Natural Gas Liquids Royalty Framework Changes

1
Natural Gas Liquids Royalty Framework Changes

• Production Month 2002-10
• Implementation

2
Agenda

• Introductions
• Background
• Key Outcomes
• Implementation Details
• In-Stream Component (ISC) Reporting
• Royalty Calculation using Facility Averages
• Facility Average Illustration

3
List of Acronyms/Abbrev.

• BT Battery
• C1 Methane
• C2 Ethane
• CAP Corporate Average Price
• CGF Corporate Gas Factor
• CSO Common Stream Operator
• FAP Facility Average Price (Net of Gas Trans
  Adj)
• FARR Facility Average Royalty Rate
• GJ gigajoules
• GP Gas Plant
• GRP Gas Reference Price
• GS Gathering System

4
List of Acronyms/Abbrev.

• IATD Intra-Alberta Transportation Deduction
• IF Injection Facility
• ISC In-Stream Component Within Residue Gas
• MS Meter Station
• NGL Natural Gas Liquids
• OAF Owner Allocation Factor
• PL Pipeline
• R Royalty Rate
• RARR Raw Gas Average Royalty Rate
• RGA Raw Gas Allocation
• Registry The Petroleum Registry of Alberta
• SAF Stream Allocation Factor

5
Background

• Policy Announcement Dec 1999 to align royalty
  framework with Industry and market developments.
• Key Changes
• Distinct royalty treatment for recovered Ethane
  (Field Ethane)
• Royalty recognition of NGL components (In-Stream
  Components or ISC) in residue gas
• Sub-Committees (Industry/Govt) established
  between Jan 2000 July 2001 to define business
  rules.

6
Key Outcomes

• Field Ethane will be assessed at C2 R and C2 Net
  Reference Price (/gj) that will be different
  from the Gas R and Gas Net Reference Price.
• Royalty rates for Propane and Butanes will change
  from the flat rate of 30. Subject to an
  expected maximum rate of 30 and minimum rate of
  15, the following formula will be used
• R 15SP 40(PP-SP)
• PP
• SP is the select price for the product
• PP is the Propane par price for the Propane
  royalty rate and the Butanes par price for the
  Butanes royalty rate.

7
Key Outcomes..Contd

• No change to royalty trigger points.
• Gas royalty will be assessed on the basis of
  In-Stream Components (ISC). This will be
  achieved by assessing royalty on product GAS
  using facility averages (rate and price) that are
  based on the ISC compositions of the royalty
  trigger volumes.
• Gas royalty for CAP clients will be based on
  facility average rates but valuation continues to
  be based on CAP, where monthly CAP estimate is
  Client CGF x GRP.

8
Key Outcomes..Contd

• Each ISC product will have its own distinct
  royalty rate, reference price and adjusted IATD
  which will be used in the facility average
  royalty rate and price calculations.
• Department of Energy (DOE) will invoice royalty
  on product GAS using the SAF/OAF and volumetric
  details from the Registry.
• Implementation coinciding with the Registry
  Production Month 2002-10.

9
Gas ISC Relationship

• Gas View
• Product Code
• Gas Gas
• has old/new vintage

• ISC View of Gas
• Product Code
• Methane ISC C1-IC
• Ethane ISC C2-IC
• Propane ISC C3-IC
• Butanes ISC C4-IC
• Pentanes Plus ISC C5-IC
• Carbon Dioxide ISC CO2-IC
• Helium ISC HE-IC
• Hydrogen ISC H2-IC
• Nitrogen ISC N2-IC
• Oxygen ISC O2-IC
• Sulphur ISC Sul-IC
• Hydrogen Sulphide ISCH2S-IC
• has old/new vintage
• inert

10
Implementation Details

• Current
• C2 R Gas R
• C2 Ref Price GRP (/gj)
• Gas Royalty based on Gas GJ _at_ Gas R and GRP
• Gas GJ subject to Old/New Gas R

• At Implementation
• C2 R ? Gas R
• C2 Ref Price C2-IC Ref Price (/gj)
• Gas Royalty based on Gas GJ _at_ Gas R (FARR) and
  FAP
• Gas GJ subject to Old/New Gas R (FARR)

11
FARR FAP for Gas

• Facility level royalty rate and valuation price
  for Gas.
• Used to assess royalty trigger Gas quantities at
  charge facility.
• Uses the ISC compositions (excluding inerts) of
  royalty trigger quantities at the charge facility
  to calculate that facilitys weighted average
  royalty rate and valuation price (see example
  illustration).
• ISC compositions are reported to the Registry by
  meter station operators, common stream operators
  and some facility operators (see Registry ISC
  Reporting Table slide).

12
FARR FAP for Gas..Contd

• The royalty rates for the individual ISC products
  will be the same as the royalty rates for the
  extracted products (e.g. C2-IC R C2 R).
• The vintage for the individual ISC products will
  be the same as the old/new vintage for the
  extracted products.
• The reference prices for the individual ISC
  products will differ from the reference prices of
  Gas and the extracted products (exception C2 Ref
  PriceC2-IC Ref Price).

13
Low Productivity Allowance Adjustment

• No change to low productivity well allowance
  eligibility.
• Low productivity allowance adjustment continues
  to apply to eligible Gas and Ethane production.
• For eligible Gas and Ethane production, the Crown
  royalty rate is calculated as
• R RC (RM 5) x (16.9 ADP)2
• 16.92
• ADP is the average daily production of gas for
  the well event for the production month (103m3).
• RC is the Old/New FARR if production is Gas and
  the Ethane Old/New royalty rate if production is
  Ethane.
• RM is the Old/New royalty rate for Methane ISC

14
Registry ISC Reporting

• ISC volume and energy information are reported in
  the Registry, as a further breakdown of the Gas
  volume and energy.
• ISC factors are reported on Registry RGA
  submissions.
• Submissions to the Registry can be online entry
  or batch file entry, along with other volumetric
  submissions.
• Not all volumetric activities in the Registry
  require ISC reporting (see Registry ISC Reporting
  Table slide).

15
Registry ISC Reporting..Contd

• ISC volume and energy must be reported to 3
  decimal places for desired precision.
• Where ISC reporting is required, aggregate ISC
  volume and energy must equal corresponding Gas
  volume and energy (within a tolerance of 0.100
  103m3 and 1.000 gj) or both ISC and Gas
  volumetric submissions will be rejected.
• ISC heat value (gj/103m3) must be within the
  specified heat value range for each ISC product
  (see ISC Heat Range Table slide).

16
ISC Heat Range Table
17
Registry ISC Reporting Table
ISC Reporting Table Legend ISC Reporting Table Legend
AB Alberta IF Injection Facility
BT Battery IN Industrial
CO Commercial MS Meter Station
DISP Disposition PL Pipeline
EG Electrical Generation RE Residential
GP Gas Plant REC Receipt
GS Gathering System R1/R2 Residential Pipeline
MC Miscellaneous OT Other
CT Custom Treatment Plant
18
Registry ISC Reporting Table..Contd
For activity at reporting facility and from/to location, submitter must report ISC, along with the Gas volumetric submission to the Registry. For activity at reporting facility and from/to location, submitter must report ISC, along with the Gas volumetric submission to the Registry. For activity at reporting facility and from/to location, submitter must report ISC, along with the Gas volumetric submission to the Registry. For activity at reporting facility and from/to location, submitter must report ISC, along with the Gas volumetric submission to the Registry.
Submitter Reporting Facility Activity From/To Location
Pipeline/Meter Station Operator AB MS subtype 631 or 637 where Registry auto population flow through is not elected DISP AB PL auto-created REC (no ISC)
Common Stream Operator AB MS subtype 631 or 637 where Registry auto population flow through is not elected REC AB BT/GS/GP/IF auto-created DISP
19
Registry ISC Reporting Table..Contd
For activity at reporting facility and from/to location, submitter must report ISC, along with the Gas volumetric submission to the Registry. For activity at reporting facility and from/to location, submitter must report ISC, along with the Gas volumetric submission to the Registry. For activity at reporting facility and from/to location, submitter must report ISC, along with the Gas volumetric submission to the Registry. For activity at reporting facility and from/to location, submitter must report ISC, along with the Gas volumetric submission to the Registry.
Submitter Reporting Facility Activity From/To Location
Pipeline/Meter Station Operator AB MS subtype 631 or 637 where Registry auto population flow through is elected DISP AB PL auto-created REC (no ISC) AB MS auto-created REC AB BT/GS/GP/IF auto-created DISP
Pipeline/Meter Station Operator AB MS subtype 632 or 638 where Registry auto population flow through is not elected DISP AB BT/GS/GP/IF auto-created REC (ISC created for IF only)
20
Registry ISC Reporting Table..Contd
For activity at reporting facility and from/to location, submitter must report ISC, along with the Gas volumetric submission to the Registry. For activity at reporting facility and from/to location, submitter must report ISC, along with the Gas volumetric submission to the Registry. For activity at reporting facility and from/to location, submitter must report ISC, along with the Gas volumetric submission to the Registry. For activity at reporting facility and from/to location, submitter must report ISC, along with the Gas volumetric submission to the Registry.
Submitter Reporting Facility Activity From/To Location
Common Stream Operator AB MS subtype 632 or 638 where Registry auto population flow through is not elected REC AB PL auto-created DISP (no ISC)
Common Stream Operator AB MS subtype 632 or 638 where Registry auto population flow through is elected REC AB PL auto-created DISP (no ISC) AB MS auto-created DISP AB BT/GS/GP/IF auto-created REC (ISC created for IF only)
21
Registry ISC Reporting Table..Contd
For activity at reporting facility and from/to location, submitter must report ISC, along with the Gas volumetric submission to the Registry. For activity at reporting facility and from/to location, submitter must report ISC, along with the Gas volumetric submission to the Registry. For activity at reporting facility and from/to location, submitter must report ISC, along with the Gas volumetric submission to the Registry. For activity at reporting facility and from/to location, submitter must report ISC, along with the Gas volumetric submission to the Registry.
Submitter Reporting Facility Activity From/To Location
Pipeline/Meter Station Operator AB MS subtype 633 or 639 where Registry auto population flow through is not elected DISP AB BT/GS/GP/IF auto-created REC (ISC created for IF only)
Common Stream Operator AB MS subtype 633 or 639 where Registry auto population flow through is not elected REC AB PL auto-created DISP (no ISC)
22
Registry ISC Reporting Table..Contd
For activity at reporting facility and from/to location, submitter must report ISC, along with the Gas volumetric submission to the Registry. For activity at reporting facility and from/to location, submitter must report ISC, along with the Gas volumetric submission to the Registry. For activity at reporting facility and from/to location, submitter must report ISC, along with the Gas volumetric submission to the Registry. For activity at reporting facility and from/to location, submitter must report ISC, along with the Gas volumetric submission to the Registry.
Submitter Reporting Facility Activity From/To Location
Pipeline/Meter Station Operator AB MS subtype 633 or 639 where Registry auto population flow through is elected DISP AB PL auto-created DISP (no ISC) AB MS auto-created REC AB/BC/SK/Any AB BT/GS/GP/IF auto-created REC (ISC created for IF only)
Mainline Straddle Plant Operator AB GP subtype Mainline Straddle REC AB BT/GS/GP auto-created DISP
23
Registry ISC Reporting Table..Contd
For activity at reporting facility and from/to location, submitter must report ISC, along with the Gas volumetric submission to the Registry. For activity at reporting facility and from/to location, submitter must report ISC, along with the Gas volumetric submission to the Registry. For activity at reporting facility and from/to location, submitter must report ISC, along with the Gas volumetric submission to the Registry. For activity at reporting facility and from/to location, submitter must report ISC, along with the Gas volumetric submission to the Registry.
Submitter Reporting Facility Activity From/To Location
Field Straddle Plant Operator AB GP subtype Field Straddle (terminated effective 2006-01) REC AB BT/GS/GP auto-created DISP
Injection Facility Operator AB IF REC AB/BC/SK Any (except MS)
Battery, Gathering System or Gas Plant Operator AB BT/GS/GP DISP Non reporting AB MS/PL
Battery, Gathering System or Gas Plant Operator AB BT/GS/GP DISP AB RE/CO/IN/EG/R1/ R2/MC/OT/CT
24
Registry ISC Reporting Table..Contd
For activity at reporting facility and from/to location, submitter must report ISC, along with the Gas volumetric submission to the Registry. For activity at reporting facility and from/to location, submitter must report ISC, along with the Gas volumetric submission to the Registry. For activity at reporting facility and from/to location, submitter must report ISC, along with the Gas volumetric submission to the Registry. For activity at reporting facility and from/to location, submitter must report ISC, along with the Gas volumetric submission to the Registry.
Submitter Reporting Facility Activity From/To Location
Battery, Gathering System or Gas Plant Operator AB BT/GS/GP DISP Any non AB location
Raw Gas Seller Report ISC factors of raw gas stream on RGA submission. Report ISC factors of raw gas stream on RGA submission. Report ISC factors of raw gas stream on RGA submission.
25
ISC Volumetric Submission in Registry
Illustration of ISC Reporting at MS
26
ISC Volumetric Submission in Registry
Illustration of ISC Reporting at MS
27
Raw Gas Sale and ISC Factor Reporting on RGA

• Raw Gas Sales are identified on Registry RGA
  submissions.
• Raw Gas Sales that are subsequently processed or
  used as lease fuel are assessed royalty at RARR,
  rather than FARR.
• All other Raw Gas Sales will be assessed at FARR
  .
• RARR is based on the ISC factors (excluding
  inerts) identified by the seller on the RGA,
  rather than the ISC composition of the facility.
• Old/New RARR ? (ISC Product Factor on RGA x
  ISC Product Old/New R) / ? ISC Product Factor on
  RGA (see example illustration).

28
Raw Gas Deliveries To Injection

• Crown royalty for raw gas delivered to injection
  (reported in Registry at a Battery or Gathering
  System as a disposition to an Injection Facility)
  is assessed at the FARR of the Injection
  Facility and the FAP of the Reproducing Facility.

29
Royalty Variables for Crown Royalty and Injection
Credit Calculations
Charge Type Product Unit R Valuation Price
Crown Royalty Gas GJ FARR of Producing Facility (based on all ISC royalty trigger dispositions at producing facility) FAP of Producing Facility (based on all ISC royalty trigger dispositions at producing facility)
Injection Credit Gas GJ FARR of Injection Facility (based on all ISC royalty trigger receipts at injection facility) FAP of Reproducing Facility (based on all ISC royalty trigger dispositions at reproducing facility)
30
Royalty Variables for Crown Royalty and Injection
Credit Calculations..Contd
Charge Type Product Unit R Valuation Price
Crown Royalty Exceptions - Raw Gas Delivered to Injection Gas GJ FARR of Injection Facility (based on all ISC royalty trigger receipts at injection facility) FAP of Reproducing Facility (based on all ISC royalty trigger dispositions at reproducing facility)
Crown Royalty Exceptions - Raw Gas Sale Subsequently Processed Gas GJ RARR (based on ISC composition factors on RGA) 80 GRP
31
Royalty Variables for Gas Crown Royalty and
Injection Credit..Contd
Charge Type Product Unit R Valuation Price
Crown Royalty Exceptions - Raw Gas Sale Used as Lease Fuel Gas GJ RARR (based on ISC composition factors on RGA) 100 GRP
Crown Royalty Exceptions - Special Agreements e.g. Medicine Hat Agreement Gas GJ FARR of Producing Facility (based on all ISC royalty trigger dispositions at producing facility) GRP based on Agreement
32
Rate/Price Defaults
If no. Use
RARR FARR
FARR C1-IC R
FAP (for Crown royalty) 100 GRP
FAP of Reproducing Facility (for injection credit and Crown royalty of raw gas delivered to injection) FAP of Injection Facility (based on all ISC royalty trigger receipts at injection facility)
If defaults are used, they will be identified on
the Default Report. (see sample report)
33
ISC Balancing and FARR/FAP Using ISC Default

• Effective December 2004 calendar month, the ISC
  receipts at meter stations reported by meter
  station operators or common stream operators
  (CSO), must equal the meter station disposition
  activities reported by pipeline operators. Meter
  station receipts impact the FARR and FAP
  calculations.
• For ISC imbalances that existed prior to this
  change, the DOE continues to perform ISC
  Balancing and uses the ISC default in calculating
  the FARR/FAP calculations.

34
ISC Balancing and FARR/FAP Using ISC
Default..Contd

• If there is a discrepancy in meter station
  receipts for an ISC product, the C5-IC R and
  C5-IC Net Ref Price will be used for that
  product in the FARR and FAP calculations. (see
  example illustration)
• The meter station operator or CSO who submitted
  the meter station receipts will receive a
  discrepancy notice from DOE. Notice is generated
  on day 35 following month of production. (see
  sample report)
• Royalty clients will be notified in Default
  Report and in supporting reports of FARR/FAP
  calculations where ISC default values have been
  used. (see sample report)

35
FARR, RARR, FAP Illustration

• See Excel attachment

36
FARR Calculation for Gas

• Old FARR
• ? (ISC Product Energy x ISC Product Old R) /
• ? ISC Product Energy
• New FARR
• ? (ISC Product Energy x ISC Product New R) /
• ? ISC Product Energy
• ISC product energy refers to ISC dispositions at
  the charge facility that are royalty triggers.
  If charge facility is an injection facility, ISC
  product energy refers to ISC receipts rather than
  dispositions.
• Energy from inerts are not included in FARR
  calculation.

37
RARR Calculation for raw gas sales

• Old RARR
• ? (ISC Product Factor on RGA x ISC Product Old
  R) /
• ? ISC Product Factor on RGA
• New RARR
• ? (ISC Product Factor on RGA x ISC Product New
  R) / ? ISC Product Factor on RGA
• ISC factors of inerts are not included in RARR
  calculation.

38
FAP Calculation for Gas

• FAP
• Facility Reference Price Facility Gas
  Transportation Adjustment
• Facility Reference Price
• S (ISC Product Energy x ISC Product Ref Price) /
• S ISC Product Energy
• Facility Gas Transportation Adjustment
• Royalty Trigger Factor 1 x Facility Adjusted
  IATD
• Royalty Trigger Factor
• S (ISC Product Energy x Meter Station Factor) /
• S ISC Product Energy

39
FAP Calculation for Gas..Contd

• Facility Adjusted IATD
• S (ISC Product Energy x Adjusted IATD of ISC) /
• S ISC Product Energy
• ISC product energy refers to ISC dispositions at
  the charge facility that are royalty triggers.
  If charge facility is an injection facility, ISC
  product energy refers to ISC receipts rather than
  dispositions.
• ISC product energy in FARR and FAP calculation
  is the same.
• If the delivery/receipt location of the ISC
  product energy is not an included pipeline meter
  station, the meter station factor for the product
  energy will be 1.00.

40
Sample Crown Royalty Calculation Detail Report
41
Sample Crown Royalty Calculation Detail
Report(Raw Gas)
FAP, 80 GRP, 100 GRP,
FARR, RARR, C1-IC R
42
Sample FARR Report
43
Sample RARR Report
44
Sample FAP Report
45
Sample Default Report
46
Sample ISC Balancing Discrepancy Notification
47

• The End