ministry of energy, mines and petroleum resources page 1. bc royalty programs june 2006

.Ministry of Energy, Mines and Petroleum Resources

BC Royalty ProgramsBC Royalty Programs

June 2006June 2006

BC Royalty ProgramsBC Royalty Programs

June 2006June 2006


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


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


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)


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


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


Deep RoyaltyDeep RoyaltyDeep RoyaltyDeep Royalty


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


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


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


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


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


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%


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


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%


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)


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

ministry of energy, mines and petroleum resources page 1. bc royalty programs june 2006

Documents

deep royalty horizontal

deep royalty reentry

deep royalty programs

deep royalty program

cbm royalty program

year royalty holiday

transfer of royalty

ministry of energy