Page Page 11..Ministry of Energy, Mines and Petroleum Resources
BC Royalty ProgramsBC Royalty Programs
June 2006June 2006
BC Royalty ProgramsBC Royalty Programs
June 2006June 2006
Page Page 22..Ministry of Energy, Mines and Petroleum Resources
IntroductionIntroductionIntroductionIntroduction
• 11stst Royalty program 2002 Royalty program 2002 – CBM royalty program
• OGDS 2003 OGDS 2003 – Deep, Marginal and Summer royalty programs
• OGDS 2006OGDS 2006– Ultra-marginal royalty program
• Currently working onCurrently working on– Net profit program
• Last year 1427 wells drilled & 1Tcf row gas producedLast year 1427 wells drilled & 1Tcf row gas produced
Royalty Program Comparison
Reference Price > $120/m3
0
5
10
15
20
25
30
0 500 1,000 1,500 2,000 2,500 3,000Rate, mcf/d
Roy
alty
Rat
e, %
Low Productivity Royalty
Ultra-marginal Royalty
Marginal Royalty
CBM Royalty
Page Page 33..Ministry of Energy, Mines and Petroleum Resources
BC Royalty Programs BC Royalty Programs OverviewOverview
BC Royalty Programs BC Royalty Programs OverviewOverview
BC Royalty Programs
Summer Royalty Program
Deep Royalty Programs
• Deep• Deep
Discovery• Deep Re-entry
Marginal Royalty Program
Ultra-Marginal Royalty Program
Condition:• Spud Date between April
01 & November 30
Conditions:• Vertical Well Depth >
2500m• Horizontal Well Depth >
2300m
Low Productivity
Royalty Program
Conditions:• 12 month average Rate <
80 mcf/d/100m• Monthly Production below
880 mcf/d
Condition:• 12 month average Rate <
40 mcf/d/100m
CoalbedMethane
Condition:• Production < 600
mcf/dCondition:
• Production < 175 mcf/d
Net Profit Royalty Program
Condition: • Under Construction
Page Page 44..Ministry of Energy, Mines and Petroleum Resources
Summer Royalty Summer Royalty ProgramProgram
Summer Royalty Summer Royalty ProgramProgram
• ConditionCondition– Spud date between April 01 and
November 30
• Royalty CreditRoyalty Credit– 10% of the drilling and completion
cost to a max. of $100,000
• ApplicationApplication– BC 25 Form (Summer Drilling Credit
Application)
Page Page 55..Ministry of Energy, Mines and Petroleum Resources
Deep Royalty Deep Royalty ProgramProgram
Deep Royalty Deep Royalty ProgramProgram
• 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
• ImplementationImplementation– Spud date after
December 01, 2003
• ApplicationApplication– BC - 11 Notice of
Commencement or Suspension of Operations
– OGC review– No transfer of royalty
credits
Page Page 66..Ministry of Energy, Mines and Petroleum Resources
Deep Vertical Well Deep Vertical Well CalculationCalculation
Deep Vertical Well Deep Vertical Well CalculationCalculation
• CalculationsCalculations– Use tables (BHL east/west
line & gas composition)
– Royalty Credit = (CV + AD)* PS
• CV = Cumulative Value; AD = Incremental (Depth * $); PS = Interest
• ExampleExample– 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
Page Page 77..Ministry of Energy, Mines and Petroleum Resources
Deep RoyaltyDeep RoyaltyDeep RoyaltyDeep Royalty
Page Page 88..Ministry of Energy, Mines and Petroleum Resources
Deep RoyaltyDeep RoyaltyHorizontal Well Depth Horizontal Well Depth
CalculationCalculation
Deep RoyaltyDeep RoyaltyHorizontal Well Depth Horizontal Well Depth
CalculationCalculation• Horizontal Well DepthHorizontal Well Depth
– MDTP+HLF*(TMD-MDTP)
• Horizontal Length Factor (HLF) Horizontal Length Factor (HLF) CalculationCalculation
– MDTP is between 2300m & 2875m
– HLF=(30-0.035*(MDTP-2300))/100
– MDTP >2875m HLF= 0.1
• Total Measured Depth (TMD) Total Measured Depth (TMD) CalculationCalculation
– Depth reported from the End of Well report
• ExampleExample– MDTP = 2600m & TMD =
2800m
– HLF: 30-0.035*(2600-2300))/100=0.195
– Horizontal Well depth: 2600+0.195*(2800-2600)=2639m
Page Page 99..Ministry of Energy, Mines and Petroleum Resources
Deep RoyaltyDeep RoyaltyRe-Entry WellRe-Entry WellDeep RoyaltyDeep RoyaltyRe-Entry WellRe-Entry Well
• QualificationQualification– 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
• ApplicationApplication– BC - 11 Notice of
Commencement or Suspension of Operations
– OGC review– No transfer of royalty
credits to another well
Page Page 1010..Ministry of Energy, Mines and Petroleum Resources
Deep Re-Entry WellDeep Re-Entry WellDeep Re-Entry WellDeep Re-Entry Well
• CalculationCalculation– Determine incremental distance– Use Tables– Formula (CV+AD)*SP
• ExampleExample– 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
Page Page 1111..Ministry of Energy, Mines and Petroleum Resources
Deep Discovery Well Deep Discovery Well ExemptionExemption
Deep Discovery Well Deep Discovery Well ExemptionExemption
• Qualifying CriteriaQualifying 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 CreditRoyalty Credit– Three year royalty holiday or
283,000,000m3 (~10bcf)• ApplicationApplication
– No application necessary– OGC will determine if qualification
are met
Page Page 1212..Ministry of Energy, Mines and Petroleum Resources
Marginal Royalty ProgramMarginal Royalty ProgramMarginal Royalty ProgramMarginal Royalty Program
• Qualifying for the Marginal RoyaltyQualifying 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 CalculationsRoyalty 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)
• ImplementationImplementation– Production start after July 01, 2003
• ApplicationApplication– BC - 08 Monthly Production Statement
Page Page 1313..Ministry of Energy, Mines and Petroleum Resources
Marginal Royalty Marginal Royalty Program CalculationProgram Calculation
Marginal Royalty Marginal Royalty Program CalculationProgram Calculation
• ExampleExample– Total 12 month production (BC-S1): 7e6m3
– Production hours over that same period: 4000hrs– Well depth 2300m
• Eligibility CalculationEligibility 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 CalculationRoyalty 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%
Page Page 1414..Ministry of Energy, Mines and Petroleum Resources
Ultra Marginal Royalty ProgramUltra Marginal Royalty ProgramUltra Marginal Royalty ProgramUltra Marginal Royalty Program
• Qualifying for the Ultra-Marginal RoyaltyQualifying 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 CalculationsRoyalty 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)
• ImplementationImplementation– Spud date after January 01, 2006.
• ApplicationApplication– BC – 08 Monthly Production Statement
Page Page 1515..Ministry of Energy, Mines and Petroleum Resources
Ultra-Marginal Royalty Ultra-Marginal Royalty CalculationCalculation
Ultra-Marginal Royalty Ultra-Marginal Royalty CalculationCalculation
• ExampleExample• 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 CalculationEligibility 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 CalculationUltra-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%
Page Page 1616..Ministry of Energy, Mines and Petroleum Resources
Coalbed Methane Coalbed Methane Royalty ProgramRoyalty ProgramCoalbed Methane Coalbed Methane Royalty ProgramRoyalty Program
• ConditionCondition– Coalbed methane wells only
• Royalty CreditRoyalty 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)
Page Page 1717..Ministry of Energy, Mines and Petroleum Resources
BC Oil & Gas Useful BC Oil & Gas Useful LinksLinks
BC Oil & Gas Useful BC Oil & Gas Useful LinksLinks
Related organizationsRelated organizations::• Oil and Gas Commission – Background:Oil and Gas Commission – Background:
– http://www.ogc.gov.bc.ca/background.asp
• Ministry of Energy, Mines and Petroleum Ministry of Energy, Mines and Petroleum Resources – Oil and Gas Division Resources – Oil and Gas Division Responsibilities:Responsibilities:
– http://www.em.gov.bc.ca/subwebs/oilandgas/overview/ogd.htm
• Ministry of Small Business and Revenue- Ministry of Small Business and Revenue- Mineral, Oil and Gas Revenue BranchMineral, Oil and Gas Revenue Branch
– http://www.rev.gov.bc.ca/mog/oil_gas/royalty_handbook.htm
• Ministry of Energy, Mines and Petroleum Ministry of Energy, Mines and Petroleum Resources - Titles Division:Resources - Titles Division:
– http://www.em.gov.bc.ca/subwebs/Landsale/default.htm