BC Royalty Programs June 2006 - PowerPoint PPT Presentation

• 1st Royalty program 2002
• CBM royalty program
• OGDS 2003
• Deep, Marginal and Summer royalty programs
• OGDS 2006
• Ultra-marginal royalty program
• Currently working on
• Net profit program
• Last year 1427 wells drilled & 1Tcf row gas produced

• Condition
• Spud date between April 01 and November 30
• Royalty Credit
• 10% of the drilling and completion cost to a max. of $100,000
• Application
• BC 25 Form (Summer Drilling Credit Application)

• Mechanism:
• Royalty Credit designed to recognize the increase costs
• Requirement
• Applicable only for Wells deeper than True Vertical Depth
• 2500 m for vertical wells
• 2300 m for horizontal wells
• Horizontal Well factor
• Implementation
• Spud date after December 01, 2003
• Application
• BC - 11 Notice of Commencement or Suspension of Operations
• OGC review
• No transfer of royalty credits

• Calculations
• Use tables (BHL east/west line & gas composition)
• Royalty Credit = (CV + AD)* PS
• CV = Cumulative Value; AD = Incremental (Depth * $); PS = Interest
• Example
• 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

• Horizontal Well Depth
• MDTP+HLF*(TMD-MDTP)
• Horizontal Length Factor (HLF) Calculation
• MDTP is between 2300m & 2875m
• HLF=(30-0.035*(MDTP-2300))/100
• MDTP >2875m HLF= 0.1
• Total Measured Depth (TMD) Calculation
• Depth reported from the End of Well report
• Example
• MDTP = 2600m & TMD = 2800m
• HLF: 30-0.035*(2600-2300))/100=0.195
• Horizontal Well depth: 2600+0.195*(2800-2600)=2639m

• Qualification
• 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
• Application
• BC - 11 Notice of Commencement or Suspension of Operations
• OGC review
• No transfer of royalty credits to another well

• Calculation
• Determine incremental distance
• Use Tables
• Formula (CV+AD)*SP
• Example
• 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

• Qualifying 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 Credit
• Three year royalty holiday or 283,000,000m3 (~10bcf)
• Application
• No application necessary
• OGC will determine if qualification are met

• Qualifying 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 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)
• Implementation
• Production start after July 01, 2003
• Application
• BC - 08 Monthly Production Statement

• Example
• Total 12 month production (BC-S1): 7e6m3
• Production hours over that same period: 4000hrs
• Well depth 2300m
• Eligibility 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 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%

• Qualifying 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 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)
• Implementation
• Spud date after January 01, 2006.
• Application
• BC – 08 Monthly Production Statement

• Example
• 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 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 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%

• Condition
• Coalbed methane wells only
• Royalty 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)

Related organizations:

• Oil and Gas Commission – Background:
• http://www.ogc.gov.bc.ca/background.asp
• Ministry of Energy, Mines and Petroleum Resources – Oil and Gas Division Responsibilities:
• http://www.em.gov.bc.ca/subwebs/oilandgas/overview/ogd.htm
• Ministry of Small Business and Revenue- Mineral, Oil and Gas Revenue Branch
• http://www.rev.gov.bc.ca/mog/oil_gas/royalty_handbook.htm
• Ministry of Energy, Mines and Petroleum Resources - Titles Division:
• http://www.em.gov.bc.ca/subwebs/Landsale/default.htm