1. British Columbia Oil & Gas Development Strategy for the Heartlands (OGDS) “ Making British...

1.

British Columbia Oil & Gas Development British Columbia Oil & Gas Development Strategy for the Heartlands (OGDS)Strategy for the Heartlands (OGDS)

““Making British Columbia the most Making British Columbia the most competitive oil and gas jurisdiction in North competitive oil and gas jurisdiction in North

America”America”

British Columbia Oil & Gas Development British Columbia Oil & Gas Development Strategy for the Heartlands (OGDS)Strategy for the Heartlands (OGDS)

““Making British Columbia the most Making British Columbia the most competitive oil and gas jurisdiction in North competitive oil and gas jurisdiction in North

America”America”

2.

BackgroundBackground

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 PlanOGDS Action Plan

Four key pillars:

Roads Royalties

Service Sector Regulation

4.

RoadsRoads 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.

Public Private Partnership (P3).

Government / Industry Funded.

Long term solution, 15-years.

Net rates stay the same.

December 2003 transition.

Proposal ConceptProposal Concept

7.

Lower costs. Longer season. Acceleration of programs. Summer drilling ties in gas for winter

prices. Increased industry and provincial

revenues.

BenefitsBenefits

8.

Project MilestonesProject Milestones

1. Agreement in Principle with Road Users – Completed

2. Treasury Board & Cabinet approval – Completed

3. Establishment of the new governance structure –

Completed

4. Joint Management Agreement – with Stakeholders for

Signature

5. Procurement of a P3 Partner – Closes Nov 28, 2003

6. Transfer of Management – Dec 1, 2003

7. Finalize and sign 15-year Concession Agreement ~ Jan

2004

9.

Infrastructure VisionInfrastructure Vision SYD is one immediate example. Broader infrastructure vision

encompasses: Multi-season capacity Coordinated effort Multiple users Government contribution

$30 Million Royalty Credits Annually.

10.

11.

Regulatory StreamliningRegulatory Streamlining MEM and the OGC targeted regulation

reductions.  OGC Act, P&NG 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 StrategyService Sector Strategy

Service Sector Strategy initiated to identify those elements that support and/or challenge business growth

Two pronged approach:

1. Identify and prioritize issues, and

2. Develop and execute work plans to deliver upon recommendations

13.

Service Sector Strategy – next stepsService 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.

RoyaltiesRoyalties Royalties targeted to opportunities:

DeepDeep ExplorationExploration

Marginal Marginal Play DevelopmentPlay Development

SummerSummer Expanding the Drilling Expanding the Drilling SeasonSeason

UnconventionUnconventional and New al and New BasinsBasins

New Resource New Resource OpportunitiesOpportunities

15.

Deep Royalty Program ModifiedDeep 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’.

16.

ProducingFormation

TrueVerticalDepth

Qualifier2500m

Pool

Pay

Measured Depth toTop of PayWell

GroundWell head

Table Depth = “Measured Depth to Top of Pay”

Deep Vertical Wells

17.

ProducingFormation

TrueVerticalDepth

Qualifier2500m

Pool

Pay

Measured Depth toTop of Pay

Well

GroundWell head

Table Depth = “Measured Depth to Top of Pay”

Deep Directional Wells

18.

ProducingFormation

TrueVerticalDepth

Qualifier2300m

Pool

Measured Depth toTop of PayWell

GroundWell head

Total Measured Depth

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

Deep Horizontal Wells

19.

94

L K J I

P M N O P

A D C B

H E F G H

I L K J I

P M N O P

T66

T71

T76

T81

T86

T91

T96

T101

T106

T111

T116

T121

T126

R11 Map Center on: C-14-A/94-G-5

60:00 60:00 128:00 126:45 125:30 124:15 123:00 121:45 120:30 119:15 118:00

Deep Well LocationDeep Well Location Analysis of drilling

costs supports two separate schedules defined by drilling location:

“East” lower cost

“West” higher cost

West East

20.

Deep Royalty Credit ScheduleDeep Royalty Credit Schedule

West Special Sour

Depth (m)

Cumulative Value $000

Incremental Value

$/Metre

2500 0 4,200

3000 2,100 600

3500 2,400 700

4000 2,750 800

4500 3,150 900

5000 3,600 1,000

5500 4,100

West Sweet

Depth (m)

Cumulative Value $000

Incremental Value

$/Metre

2500 0 3,800

3000 1,900 550

3500 2,175 600

4000 2,475 700

4500 2,825 800

5000 3,225 900

5500 3,675

21.

Deep Reentry Royalty ProgramDeep Reentry Royalty Program

Based on Reentry Date between November 30, 2003 and July 1, 2008.

Based on the principle of ‘Incremental Drilling Distance’

22.

NewProducingFormation

TrueVerticalDepth

Qualifier2300m

New Pool

Well

GroundWell head

Reentry Table: “Incremental Drilling Distance”

Deep Re-entry Wells

OldProducingFormation

Incremental Drilling Distance

Re-entry Lateral (min 100m, max 1500m)

Old Pool

Note: re-entry laterals can be at any angle

23.

94

L K J I

P M N O P

A D C B

H E F G H

I L K J I

P M N O P

T66

T71

T76

T81

T86

T91

T96

T101

T106

T111

T116

T121

T126

R11 Map Center on: C-14-A/94-G-5

60:00 60:00 128:00 126:45 125:30 124:15 123:00 121:45 120:30 119:15 118:00

Deep Reentry Well LocationDeep Reentry Well Location Analysis of drilling

costs supports two separate schedules defined by drilling location:

“East” lower cost

“West” higher cost

West East

24.

Deep Reentry Royalty Credit ScheduleDeep Reentry Royalty Credit Schedule

West East

Table Distance (metres)

Cumulative Value $000

Incremental Value

$/Metre

Table Distance (metres)

Cumulative Value $000

Incremental Value

$/Metre

100 0 750 100 0 450

300 150 500 300 90 300

1500 750 - 1500 450 -

25.

Deep Discovery Well Royalty ProgramDeep 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 3Benefit: Lesser of 3 year royalty year royalty holiday or 10 Bcf of royalty free gas.holiday or 10 Bcf of royalty free gas.

26.

Marginal Well RoyaltyMarginal 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).

27.

What’s A Marginal Well?What’s A Marginal Well?

Qualifying period until June 30, 2008.

Two thresholds: wells under threshold of

80 mcf/d/100m; production under 880 mcf/d.

28.

Marginal Royalty CurveMarginal Royalty Curve

Royalties vs Well Rate

05

1015202530

0 5 10 15 20 25 30 35 40 45 50 55 60 65

Well Rate (e3m3/d)

Roya

lty (%

)

SP 50 TH 5e3m3/d Base 9SP 70 Base 9 & Adjustment Factor

29.

Summer Drilling Royalty CreditSummer 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.

30.

Unconventional Gas Royalty StrategyUnconventional Gas Royalty Strategy Applies to tight, shale, enhanced gas Applies to tight, shale, enhanced gas

recovery and new basins;recovery and new basins;

High capital and high risk;High capital and high risk;

Net profit mechanism;Net profit mechanism;

Low royalties until payout (1-2%), Low royalties until payout (1-2%), full royalty afterwards (25-30%);full royalty afterwards (25-30%);

Call for proposals in January.Call for proposals in January.

31.

ConclusionConclusion Opportunity Increased Activity Increased Profits Increased Royalty

32.

David Molinski, Executive Director, Markets & Fiscal Analysis, Energy and Mines250-952-0518

Marc Jackson, Senior Policy Advisor, Energy and Mines250-952-0304

Mark Hayes, Manager, Resource Geology, Energy and Mines250-952-0364

Gord Lee, Manager, Validation and Audit, Provincial Revenue250-952-0214

Carmine Vertone, Supervisor, Special Projects, Energy and Mines250-952-0322

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