1. 1. British Columbia Oil & Gas Development Strategy for the Heartlands (OGDS) “ Making British Columbia the most competitive oil and gas jurisdiction in North America ” British Columbia Oil & Gas Development Strategy for the Heartlands (OGDS) “ Making British Columbia the most competitive oil and gas jurisdiction in North America ”

2. 2. Background   Premier and ministers met with CAPP in January 2003.   Agreed to short-term action plans and longer-term visions.   OGDS was announced in June 2003.   Additional initiatives were announced in November 2003.

3. 3. OGDS Action Plan   Four key pillars: RoadsRoyalties Service SectorRegulation

4. 4. Roads   Comprehensive infrastructure vision.   Promote better access to resources through improved road infrastructure.   Consideration given to the economic benefits of resource development.   Immediate opportunity for the Sierra Yoyo Desan (SYD) Road in NEBC.

5. 5. SYD Road

6. 6.   Public Private Partnership (P3).   Government / Industry Funded.   Long term solution, 15-years.   Net rates stay the same.   December 2003 transition. Proposal Concept

7. 7.   Lower costs.   Longer season.   Acceleration of programs.   Summer drilling ties in gas for winter prices.   Increased industry and provincial revenues. Benefits

8. 8. Project Milestones 1. 1. Agreement in Principle with Road Users – Completed 2. 2. Treasury Board & Cabinet approval – Completed 3. 3. Establishment of the new governance structure – Completed 4. 4. Joint Management Agreement – with Stakeholders for Signature 5. 5. Procurement of a P3 Partner – Closes Nov 28, 2003 6. 6. Transfer of Management – Dec 1, 2003 7. 7. Finalize and sign 15-year Concession Agreement ~ Jan 2004

9. 9. Infrastructure Vision   SYD is one immediate example.   Broader infrastructure vision encompasses:  Multi-season capacity  Coordinated effort  Multiple users  Government contribution   $30 Million Royalty Credits Annually.

10. 10.

11. 11. Regulatory Streamlining   MEM and the OGC targeted regulation reductions.   OGC Act, P&NG Act and Pipeline Act rewrite – single legislation, results based.   Regulatory Best Practices - reduction, harmonization and streamlining across government to support oil and gas development.   Midstream Strategy.

12. 12. Service Sector Strategy   Service Sector Strategy initiated to identify those elements that support and/or challenge business growth   Two pronged approach: 1. Identify and prioritize issues, and 2. Develop and execute work plans to deliver upon recommendations

13. 13. Service Sector Strategy – next steps   Created Service Sector Strategy Committee   Implement Service Sector Strategy Recommendations   $500K Skills Development Partnership Capitalize on advantages   Cabinet Approval granted Nov. 14/03

14. 14. Royalties   Royalties targeted to opportunities: DeepExploration Marginal Play Development Summer Expanding the Drilling Season Unconventional and New Basins New Resource Opportunities

15. 15. Deep Royalty Program Modified   New Deep Royalty Program Modified based on spud date between November 30, 2003 and July 1, 2008.   New Deep Royalty Program Modified based on the principle of ‘Measured Depth to Top of Pay’   Previous Deep Royalty Program valid for wells spud between June 30, 2003 and December 1, 2003.   Previous Deep Royalty Program was based on the principle of ‘True Vertical Depth to Top of Pay’.

16. 16. Producing Formation True Vertical Depth Qualifier 2500m Pool Pay Measured Depth to Top of Pay Well Ground Well head Table Depth = “Measured Depth to Top of Pay” Deep Vertical Wells

17. 17. Producing Formation True Vertical Depth Qualifier 2500m Pool Pay Measured Depth to Top of Pay Well Ground Well head Table Depth = “Measured Depth to Top of Pay” Deep Directional Wells

18. 18. Producing Formation True Vertical Depth Qualifier 2300m Pool Measured Depth to Top of Pay Well Ground Well head Total Measured Depth Horizontal Length = “Total Measured Depth” less “Measured Depth to Top of Pay” Table Depth = “Measured Depth to Top of Pay” plus “X% of Horizontal Length” where “X%” varies from 10% to 30% and is called the Horizontal Length Factor Deep Horizontal Wells

19. 19. Deep Well Location   Analysis of drilling costs supports two separate schedules defined by drilling location:  “East” lower cost  “West” higher cost WestEast

20. 20. Deep Royalty Credit Schedule West Special Sour Depth (m) Cumulative Value $000 Incremental Value $/Metre 2500 0 4,200 3000 2,100 600 3500 2,400 700 4000 2,750 800 4500 3,150 900 5000 3,600 1,000 5500 4,100 WestSweet Depth (m) Cumulative Value $000 Incremental Value $/Metre 2500 0 3,800 3000 1,900 550 3500 2,175 600 4000 2,475 700 4500 2,825 800 5000 3,225 900 5500 3,675

21. 21. Deep Reentry Royalty Program   Based on Reentry Date between November 30, 2003 and July 1, 2008.   Based on the principle of ‘Incremental Drilling Distance’

22. 22. New Producing Formation True Vertical Depth Qualifier 2300m New Pool Well Ground Well head Reentry Table: “Incremental Drilling Distance” Deep Re-entry Wells Old Producing Formation Incremental Drilling Distance Re-entry Lateral (min 100m, max 1500m) Old Pool Note: re-entry laterals can be at any angle

23. 23. Deep Reentry Well Location   Analysis of drilling costs supports two separate schedules defined by drilling location:  “East” lower cost  “West” higher cost WestEast

24. 24. Deep Reentry Royalty Credit Schedule

25. 25. Deep Discovery Well Royalty Program  Based on Rig Release Date between November 30, 2003 and July 1, 2008.  Based on the principle of ‘True Vertical Depth to Top of Pay’ deeper than 4000m.  Benefit: Lesser of 3 year royalty holiday or 10 Bcf of royalty free gas.

26. 26. Marginal Well Royalty   Marginal Well Royalty targeted influence life-cycle perspective.  Decision to drill   Marginal well royalty raises economics up to “half-way” economic (0.15 PIR).

27. 27. What’s A Marginal Well?   Qualifying period until June 30, 2008.   Two thresholds:  wells under threshold of 80 mcf/d/100m;  production under 880 mcf/d.

28. 28. Marginal Royalty Curve

29. 29. Summer Drilling Royalty Credit   Spread activity over a longer period.   Benefits for producers, service industry, government and the local communities.   Lump sum royalty credit for wells drilled between April 1 and November 30.   The lesser $100,000 or 10% of drilling and completion costs.   Available until November 2005.

30. 30. Unconventional Gas Royalty Strategy  Applies to tight, shale, enhanced gas recovery and new basins;  High capital and high risk;  Net profit mechanism;  Low royalties until payout (1-2%), full royalty afterwards (25-30%);  Call for proposals in January.

31. 31. Conclusion Opportunity Increased Activity Increased Profits Increased Royalty

32. 32. David Molinski, Executive Director, Markets & Fiscal Analysis, Energy and Mines 250-952-0518 Marc Jackson, Senior Policy Advisor, Energy and Mines 250-952-0304 Mark Hayes, Manager, Resource Geology, Energy and Mines 250-952-0364 Gord Lee, Manager, Validation and Audit, Provincial Revenue 250-952-0214 Carmine Vertone, Supervisor, Special Projects, Energy and Mines 250-952-0322 Ministry HomePage: http:\\www.gov.bc.ca\emhttp:\\www.gov.bc.ca\em Return to OGDS Home:OGDS Home