BC Tenure Regulations CAPL

1. BC Tenure RegulationsCAPL October 19, 2010 Page 1.

2. SEMINAR OUTLINE PART 1 • Oil & Gas in British Columbia • Legislation and Incentive Initiatives • Clean Energy Act • Oil and Gas Activities Act • Royalty Credit Programs • First Nations Engagement • Relationships and Agreements • Caribou Conservation and Habitat Protection Page 2.

3. SEMINAR OUTLINE PART 1 (continued) • Community and Landowner Engagement • Crown Sale and Referral Process • Organizational Structure and Function • Accomplishments and Initiatives PART 2 – Tenure • Resources for Tenure Managers • Introduction to BC’s tenure, land, and zone systems • Permits

4. SEMINAR OUTLINE PART 2 (continued) • Drilling Licences • Leases PART 3 – Payments & Instruments • e-Payments • Transfers, Encumbrances, and Related

5. Key Contacts Laurel Nash, Executive Director, Oil and Gas Titles Branch 250-952-0335 POSTINGS, PETROLEUM TITLES ONLINE, WEBMASTER, MAPPING Chris Blaney, Manager, Crown Sale and GIS Services 250-952-0344 PRE-SALE CONSULTATIONS, TENURE CAVEATS May Mah-Paulson, Director, Resource Development 250-952-0709 GEOLOGY, ZONE DESIGNATION Dave Richardson, Manager, Geology 250-952-0359 DRILLING LICENCES, WORK PROGRAMS, PERMITS Terry Branscombe, Senior Tenure Management Advisor 250-952-0340 DRILLING LICENCES, LEASE CONTINUATIONS Cindy Kocol, Tenure Management Advisor250-952-0342 DRILLING LICENCES, TRANSFERS, ENCUMBRANCES Christine McCarthy, Tenure Management Advisor250-952-0341 E-PAYMENTS, BCeID, PRE-AUTHORIZED DEBITS Carolyn Desjardins, Manager, Revenue Collection, Reconciliation and Reporting250-356-1059 GENERAL INQUIRIES 250-952-0333 WWW: http://www.empr.gov.bc.ca/titles/ogtitles pngtitles@gov.bc.ca

6. OIL AND GAS IN BRITISH COLUMBIA

7. CURRENT MEMPR INITIATIVES

8. Clean Energy Act (2010) • The Clean Energy Act, 2010, builds on the foundation of the BC Energy Plan and the Climate Action Plan • Three policy goals: • Ensuring electricity self sufficiency at low rates; • Harnessing BC’s clean power potential to create jobs in every region; and • Strengthening environmental stewardship and reducing greenhouse gases.

9. BC Oil & Gas Activities Act (OGAA) • OGAA passed in 2008; • Became law October 4, 2010; • See OGC website: http://www.ogc.gov.bc.ca/OGAA/

10. OGAA: Consolidation of legislation The amended version of the P&NG Act is on the BC Laws website: • http://www.bclaws.ca Petroleum & Natural Gas Act Tenure Admin. Explore & Develop OGAA Pipeline Act OGC Act Mediation and Arbitration Board changed to Surface Rights Board: www.surfacerightsboard.bc.ca Specified Enactment Powers

11. OGAA: Summary of Changes • Modernized, consolidated regulatory framework; • Flexibility & innovation; • Enhanced C&E framework; • Stakeholder input & comments; • Protect/manage environmental values • Formal review and appeal process

12. OGAA: Summary of Changes • Permitting: • Consultation & notification • OGC must consider Government’s Environmental Objectives (GEOs) • Review & appeal provisions • Compliance history considered • Activities: • Industry standards • Results-based requirements • Environmental protection & management • Safety & security

13. Targeted Royalty Programs

14. How Can These Royalty Programs Help Develop Unconventional Resources? • These programs can be combined in many cases, thus providing enough margin to move certain projects to economic territory. • Example - a well that… • a road project (an infrastructure credit), • is drilled in the “summer”, • is deep, and • is marginal… • …can receive all the associated benefits for those programs. • For more information: http://www.empr.gov.bc.ca/OG/oilandgas/royalties/Pages/default.aspx

15. Infrastructure Royalty Credit ProgramOil and Gas Stimulus Package • Infrastructure Royalty Credit Program (2010): • Facilitates increased oil and gas exploration and production in under-developed areas and extends the drilling season to allow for year-round activity • Issued a request for applications for road and pipeline projects in March 2010 • In August 2010, $115.6 million in royalty credits were awarded to 16 companies for 21 natural gas and petroleum infrastructure projects • Stimulus Package (August 2009): • 4 royalty initiatives and 2 regulatory initiatives designed to address economic slowdown by generating new stimulus for drilling in B.C.

16. Long Term Results: Becoming a Leader in North American Natural Gas Markets • Second natural gas producer in Canada, after Alberta • Increasing market share in Canada • Potential to triple production as unconventional natural gas develops – existing production 1 Tcf/year

17. FIRST NATION AND COMMUNITY ENGAGEMENT Page 17.

18. First Nation Engagement • Recent legal decisions confirm Aboriginal rights exist in B.C. Means consultation at a pre-tenure stage • Aboriginal and Treaty rights are protected under section 35 of the Constitution Act • 1998 Halfway (Metachia) decision confirmed government must consult • Results in change in government policy dealing with First Nations and confirms need to consult at the tenures stage

19. First Nation Engagement • Assign caveats in the Notice of Public Tender that respond to First Nation comments • "Oil and Gas Tenure 101" Presentations to Chief & Council and Lands Staff • Responsive to First Nation comments • Provide more detailed mapping and information for specific sites • Meet to resolve area-specific issues

20. New Relationship • Significant steps taken by government to recognize and reconcile the gap between aboriginal people and other British Columbians • Milestones reached: • Improved Treaty process • Reconciliation and Economic Benefit Agreement • Revenue Sharing Agreements on Mine Projects • Land Use Plans • Language and culture preservation • Support for aboriginal learners • Improved health care and housing • For further information visit: http://www.gov.bc.ca/themes/new_relationship.html

21. Treaty 8 • Treaty originally signed in 1899 • For further information visit: http://www.ainc-inac.gc.ca/al/hts/tgu/pubs/t8/trty8-eng.asp#chp4

22. Economic Benefits Agreement • Outlines obligations of British Columbia • Outlines when benefits are paid to a band • Outlines dispute resolution procedures • Outlines obligations of Treaty 8 First Nations • Doig River • Prophet River • West Moberly • EBA enables resource management agreements; more specifically, the Long Term Oil and Gas Agreement. • For further information visit:http://www.gov.bc.ca/arr/treaty/key/down/treaty_8_eba.pdf

23. T8-BC Long Term Oil and Gas Agreement (LTOGA) • The Ministry and the OGC signed a completed LTOGA with BC-based Treaty 8 First Nations in the Spring of 2009. • LTOGA is separate from the OGC’s Consultation Process Agreements • The main categories of the agreement are the Crown land disposition process, emergency response management, compliance and enforcement, reclamation, collaborative projects and commitment to ongoing communication and educational opportunities. • The LTOGA will be administered by an Implementation Committee that will find efficiencies by working with the CPA Implementation Committee

24. T8-BC Long Term Oil and Gas Agreement (LTOGA): Industry Engagement • During negotiations, the Ministry/OGC and Treaty 8 had a series of workshops with First Nation and Industry participation (including CAPL and CAPP representatives). • A December 2008 workshop focused on identifying issues and collaborative solutions in the tenuring process. The negotiation teams used the ideas and input from the workshops in drafting the Agreement. • In September 2009 the Ministry/OGC and Treaty 8 held a follow up workshop that focused on how First Nation related terms and conditions could be made more clear and transparent for First Nations, industry and Government. • The Parties will continue to engage with Industry in the implementation of the Agreement.

25. Fort Nelson First Nation • Fort Nelson First Nation (FNFN) were an original signatory to the Treaty 8 Economic Benefit Agreement (EBA) and participant in the negotiation of the Collaborative Management Agreements, including the Long Term Oil and Gas Agreement. • In April of 2009, FNFN voted to withdraw from the Treaty 8 EBA in favour of pursuing solutions outside of the Treaty 8 EBA framework. • The Ministry and the OGC are currently working with the leadership of FNFN and the Horn River Producers Group with regard to their interests and concerns.

26. Treaty 8 Consultation Process Agreements • Treaty 8 Consultation Process Agreements (CPA) are due to expire March 31, 2011. • The CPA Implementation Committee is currently undertaking a review to prepare for the renewal of these agreements. • Implementation Committee is composed of Treaty 8 land managers and representatives from the OGC and MEMPR.

27. Caribou Conservation and Habitat Protection • Northeastern BC encompasses the western extent of boreal caribou in Canada, which are listed as threatened and Priority 1 species for action under the BC Conservation Framework. • 500,000 hectares of boreal caribou habitat have been set aside as “resource review areas” (RRAs) where no natural gas and petroleum tenure requests will be accepted for 5 years.  • The RRAs will be revisited after five years when the effectiveness of caribou population management measures and population assessments are better understood.  • Government will collaborate on this step with First Nations, industry and stakeholders. • Key aspects of Boreal Caribou management and recovery will be formalized and enabled through the implementation of the Oil and Gas Activity Act (OGAA) Environmental Protection and Management Regulation.

28. Resource Review Areas (RRAs) • Source: • http://www.empr.gov.bc.ca/Titles/OGTitles/InfoLetters/IssueDate/Pages/TACRD-10-10.aspx

29. Community Engagement

30. Northeast Energy and Mines Advisory Committee - NEEMAC • NEEMAC was established in 2006 to facilitate community engagement in relation to energy, mining and petroleum issues • 2008 achievements: • Landowner Notification Program • Oil and Gas Activities Act input • Coordination Agreement between OGC and Mediation and Arbitration Board • Creation of Regional Executive Director position in NE British Columbia • Subcommittee consisting of industry, landowners and govt., working on a Standard Surface Lease Agreement for private landowners to be included as part of LON Program • For further information on NEEMAC visit: http://www.empr.gov.bc.ca/MACR/CommunityRelations/Pages/NEEMAC.aspx

31. Landowner Notification • Program initiated in April 2008 • Landowner Notification Program provides landowners with: • information about oil and gas exploration and development, and • opportunity to provide companies surface feature information. • The highest bidder is provided checklist(s) with Landowner comments • For further information visit: http://www.landownernotification.gov.bc.ca/

32. Standard Surface Lease (Voluntary) • Negotiated 2007-08: CAPL, SEPAC, CAPP together with MEMPR and Land Owner groups • Final Version “Completed” with organizational commitment: September, 2009 • Included in BC Landowner Notification materials: October 2009

33. Surface Lease Agreement - Affirmation “A surface lease between landowners and industry members is an agreement between parties, and may need to be tailored to address the specific concerns of each party. The Canadian Association of Petroleum Producers encourages its members to use appropriate clauses of the sample agreement to enter into site specific agreements. The only exception to this is clause 4. These provisions are required by the provisions of B.C. Reg.497/74 and, as such, must form a part of every surface lease in British Columbia.”

34. Farmers Advocate • Office opened October 1, 2010, funded by Peace River Reg. Dist. & MEMPR • Based in Dawson Creek, B.C. • Provide a no-fee information service to NE B.C. rural landowners related to oil and gas development: • Disseminating information • Resolving problems • Emphasizing facilitation and negotiation • An independent, effective gateway to existing organizations • For further information visit: www.farmersadvocate.ca

35. ACQUIRING OIL AND GAS TENURE IN B.C.

36. Subsurface Ownership Twoforms of subsurface ownership: • Crown: MEMPR issues Crown-owned subsurface tenures and consults on all of these requested issuances • Freehold: There are cases where subsurface is “freehold” and owned by the private parties. These may be for all rights or specific rights e.g. coal, phosphate and PNG • OGC regulates all industry activity, whether Crown or freehold

37. Oil & Gas Tenure • Tenure does provide : • exclusive rights to the subsurface resource • right to apply to the Oil and Gas Commission (OGC) for activities approval • Tenure does not provide: • the authority to conduct any activities on lands (e.g. drilling)

38. Sale Process • Monthly auctions of tenure • Industry nominates parcels for each auction • Internal review • Proposed parcels referred to First Nations, local governments and Provincial agencies • If parcel accepted for sale “posting”, then caveats added to proposed tenure • Proposed tenure is advertised seven weeks prior to sale date • Interested parties submit sealed bids • If sold (bids not always accepted), highest cash offer

39. Oil and Gas Posting Request and Sale Process 12 sales per year 106-day process Posting Requests Internal Review and Process Distribute Referrals Provincial Ministries Local/Regional Governments First Nations Returns Compiled for Analysis Determine Crown PNG Rights Notice of Public Tender Landowner Notification Monthly Rights Auction

40. Posting Request • Pre-tenure process is initiated by posting requests by industry for PNG rights • Companies request parcels for each sale, which includes the following information: • Specific formations(s) requested • Parcel configuration if more than one parcel is requested • Companies do not provide information on what development will take place or what resource they are targeting

41. Internal Review and Process • Parcels are reviewed to identify if MEMPR is able and willing to send parcels out for review • The Oil and Gas Commission (OGC) participates in this internal review process • For example: • Are the parcels configured correctly (i.e., on spacing area) • Are the rights available • Do the parcels overlap: • Previously deferred parcel • Land use planning areas (PMT) • Areas which require Pre-Tenure Plan (MK)

42. Referral Process • First Nations, local governments, and Crown Agencies are sent referral packages. • MEMPR encourages FN to provide: • Site-specific information when available: Gravesites, cabins, campsites, etc., and • What current treaty activities are taking place, on what species and when these activities are occurring

43. Referral Comments • Comments requested within four weeks • Comments generally focus on high level access management issues, do include some site specific information • Comments are assessed to determine next steps: • Proceed to disposition • Not to proceed for disposition • Further consultation/research

44. Referral Comments Local/Regional Governments Provincial Ministries First Nations • Review parcels for conflict with: • reserves • sacred areas/ burial grounds • hunting sites • traditional use sites • Review parcels for conflict with: • Official Community Plans • residential areas • drinking water supply areas • Review parcels for conflict with: • wildlife habitats • other tenure holders (e.g. grazing, forest, coal)

45. Caveats Created • Where appropriate, comments are used to assign caveats to reflect issues or concerns that should be considered prior to development. • Caveats identify high level issues which: • The OGC should be aware of at the activity stage • Proponents should be aware of when acquiring tenure • Identify that potential mitigation strategies may be required at the activity stage

46. Caveat Examples Caveats – near First Nation areas (examples) • X FIRST NATION HAS REQUESTED ENGAGEMENT PRIOR TO ON-THE-GROUND ACTIVITIES. TRADITIONAL USE, ARCHAEOLOGICAL, OR WILDLIFE ASSESSMENTS AND MITIGATION PLANS MAY BE REQUESTED PRIOR TO ON-THE-GROUND ACTIVITIES. • PARCEL OVERLAPS TRAPLINE REGISTERED TO FIRST NATION COMMUNITY MEMBER

47. Caveat Examples Caveat – near community/residential area (example) • PARCEL CONTAINS OR IS NEAR RESIDENTIAL DEVELOPMENTS. THE OIL AND GAS COMMISSION PUBLIC ENGAGEMENT AND DISPUTE RESOLUTION MANAGER RECOMMENDS THAT OPERATORS CONSIDER REDUCING OR ELIMINATING FLARING, AND MANAGE NOISE AS PER BC NOISE CONTROL BEST PRACTICES GUIDELINES.

48. Caveat Examples Caveats – in the Horn River (examples) • PARCEL IS LOCATED WITHIN HORN RIVER, MONTNEY OR CORDOVA EMBAYMENT BOUNDARIES IN WHICH SHALE GAS RECOVERY AND TECHNOLOGY IS ANTICIPATED; PARTICIPATION IN A WATER OR ACCESS PLANNING PROCESS WITH OTHER TENURE HOLDERS MAY BE REQUIRED TO COORDINATE ACTIVITIES, EXPLORATION AND DEVELOPMENT.

49. Enhanced Collaboration with the OGC • We have been working with the OGC to look for opportunities to better link the MEMPR pre-tenure referral process with that of the OGC activity application referral process • MEMPR assigns caveats to individual tenure parcels based on comments received through the referral process and internal analysis; this includes discussions with the OGC to ensure there is a common understanding of the intent of the assigned caveats • At the activity application stage, the OGC reviews caveats assigned to the relevant PNG tenure

50. Notice of Public Tender • Prepare full parcel description for publication.