Ministry of Energy & Mines British Columbia Oil & Gas Development Strategy for the Heartlands (OGDS) Cameron Lewis A/Executive Director Oil and Gas Policy.

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Ministry of Energy & Mines British Columbia Oil & Gas Development Strategy for the Heartlands (OGDS) Cameron Lewis A/Executive Director Oil and Gas Policy Branch Canadian Association of Petroleum Landmen April 29, 2004

Ministry of Energy & Mines OGDS: 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

Ministry of Energy & Mines OGDS Action Plan Key pillars: Roads Roads Royalties Royalties Service Sector Service Sector Regulation Regulation

Ministry of Energy & Mines RoadsRoads

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

Ministry of Energy & Mines Sierra Yoyo Desan

Ministry of Energy & Mines Proposal Concept Public Private Partnership (P3) Government / Industry Funded Long term solution, 16-years Net rates stay the same

Ministry of Energy & Mines BenefitsBenefits Lower costs Longer season Acceleration of programs Summer drilling ties in gas for winter prices Increased industry and provincial revenues

Ministry of Energy & Mines Project Milestones 1. Agreement in Principle with Road Users – Completed 2. Establishment of the new governance structure – Completed 3. Joint Management Agreement with Stakeholders – Completed 4. Procurement of a P3 Partner – Completed 5. Transfer of Management – Completed 6. Foundations of new bridge over Fort Nelson river – Completed 7. Finalize and sign 15-year Concession Agreement ~ April New bridge in place ~ December Upgrade of SYD completed ~ December 2005

Ministry of Energy & Mines Infrastructure Vision SYD is one immediate example Broader infrastructure vision encompasses: Multi-season capacity Coordinated effort Multiple users Government contribution Royalty Credits: $30 Million for 03/04-04/05-05/06 $10 Million since 06/07

Ministry of Energy & Mines Royalty Credit Incentive

Ministry of Energy & Mines Service Sector Strategy

Ministry of Energy & Mines Service Sector Strategy Service Sector Strategy initiated to identify those elements that support and/or challenge business growth Recommendations in five categories: Procurement Business competitiveness Growing the industry Employment & training Jurisdictional regulatory issues

Ministry of Energy & Mines Service Sector Strategy Study initiated into procurement practices and procedures Marketing strategy for Service Sector initiated MEM Marketing Strategy Service Sector Marketing Strategy Partnership with Ministry of Transportation to risk manage road bans

Ministry of Energy & Mines Service Sector Strategy $500,000 Skills development funding Leveraged with matching funds from industry. 12 industry partners engaged to deliver 11+ employment and training programs

Ministry of Energy & Mines RoyaltiesRoyalties

RoyaltiesRoyalties Royalties targeted to opportunities: DeepExploration Marginal Play Development Summer Expanding the Drilling Season Unconventional and New Basins New Resource Opportunities

Ministry of Energy & Mines Deep Royalties Qualifying period until June 30, 2008 Mechanism: Royalty Credit designed to recognize costs and mitigate risk Royalties calculated based on a per- metre basis and adjusted for location (East/West zones) and gas quality (sour/sweet)

Ministry of Energy & Mines Deep Royalty Amendments Re-entry credit – based on re-entry length Royalty attached to well, not well event Recognize directional and horizontal lengths, including wells from 2300 m Discovery deep wells – two year holiday, up to 10 Bcf Technical details available:

Ministry of Energy & Mines 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)

Ministry of Energy & Mines What is a Marginal Well? Qualifying period until June 30, 2008 Two thresholds: wells under threshold of 80 mcf/d/100m production under 880 mcf/d

Ministry of Energy & Mines 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

Ministry of Energy & Mines Unconventional Royalty Strategy Applies to Coalbed gas, tight, shale and enhanced gas recovery High capital and high risk Working with CAPP to design Net profit scheme Call for proposals Due date: July 1 st, 2004

Ministry of Energy & Mines RegulationRegulation

Regulatory Streamlining MEM and the OGC targeted regulation reductions BC Oil and Gas Regulatory Improvement Initiative (OGRII). Regulatory Best Practices Working Group: reduction, harmonization and streamlining across government to support oil and gas development Midstream Strategy PCOS review & update P3 partnership concepts

Ministry of Energy & Mines BC Oil and Gas Regulatory Improvement Initiative (OGRII) Objectives Consolidate Oil and Gas Commission (OGC) existing statutory provisions and regulations Integrate legislative provisions for permitting, compliance and enforcement to streamline OGC processes. Harmonize the OGC regulatory framework with other results-based legislative initiatives. Enhance the OGC’s operations as a single-window agency. Focus on a results-based regulatory framework across OGC permitting, compliance and enforcement to improve efficiency. No reduction in health or safety standards “Results-based” regulation Seeks to attain regulatory objectives efficiently Emphasis on end results, not the processes to attain them

Ministry of Energy & Mines PCOS Review and Update Developing Strategy Update rate base annually Facility based ratesTiming Seeking industry concurrence ~ early May 2004 Seeking Treasury Board approval ~ late May 2004 Implementation ~ Fall 2004

Ministry of Energy & Mines Resource Development

Ministry of Energy & Mines Resource Development and Geoscience Brach Oil and Gas development Goals: Complete regional resource assessment Shale gas Shallow / Quaternary Gas Develop assessment of specific plays Tight gas, Deep gas, Foothills Focus on specific technical issues and local market opportunities Coalbed Gas Increase industry awareness and interests

Ministry of Energy & Mines Interior Basins Development Strategy GSC / MEM joint program Geological survey in Bowser / Sustut Basins Resource assessment in Bowser / Sustut and Nechako Basins P3 Geophysical Survey Project P3 Geophysical Survey Project Planning Stage

Ministry of Energy & Mines IndicatorsIndicators

Drilling Activity 01/02 02/03 03/04 Number of wells

Ministry of Energy & Mines Summer Drilling Activity Number of wells

Ministry of Energy & Mines Tenure Sales Tenure bonus ($ millions)

Ministry of Energy & Mines ConclusionConclusion Opportunity Increased Activity Increased Profits Increased Royalty

Ministry of Energy & Mines Visit us: Contact us: David Molinski, A/ADM, Oil and Gas Division Derek Brown, Executive Director Resource Development & Geoscience Cameron Lewis, A/Executive Director Oil and Gas Policy Branch Patrick Smyth, Executive Director Business Development Branch