost Wells 12 month average Rate < 40 mcf/d/100m (11m 3 /d/m) – Exploratory Wildcat Wells 12 month average Rate < 60 mcf/d/100m (17m 3 /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 Royalty Calculations – Base 9 Royalty: (9 * SP + 40 * (RP – SP))/RP (min 9% & max 27%) Select Price (SP) = 50 $/m 3 ; Reference Price 2005 (RP) = $/m 3 – Low Productivity Reduction Factor (LPRF) LPRF=((60-S)/60) 1.5 Unit = e3m3 – Calculation 27% * (1 – LPRF) Implementation Implementation – Spud date after January 01, Application Application – BC – 08 Monthly Production Statement

15 Ministry of Energy, Mines and Petroleum Resources Page 15. Ultra-Marginal Royalty Calculation Example Example Horizontal Exploratory Wildcat well, 2300m deep Total 12 month production (BC-S1): 5e 6 m 3 Production hours over that same period: 4000hrs Average daily volume: 20,000 m 3 Eligibility Calculation 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: ((2300-( ))/2) = 2250m – Step 2: Check Eligibility (5,000,000/4000)*24/2250 = 13.3 m 3 /d/m The calculation is less than 17m 3 /d/m the well event qualifies as a ultra-marginal well event. Ultra-Marginal Royalty Calculation 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 = – Step 4: Calculate the Ultra-marginal Royalty Rate, UMRR UMRR: 27% * (1 – 0.544) = 12.3%

16 Ministry of Energy, Mines and Petroleum Resources Page 16. Coalbed Methane Royalty Program Condition Condition – Coalbed methane wells only Royalty Credit 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: e 3 m 3 Calculation – 27% * (1 – LPRF)

17 Ministry of Energy, Mines and Petroleum Resources Page 17. BC Oil & Gas Useful Links Related organizations : Oil and Gas Commission – Background: Oil and Gas Commission – Background: – Ministry of Energy, Mines and Petroleum Resources – Oil and Gas Division Responsibilities: Ministry of Energy, Mines and Petroleum Resources – Oil and Gas Division Responsibilities: – as/overview/ogd.htm as/overview/ogd.htm Ministry of Small Business and Revenue- Mineral, Oil and Gas Revenue Branch Ministry of Small Business and Revenue- Mineral, Oil and Gas Revenue Branch – alty_handbook.htm alty_handbook.htm Ministry of Energy, Mines and Petroleum Resources - Titles Division: Ministry of Energy, Mines and Petroleum Resources - Titles Division: – e/default.htm e/default.htm


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