Transcript Slide 1

BC Royalty Programs
June 2006
Ministry of Energy, Mines and Petroleum Resources
Page 1.
Introduction
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1st Royalty program 2002
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CBM royalty program
OGDS 2003
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Deep, Marginal and Summer royalty programs
OGDS 2006
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Ultra-marginal royalty program
Currently working on
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Net profit program
Last year 1427 wells drilled & 1Tcf row gas produced
Royalty Program Comparison
Reference Price > $120/m3
30
Royalty Rate, %
25
20
Low Productivity Royalty
15
Ultra-marginal Royalty
Marginal Royalty
10
CBM Royalty
5
0
0
500
1,000
1,500
Rate, mcf/d
Ministry of Energy, Mines and Petroleum Resources
2,000
2,500
3,000
Page 2.
BC Royalty Programs
Overview
BC Royalty
Programs
Summer
Royalty
Program
Deep Royalty
Programs
• Deep
• Deep
Discovery
• Deep Re-entry
Marginal
Royalty
Program
Ultra-Marginal
Royalty
Program
Low
Productivity
Royalty
Program
Condition:
• Spud Date between April
01 & November 30
Conditions:
• Vertical Well Depth >
2500m
• Horizontal Well Depth >
2300m
Conditions:
• 12 month average Rate <
80 mcf/d/100m
• Monthly Production below
880 mcf/d
Condition:
• 12 month average Rate <
40 mcf/d/100m
Condition:
• Production < 175 mcf/d
Ministry of Energy, Mines and Petroleum Resources
Coalbed
Methane
Condition:
• Production < 600
mcf/d
Net Profit
Royalty
Program
Condition:
• Under Construction
Page 3.
Summer Royalty Program
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Condition
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Spud date between April 01 and
November 30
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Royalty Credit
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10% of the drilling and completion cost
to a max. of $100,000
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Application
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BC 25 Form (Summer Drilling Credit
Application)
Ministry of Energy, Mines and Petroleum Resources
Page 4.
Deep Royalty Program
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Mechanism:
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Royalty Credit designed to
recognize the increase costs
Requirement
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Applicable only for Wells
deeper than True Vertical
Depth
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2500 m for vertical wells
2300 m for horizontal wells
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Horizontal Well factor
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Implementation
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Spud date after December
01, 2003
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Application
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BC - 11 Notice of
Commencement or
Suspension of Operations
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OGC review
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No transfer of royalty
credits
Ministry of Energy, Mines and Petroleum Resources
Page 5.
Deep Vertical Well
Calculation
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Calculations
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Use tables (BHL east/west
line & gas composition)
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Royalty Credit = (CV + AD)*
PS
• CV = Cumulative Value; AD =
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Example
Incremental (Depth * $); PS =
Interest
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West special sour well at 3785m
working interest 35%
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CV at 3500m= $2.4 million
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AD: (3785-3500)*$700 =
$199,500
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Royalty Credit:
($2,400,000+$199,500)*0.35
=$909,825
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Ministry of Energy, Mines and Petroleum Resources
Page 6.
Deep Royalty
Ministry of Energy, Mines and Petroleum Resources
Page 7.
Deep Royalty
Horizontal Well Depth Calculation
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Horizontal Well Depth
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MDTP+HLF*(TMD-MDTP)
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Horizontal Length Factor (HLF)
Calculation
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MDTP is between 2300m &
2875m
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HLF=(30-0.035*(MDTP2300))/100
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MDTP >2875m HLF= 0.1
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Total Measured Depth (TMD)
Calculation
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Depth reported from the End
of Well report
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Example
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MDTP = 2600m & TMD =
2800m
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HLF: 30-0.035*(26002300))/100=0.195
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Horizontal Well depth:
2600+0.195*(28002600)=2639m
Ministry of Energy, Mines and Petroleum Resources
Page 8.
Deep Royalty
Re-Entry Well
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Qualification
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Application to Alter a
Well must be submitted
and approved before reentry
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TVD of the re-entry >
2300m
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Re-entry date after
December 01, 2003
Application
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BC - 11 Notice of
Commencement or
Suspension of
Operations
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OGC review
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No transfer of royalty
credits to another well
Ministry of Energy, Mines and Petroleum Resources
Page 9.
Deep Re-Entry Well
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Calculation
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Determine incremental distance
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Use Tables
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Formula (CV+AD)*SP
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Example
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TMDold= 5000m; TMDnew= 4550m &
Well location is on the west
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CV: 300m = $150,000
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IV: $500/m
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AD: (450m-300m)*$500/m= $75,000
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Re-entry Credit
• $150,000+$75,000 = $225,000
Ministry of Energy, Mines and Petroleum Resources
Page 10.
Deep Discovery Well
Exemption
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Qualifying Criteria
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New gas pool
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TVD > 4000m
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Rig release date after November 2003
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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
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Three year royalty holiday or
283,000,000m3 (~10bcf)
Application
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No application necessary
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OGC will determine if qualification are
met
Ministry of Energy, Mines and Petroleum Resources
Page 11.
Marginal Royalty Program
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Qualifying for the Marginal Royalty
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Well Production Rate
• 1st Qualifier
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First 12 month average rate < 80 mcf/d/100m (23m3/d/m)
• 2nd Qualifier
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Average Monthly Production Rate < 880 mcf/d (25 e3m3/d)
Royalty Calculations
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Base 9 Royalty: (9 * SP + 40 * (RP – SP))/RP; Min 9% & Max 27%
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Low Productivity Reduction Factor (LPRF)
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Select Price (SP) = 50 $/m3;
Reference Price 2006 (RP) = 285.7 $/m3
LPRF=((25-S)/25)2
Units = e3m3/d
Calculation
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27% * (1 – LPRF)
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Implementation
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Production start after July 01, 2003
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Application
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BC - 08 Monthly Production Statement
Ministry of Energy, Mines and Petroleum Resources
Page 12.
Marginal Royalty Program
Calculation
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Example
Total 12 month production (BC-S1): 7e6m3
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Production hours over that same period: 4000hrs
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Well depth 2300m
Eligibility Calculation
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• (7,000,000/4000)*24/2300 = 18.26m3/d/m
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The calculation is less than 23m3/d/m the well event qualifies as a
marginal well event.
Royalty Reduction Calculation
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Average daily volume: 17,000 m3
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Reference Price: $180/m3
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Step 1 LPRF
• ((25,000-17,000)/25,000)2
• LPRF = 0.1024
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Step 2 Marginal Royalty Rate
• 27% * (1 – 0.1024)
• Marginal Rate = 24.24%
Ministry of Energy, Mines and Petroleum Resources
Page 13.
Ultra Marginal Royalty Program
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Qualifying for the Ultra-Marginal Royalty
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Development & Exploration Outpost Wells
• 12 month average Rate < 40 mcf/d/100m (11m3/d/m)
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Exploratory Wildcat Wells
• 12 month average Rate < 60 mcf/d/100m (17m3/d/m)
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Shallow Wells Only
• Applicable only for Wells less than True Vertical Depth
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2300 m for horizontal wells
2500 m for vertical wells
Horizontal Well factor 100% of first 1000 meters and 50% of remainder
Royalty Calculations
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Base 9 Royalty: (9 * SP + 40 * (RP – SP))/RP (min 9% & max 27%)
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Low Productivity Reduction Factor (LPRF)
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LPRF=((60-S)/60)1.5
Unit = e3m3
Calculation
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Select Price (SP) = 50 $/m3; Reference Price 2005 (RP) = 285.7 $/m3
27% * (1 – LPRF)
Implementation
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Spud date after January 01, 2006.
Application
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BC – 08 Monthly Production Statement
Ministry of Energy, Mines and Petroleum Resources
Page 14.
Ultra-Marginal Royalty
Calculation
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Example
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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
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Horizontal Length Calculation
Eligibility Calculation
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Step 1: Ultra-marginal well depth (UMD)
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UMD = MDTP+1000+(TMD-(MDTP+1000)/2)
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TMD – MDTP = 2300 – 1200 = 1100m
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Hz section > 1000m
UMD: 1200+1000+((2300-(1200+1000))/2) = 2250m
Step 2: Check Eligibility
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(5,000,000/4000)*24/2250 = 13.3 m3/d/m
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The calculation is less than 17m3/d/m the well event qualifies as a ultra-marginal well event.
Ultra-Marginal Royalty Calculation
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Step 3: Calculate Ultra-marginal Reduction Factor, URF
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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
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UMRR: 27% * (1 – 0.544) = 12.3%
Ministry of Energy, Mines and Petroleum Resources
Page 15.
Coalbed Methane Royalty
Program
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Condition
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Coalbed methane wells only
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Royalty Credit
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$50,000 drilling credit
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Produced water management allowance
(PCOS)
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Royalty bank transferable to other CBM
wells
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Royalty Reduction
• Low Productivity Reduction Factor
– LPRF = ((17 – S)/17)2; Units: e3m3
• Calculation
– 27% * (1 – LPRF)
Ministry of Energy, Mines and Petroleum Resources
Page 16.
BC Oil & Gas Useful Links
Related organizations:
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Oil and Gas Commission – Background:
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http://www.ogc.gov.bc.ca/background.asp
Ministry of Energy, Mines and Petroleum Resources –
Oil and Gas Division Responsibilities:
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http://www.em.gov.bc.ca/subwebs/oilandg
as/overview/ogd.htm
Ministry of Small Business and Revenue- Mineral, Oil
and Gas Revenue Branch
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http://www.rev.gov.bc.ca/mog/oil_gas/roy
alty_handbook.htm
Ministry of Energy, Mines and Petroleum Resources Titles Division:
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http://www.em.gov.bc.ca/subwebs/Landsal
e/default.htm
Ministry of Energy, Mines and Petroleum Resources
Page 17.