British Columbia Oil

1
British Columbia Oil Gas Development Strategy
for the Heartlands (OGDS) Making British
Columbia the most competitive oil and gas
jurisdiction in North America
2
Background

• Premier and ministers met with CAPP in January
  2003.
• Agreed to short-term action plans and longer-term
  visions.
• OGDS was announced in June 2003.
• Additional initiatives were announced in November
  2003.

3
OGDS Action Plan

• Four key pillars

4
Roads

• Comprehensive infrastructure vision.
• Promote better access to resources through
  improved road infrastructure.
• Consideration given to the economic benefits of
  resource development.
• Immediate opportunity for the Sierra Yoyo Desan
  (SYD) Road in NEBC.

5
SYD Road
6
Proposal Concept

• Public Private Partnership (P3).
• Government / Industry Funded.
• Long term solution, 15-years.
• Net rates stay the same.
• December 2003 transition.

7
Benefits

• Lower costs.
• Longer season.
• Acceleration of programs.
• Summer drilling ties in gas for winter prices.
• Increased industry and provincial revenues.

8
Project Milestones

• Agreement in Principle with Road Users
  Completed
• Treasury Board Cabinet approval Completed
• Establishment of the new governance structure
  Completed
• Joint Management Agreement with Stakeholders
  for Signature
• Procurement of a P3 Partner Closes Nov 28, 2003
• Transfer of Management Dec 1, 2003
• Finalize and sign 15-year Concession Agreement
  Jan 2004

9
Infrastructure Vision

• SYD is one immediate example.
• Broader infrastructure vision encompasses
• Multi-season capacity
• Coordinated effort
• Multiple users
• Government contribution
• 30 Million Royalty Credits Annually.

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Regulatory Streamlining

• MEM and the OGC targeted regulation reductions. 
• OGC Act, PNG Act and Pipeline Act rewrite
  single legislation, results based.
• Regulatory Best Practices - reduction,
  harmonization and streamlining across government
  to support oil and gas development.
• Midstream Strategy.

12
Service Sector Strategy

• Service Sector Strategy initiated to identify
  those elements that support and/or challenge
  business growth
• Two pronged approach
• Identify and prioritize issues, and
• Develop and execute work plans to deliver upon
  recommendations

13
Service Sector Strategy next steps

• Created Service Sector Strategy Committee
• Implement Service Sector Strategy Recommendations
• 500K Skills Development Partnership Capitalize
  on advantages
• Cabinet Approval granted Nov. 14/03

14
Royalties

• Royalties targeted to opportunities

15
Deep Royalty Program Modified

• New Deep Royalty Program Modified based on spud
  date between November 30, 2003 and July 1, 2008.
• New Deep Royalty Program Modified based on the
  principle of Measured Depth to Top of Pay
• Previous Deep Royalty Program valid for wells
  spud between June 30, 2003 and December 1, 2003.
• Previous Deep Royalty Program was based on the
  principle of True Vertical Depth to Top of Pay.
  

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Deep Directional Wells
Well head
Ground
True Vertical Depth Qualifier 2500m
Measured Depth to Top of Pay
Well
Producing Formation
Pay
Pool
Table Depth Measured Depth to Top of Pay
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Deep Horizontal Wells
Well head
Ground
True Vertical Depth Qualifier 2300m
Measured Depth to Top of Pay
Well
Total Measured Depth
Producing Formation
Pool
Horizontal Length Total Measured Depth less
Measured Depth to Top of Pay
Table Depth Measured Depth to Top of Pay plus
X of Horizontal Length where X varies from
10 to 30 and is called the Horizontal Length
Factor
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Deep Well Location

• Analysis of drilling costs supports two separate
  schedules defined by drilling location
• East lower cost
• West higher cost

West
East
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Deep Royalty Credit Schedule
West
Sweet

West Special Sour

Cumulative
Incremental
Cumulative
Incremental
Value

Value

Value

Value

Depth (m)

000

/Metre

Depth (m)

000

/Metre

2500

0

4,200

2500

0

3,800

3000

2,100

600

3000

1,900

550

3500

2,400

700

3500

2,175

600

4000

2,750

800

4000

2,475

700

4500

3,150

900

4500

2,825

800

5000

3,600

1,000

5000

3,225

900

5500

4,100


5500

3,675




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Deep Reentry Royalty Program

• Based on Reentry Date between November 30, 2003
  and July 1, 2008.
• Based on the principle of Incremental Drilling
  Distance

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Deep Reentry Well Location

• Analysis of drilling costs supports two separate
  schedules defined by drilling location
• East lower cost
• West higher cost

West
East
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Deep Reentry Royalty Credit Schedule

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Deep Discovery Well Royalty Program

• Based on Rig Release Date between November 30,
  2003 and July 1, 2008.
• Based on the principle of True Vertical Depth
  to Top of Pay deeper than 4000m.
• Benefit Lesser of 3 year royalty holiday or 10
  Bcf of royalty free gas.

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Marginal Well Royalty

• Marginal Well Royalty targeted influence
  life-cycle perspective.
• Decision to drill
• Marginal well royalty raises economics up to
  half-way economic (0.15 PIR).

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Whats A Marginal Well?

• Qualifying period until June 30, 2008.
• Two thresholds
• wells under threshold of 80 mcf/d/100m
• production under 880 mcf/d.

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Marginal Royalty Curve
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Summer Drilling Royalty Credit

• Spread activity over a longer period.
• Benefits for producers, service industry,
  government and the local communities.
• Lump sum royalty credit for wells drilled between
  April 1 and November 30.
• The lesser 100,000 or 10 of drilling and
  completion costs.
• Available until November 2005.

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Unconventional Gas Royalty Strategy

• Applies to tight, shale, enhanced gas recovery
  and new basins
• High capital and high risk
• Net profit mechanism
• Low royalties until payout (1-2), full royalty
  afterwards (25-30)
• Call for proposals in January.

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Conclusion

• Opportunity
• Increased Activity
• Increased Profits
• Increased Royalty

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David Molinski, Executive Director, Markets
Fiscal Analysis, Energy and Mines 250-952-0518 Mar
c Jackson, Senior Policy Advisor, Energy and
Mines 250-952-0304 Mark Hayes, Manager, Resource
Geology, Energy and Mines 250-952-0364 Gord Lee,
Manager, Validation and Audit, Provincial
Revenue 250-952-0214 Carmine Vertone, Supervisor,
Special Projects, Energy and Mines 250-952-0322 M
inistry HomePage http\\www.gov.bc.ca\em Return
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