Natural Gas Liquids Royalty Framework Changes Production Month 2002-10 Implementation

NGL Royalty Framework Changes - May, 2004 Agenda Introductions Background Key Outcomes Implementation Details In-Stream Component (ISC) Reporting Royalty Calculation using Facility Averages Facility Average Illustration NGL Royalty Framework Changes - May, 2004

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 NGL Royalty Framework Changes - May, 2004

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 NGL Royalty Framework Changes - May, 2004

NGL Royalty Framework Changes - May, 2004 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/Gov’t) established between Jan 2000 – July 2001 to define business rules. NGL Royalty Framework Changes - May, 2004

NGL Royalty Framework Changes - May, 2004 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. NGL Royalty Framework Changes - May, 2004

NGL Royalty Framework Changes - May, 2004 Key Outcomes…..Cont’d 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. NGL Royalty Framework Changes - May, 2004

NGL Royalty Framework Changes - May, 2004 Key Outcomes…..Cont’d 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. NGL Royalty Framework Changes - May, 2004

NGL Royalty Framework Changes - May, 2004 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 ISC**H2S-IC *has old/new vintage **inert NGL Royalty Framework Changes - May, 2004

Implementation Details Current C2 R% = Gas R% C2 Ref Price = GRP ($/gj) Gas Royalty based on Gas GJ @ Gas R% and GRP Gas GJ subject to Old/New Gas R% At Implementation C2 R%  Gas R% C2 Ref Price = C2-IC Ref Price ($/gj) Gas Royalty based on Gas GJ @ Gas R% (=FARR%) and FAP Gas GJ subject to Old/New Gas R% (=FARR%) NGL Royalty Framework Changes - May, 2004

NGL Royalty Framework Changes - May, 2004 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 facility’s 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). NGL Royalty Framework Changes - May, 2004

FARR% & FAP for Gas…..Cont’d 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 Price=C2-IC Ref Price). NGL Royalty Framework Changes - May, 2004

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 NGL Royalty Framework Changes - May, 2004

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). NGL Royalty Framework Changes - May, 2004

Registry ISC Reporting…..Cont’d 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). NGL Royalty Framework Changes - May, 2004

NGL Royalty Framework Changes - May, 2004 ISC Heat Range Table NGL Royalty Framework Changes - May, 2004

Registry ISC Reporting Table 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 NGL Royalty Framework Changes - May, 2004

Registry ISC Reporting Table…..Cont’d 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 REC AB BT/GS/GP/IF auto-created DISP NGL Royalty Framework Changes - May, 2004

Registry ISC Reporting Table…..Cont’d 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 AB MS subtype 632 or 638 where Registry auto population flow through is not elected AB BT/GS/GP/IF auto-created REC (ISC created for IF only) NGL Royalty Framework Changes - May, 2004

Registry ISC Reporting Table…..Cont’d 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) AB MS subtype 632 or 638 where Registry auto population flow through is elected AB MS auto-created DISP AB BT/GS/GP/IF auto-created REC (ISC created for IF only) NGL Royalty Framework Changes - May, 2004

Registry ISC Reporting Table…..Cont’d 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 REC AB PL auto-created DISP (no ISC) NGL Royalty Framework Changes - May, 2004

Registry ISC Reporting Table…..Cont’d 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 NGL Royalty Framework Changes - May, 2004

Registry ISC Reporting Table…..Cont’d 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 AB/BC/SK Any (except MS) Battery, Gathering System or Gas Plant Operator AB BT/GS/GP DISP Non reporting AB MS/PL AB RE/CO/IN/EG/R1/ R2/MC/OT/CT NGL Royalty Framework Changes - May, 2004

Registry ISC Reporting Table…..Cont’d 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. NGL Royalty Framework Changes - May, 2004

ISC Volumetric Submission in Registry Illustration of ISC Reporting at MS NGL Royalty Framework Changes - May, 2004

ISC Volumetric Submission in Registry Illustration of ISC Reporting at MS NGL Royalty Framework Changes - May, 2004

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). NGL Royalty Framework Changes - May, 2004

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. NGL Royalty Framework Changes - May, 2004

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 Injection Credit 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) NGL Royalty Framework Changes - May, 2004

NGL Royalty Framework Changes - May, 2004 Royalty Variables for Crown Royalty and Injection Credit Calculations…..Cont’d 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) Raw Gas Sale Subsequently Processed RARR% (based on ISC composition factors on RGA) 80% GRP NGL Royalty Framework Changes - May, 2004

Royalty Variables for Gas Crown Royalty and Injection Credit…..Cont’d 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 Special Agreements e.g. Medicine Hat Agreement FARR% of Producing Facility (based on all ISC royalty trigger dispositions at producing facility) % GRP based on Agreement NGL Royalty Framework Changes - May, 2004

NGL Royalty Framework Changes - May, 2004 Rate/Price Defaults If no…. Use… RARR% 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) NGL Royalty Framework Changes - May, 2004

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. NGL Royalty Framework Changes - May, 2004

ISC Balancing and FARR%/FAP Using ISC Default…..Cont’d 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) NGL Royalty Framework Changes - May, 2004

FARR%, RARR%, FAP Illustration See Excel attachment NGL Royalty Framework Changes - May, 2004

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 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. NGL Royalty Framework Changes - May, 2004

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. NGL Royalty Framework Changes - May, 2004

FAP Calculation for Gas Facility Reference Price – Facility Gas Transportation Adjustment Facility Reference Price = Σ (ISC Product Energy x ISC Product Ref Price) / Σ ISC Product Energy Facility Gas Transportation Adjustment = [Royalty Trigger Factor – 1] x Facility Adjusted IATD Royalty Trigger Factor = Σ (ISC Product Energy x Meter Station Factor) / NGL Royalty Framework Changes - May, 2004

FAP Calculation for Gas…..Cont’d Facility Adjusted IATD = Σ (ISC Product Energy x Adjusted IATD of ISC) / Σ 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. NGL Royalty Framework Changes - May, 2004

Sample Crown Royalty Calculation Detail Report NGL Royalty Framework Changes - May, 2004

Sample Crown Royalty Calculation Detail Report (Raw Gas) FAP, 80% GRP, 100% GRP, FARR%, RARR%, C1-IC R% NGL Royalty Framework Changes - May, 2004

NGL Royalty Framework Changes - May, 2004 Sample FARR Report NGL Royalty Framework Changes - May, 2004

NGL Royalty Framework Changes - May, 2004 Sample RARR Report NGL Royalty Framework Changes - May, 2004

NGL Royalty Framework Changes - May, 2004 Sample FAP Report NGL Royalty Framework Changes - May, 2004

NGL Royalty Framework Changes - May, 2004 Sample Default Report NGL Royalty Framework Changes - May, 2004

Sample ISC Balancing Discrepancy Notification NGL Royalty Framework Changes - May, 2004

NGL Royalty Framework Changes - May, 2004 The End NGL Royalty Framework Changes - May, 2004