Natural Gas Industry
Competitiveness Study
September 1999
BC Natural Gas Industry Competitiveness Study
BC Gas Demand Forecast
• Domestic and Export markets are expected
to grow at a rate of 1 to 2% annually.
– This excludes demand created by the addition
of the following major projects.
• Additional demand will be created by
Vancouver Island cogenerators, Burrard
Thermal Plant, and the Alliance Pipeline by
the year 2001.
BC Natural Gas Industry Competitiveness Study
BC Gas Demand Forecast
1600
Production in Bcf of Marketable Gas
1400
Forecast
Historical
1200
1000
Low Total Demand
800
Base Total Demand
High Total Demand
600
Alliance Pipeline, Burrard Thermal and
Vancouver Island Cogenerators
400
200
0
1980
1985
1990
1995
2000
2005
2010
2015
Year
BC Natural Gas Industry Competitiveness Study
2020
NEB Production
Forecast
Gas Fields in Northeast BC with Established
Reserves
BC Natural Gas Industry Competitiveness Study
Northeast BC Remaining Gas Potential
BC Natural Gas Industry Competitiveness Study
Northeast BC Established Gas Reserves
as of December 31, 1998 in Trillion Cubic
Feet of Marketable Gas
Initial Established Reserves
Cumulative Production
Remaining Established Reserves
Remaining Undiscovered Reserves
Ultimate Potential
BC Natural Gas Industry Competitiveness Study
20.4
12.2
8.2
34.6
55
Northeast BC Gas Reserves by Cost
Areas
9.00
7.00
6.00
5.00
4.00
3.00
2.00
1.00
16
15
14
13
12
11
10
9
8
7
6
5
4
3
2
0.00
1
Gas Reserves in Tcf of Marketable Gas
8.00
Cost Areas
Total Cumulative Production
Total Remaining Established Reserve
Remaining Undiscovered Potential
BC Natural Gas Industry Competitiveness Study
Production Forecast to Meet
Demand
Base Demand Forecast BC Marketable Gas Well Producibility Forecast
Marketable Gas Well Producibility and Average Gas
Production in 10^6 m3
35000
30000
Required Infrastructure
Connected Well Producibility
25000
Unconnected Well Producibility
20000
Producibility from Well Addition to meet Peak
Day Demand
Average Demand
15000
Peak Day Deliverability Restricted to
Infrastructure
10000
5000
0
1995
2000
2005
2010
2015
2020
Year
BC Natural Gas Industry Competitiveness Study
Reserve Addition Required to
Meet Demand
Marketable Gas Reserve Growth to Meet Demand
Initial Marketable Gas Reserves in 10^6 m3
1800000
1600000
Estimate Ultimate Potential of 1560 10^9 m3
1400000
1200000
Historical
Forecast
High demand
1000000
Base Demand
Low Demand
800000
600000
400000
200000
0
1960
1970
1980
1990
2000
2010
2020
Year
BC Natural Gas Industry Competitiveness Study
2030
Reserve Additions per Well
• Reserve Additions per well have been
declining
• Considerable amount of drilling activity is
required to counteract declines in existing
pools and meet future increases in demand
BC Natural Gas Industry Competitiveness Study
Reserve Addition Per Meter
Drilled
Reserve Addition per Meter Gas Intent Drilling
(Reserve Addition in 10^6 m3 of Marketable Gas/Cumm.
Meter Gas Intent Drilling in Km)
1000
100
10
1
1000
10000
Cummulative Meter of Gas Intent Drilling in Km
Actual values
Calculated based on Regression
BC Natural Gas Industry Competitiveness Study
Gas Drilling Forecast
Gas Intent Wells Drilled to Meet Demand
1200
Number of Gas Intent Wells
1000
Historical
Forecast
800
Historical
Low Demand
600
Base Demand
High Demand
400
200
0
1980
1985
1990
1995
2000
2005
2010
2015
2020
Year
BC Natural Gas Industry Competitiveness Study
Forecast of Cumulative
Gas Wells
Forecast of Gas Intent Wells Required to Meet Demand
35000
Possible Drilling Location (Excludes PAS) 33,000
30000
No of Gas Intent Wells
25000
High Demand
20000
Base Demand
Historical
Low Demand
Forecast
NEB (1994 to 2010)
15000
10000
5000
0
1960
1970
1980
1990
2000
2010
2020
2030
2040
Year
BC Natural Gas Industry Competitiveness Study
HISTORY


Done with co-operation and encouragement of Industry and
CAPP.
Terms of Reference distributed in Fall 1996. Industry was
invited to contribute comments and data.
We actively sought data, we kept industry and CAPP informed.
 Data, methodology and progress presented to industry at BC
Petroleum Executive Forums June 11, 1997 and December 11,
1997.
 Industry and CAPP input and consultation from 1996 to 1997.
We used every piece of data provided by industry and CAPP.
 Preliminary results presented to CAPP, Westcoast, BC Gas,
BCUC, MoFCR Treasury Board Staff and other stakeholders in
September/October 1997.
 Work stopped in 1998 for about 10 months while new royalties
BC Natural
Gas 1.
Industry Competitiveness Study
were finalized under
OGI
We are here to:




Explain the data and methodology.
Show the results.
Receive comments and any further data.
Identify problems with BC cost
competitiveness and suggest and receive
suggestions on solutions to continue the Oil
and Gas Initiative process.
BC Natural Gas Industry Competitiveness Study
Study Objective:

compare the cost competitiveness of
natural gas exploration, production,
gathering and processing in British
Columbia to the costs of the same
processes in Alberta.
Costs and revenues are to the plant exit.
BC Natural Gas Industry Competitiveness Study
Methodology: Build an “expected case” for
each area in B.C. and Alberta by averaging
past actual events in each specific area










Define Global Fiscal
Parameters for the study
Define Areas
Representative Pool Sizes
Production Profiles, Loads
Pool Areas
Drilling Success Rates
Gas Compositions
Land Costs
Drilling Costs / Pool Depths
Exploration Costs








Production / Gathering
Capital Costs
Third Party Production /
Gathering Fees
Processing Plant Capital &
Operating Costs
Third Party Processing Fees
Abandonment Costs
Cash Flow Model each
case
Unit Cost Calculation
Rank cases
BC Natural Gas Industry Competitiveness Study
FISCAL PARAMETERS
CERI 1996 Plant Gate Price Forecast
 similar to MEM forecast
 distinct differential between Alberta and BC plant
prices
 consistent but conservative compared to other
forecasts
 developed by a respected outside agency
 necessary to make our cash flow model run
Discount Rate:
 Final Results discounted at 7%
 reflects long term cost of money - study is primarily
BC Natural
Gas Industry
Competitiveness
Study
concerned with
costs
rather
than profit.
CERI 1996 and NEB 1999 Plantgate Forecasts
$3.00
$2.50
C$ / mcf
$2.00
$1.50
NEB Alberta - Case 1
NEB Alberta - Case 2
BC 1996 CERI
AB 1996 CERI
$1.00
$0.50
Sources:
CERI North American Natural Gas Outlook: Basin on Basin Competition
NEB Canadian Energy Supply and Demand to 2025
$1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
BC Natural Gas Industry Competitiveness Study
2008
2009
2010
2011
2012
BC Natural Gas Industry Competitiveness Study
BC Natural Gas Industry Competitiveness Study
Jedney BC Area 11 Actual Pool Sizes Discovered from 1988 to 1995
40
35
Lognormal Mean Pool = 23 BCF
30
25
20
15
10
5
0
BC Natural Gas Industry Competitiveness Study
Alberta Eastern Plains Area 20 Actual Pool Sizes Discovered from 1988 to 1995
16
14
12
10
Lognormal Mean Pool = 2 BCF
8
6
4
2
0
BC Natural Gas Industry Competitiveness Study
B.C and Alberta Pool Sizes and Pool Initial Production Rates
80
50
71
48
BC Pool Size BCF
45
Alberta Pool Size BCF
70
Pool Initial Rate mmcf/d
40
35
50
30
25
19
26 26
20
23
10
7
10
15
18 17
12
13
20
21
10
12 11
10 10 9
8
7
5
6
5
3
9
4
3
4
5 4
4
4
2
2
AB61
AB10
AB33
AB71
AB62
AB80
AB40
BC4 Deep Basin
BC10 Beatton
BC9 FSJ
BC8 Parkland
AB72
BC11 Jedney
AB63
BC6 Sikanni
AB90
BC16 Helmet
BC5 Border
BC Natural Gas Industry Competitiveness Study
34 2
2
1
0
BC14 Ft Nelson
3
1
2 0.75
1
5
1 0
AB50
29
AB31
30
AB20
31
20
AB34
34
AB32
40
BC3 Pine River
BCF
42
Pool Initial Rate mmcf/d
60
Drilling Success Rates
100%
BC P(S) EXPL
BC P(S) DEVL
90%
AB P(S) EXPL
AB P(S) DEVL
80%
70%
60%
50%
40%
30%
20%
10%
BC Natural Gas Industry Competitiveness Study
AB 71
AB 20
AB 10
AB 32
BC 8
BC 15
BC 4
AB 33
AB 63
AB 72
AB 90
AB 80
BC 6
AB 61
AB 62
BC 5
AB 31
BC 16
BC 14
AB 34
BC 11
AB 50
BC 9
BC 12
AB 40
BC 10
BC 3
0%
British Columbia and Alberta 1996 Licence Cost
$600,000
$350
BC Bonus
$335
$328
AB Bonus
$313
Avg/Ha
$300
$500,000
$275
$250
$242
$235
$215
$203
$300,000
$200
$196
$169
$166$167
$162
$150
$140
$116$118
$110
$200,000
$107
$106
$99
$97
$100
$86
$85
$76
$64
$100,000
$58
$50
BC Natural Gas Industry Competitiveness Study
AB 31
AB 32
AB 10
AB 63
BC 15
AB 33
AB 71
AB 40
AB 20
AB 61
AB 62
BC 12
AB 50
AB 80
BC 6
BC 4
AB 34
BC 14
AB 72
BC 16
BC 8
BC 9
BC 10
BC 5
BC 11
$0
AB 90
$0
Dollars per Hectare
$400,000
BC 3
Total Bonus per License
$258
POOL AREA CALCULATION
Calculated using:
 database correlations of wells linked to
discovered pools
 database correlations of historic values
of reserves produced per well
 PEEP production profiles which resulted
in reasonable pool declines
BC Natural Gas Industry Competitiveness Study
PRODUCTION PROFILES AND WELL LOADS
Aggregated a production profile from all
wells coming onstream in 1994 in each
area using Merak Forecast.
 Maximum rate used as initial rate.
 Initial rate combined with pool reserves
used to calculate decline.


Well load factors calculated from well
onstream time. (Actual production hours
divided by possible production hours)
BC Natural Gas Industry Competitiveness Study
Average Acid Gas Composition
0.3
0.25
CO2
H2S
0.2
0.15
0.1
0.05
0
BC Natural Gas Industry Competitiveness Study
Comparison of C3+ Liquids in the Raw Gas Stream and Liquids Recovered Allocated to
Producers up to 1995
60.00
C3+ Recoverd Allocated to Producers
Bbl./Mmscf
C3+ Unrecovered or Not Allocated to
Producers Bbl./Mmscf
40.00
30.00
20.00
10.00
Area
BC Natural Gas Industry Competitiveness Study
BC3
AB40
AB34
BC16 SP
AB31
AB33
BC14
BC16 JM
AB32
BC15
AB61
BC8
BC7
AB20
BC6
BC5
BC4
AB71
AB10
BC12
AB90
AB62
BC10
BC9
BC11
AB72
AB50
AB80
0.00
AB63
C3+ Bbl./Mmscf
50.00
DRILLING COST ESTIMATE METHODOLOGY
Alberta Drilling Costs:



Drilling days and depth determined for each area.
Adjusted to PSAC study estimates for wells in
same region.
Results compared to drilling cost data in Natural
Gas Royalty Review outline, Sproule Associates
Oil and Gas Property Evaluation text, and ERCB
92-A Ultimate Potential and Supply of Natural Gas
in Alberta.
BC Drilling Costs:


Drilling and completion data obtained from
Ministry wellfiles - over 600 wells searched.
Adjusted using
Alberta methodology.
BC Natural Gas Industry Competitiveness Study
Alberta Area 90 (Foothills) Wells - 1988 to 1995
6000
Depth (Meters)
5000
4000
Actual Depth
3000
Calculated Depth
Average Well
2000
1000
0
0
50
100
150
200
250
Days (RR-Spud Date)
BC Natural Gas Industry Competitiveness Study
300
Depth, Days Drilling Time and Drilling Rate
120
250
100
200
80
150
Depth
*100 m/ 60
Days
100
40
50
20
0
0
Area
Depth (100 m)
Days
Metres/Day
BC Natural Gas Industry Competitiveness Study
GATHERING AND PRODUCTION FACILITIES COSTS
BC Gathering and Production Facilities
 Capital and operating costs of pipeline, dehydrators, and field
treatment plants based on 1996 Gas Production Facilities Study
done for MEM for Producer Cost of Service (PCOS)
determination.
Alberta Gathering and Production Facilities
Capital costs from several sources:
 Recent survey of vendors installed equipment costs.
 Studies such as Natural Gas Royalty Review Outline, Sproule
Associates Oil and Gas Property Evaluation course, ERCB 92-A
Ultimate Potential and Supply of Natural Gas in Alberta and
CAPP Well Operating Cost Study.
 Discussions with producers, contractors and government
agencies.
 Operating costs estimated at 10% to 15% of capital costs.
BC Natural Gas Industry Competitiveness Study
Installed Dehydration Cost
Unit Installed Cost ($K/MMscf/d)
250
200
150
100
50
0
0
10
20
30
40
50
60
70
80
Size (MMscf/d)
Alberta Sw eet
Alberta Sour
BC Sw eet
BC Natural Gas Industry Competitiveness Study
BC Sour
90
100
PLANT CAPITAL AND OPERATING COSTS
BC Plant Costs:
 Delta Engineering Plant Cost Study completed for
MEM.
 Producer Gas Cost Allowance submissions.
Alberta Plant Costs:
 Oilweek annual plant statistics.
 National Energy Board information.
 Discussion with vendors.
Plant Operating Costs:
 Estimated at 10.5% of capital cost for new plants and
15% of capital cost for old plants.
Inflation Index:
 U.S. Energy Information Administration index for oil
BC Natural Gas Industry Competitiveness Study
and gas operating and capital costs.
Dewpoint Plant Cost Trend Comparison
(based on Regression)
90
80
$MM (1995)
70
60
50
40
30
20
10
0
0
50
100
150
200
250
Plant Capacity (Mmscf/d)
BC Dewpoint Plant Cost
Alberta Dewpoint Plant Cost
BC Natural Gas Industry Competitiveness Study
300
350
Sour Gas Plant Cost Comparison
$ Millions Installed
($1995)
350
300
250
200
150
100
50
0
0
500
1000
1500
2000
2500
3000
Tonnes of Sulphur per Day
Actual BC Cost
BC Cost Based on Regression
Alberta Cost Based on Regression
BC Natural Gas Industry Competitiveness Study
THIRD PARTY PROCESSING COSTS
BC Third Party Processing Fees


Negotiated Westcoast tolls for treatment and RGT
service based on average gas composition.
Non-Westcoast plant fees based on replacement
costs using JP 95 guidelines.
Alberta Third Party Processing Fees




NEB information.
Data from Natural Gas Royalty Review Outline and
ERCB 92-A Ultimate Potential and Supply of Natural
Gas in Alberta.
Plant fees based on replacement costs using JP 95
guidelines.
Discussions with
major plant operators.
BC Natural Gas Industry Competitiveness Study
THIRD PARTY GATHERING AND
PRODUCTION FEES
BC Third Party Gathering and Production
Fees:
 Estimated from Producer Cost of Service
(PCOS) data with returns based on the JP 95
formula.
Alberta Third Party Gathering and
Production Fees:
 National Energy Board information.
 Estimated based on replacement costs using
the JP 95 guidelines.
BC Natural Gas Industry Competitiveness Study
Unit Cost Methodology
Streams of Costs, Revenue and
Production were discounted at 7%.
 Unit costs are calculated by dividing the
discounted cost by the discounted
production to get $ per mcf.
 Assigns a value for cost and revenue to
each unit of production in a project.

BC Natural Gas Industry Competitiveness Study
AREA COMPARISONS
Cash Flow Model each case
 Unit Cost Calculation
 Rank cases

BC Natural Gas Industry Competitiveness Study
BC 9 FORT ST. JOHN
UNIT COSTS, BURDENS AND REVENUE
$ / MCF
7% DISCOUNT
$2.00
$1.90
$0.04
Liquids Revenue
$1.80
$1.60
$1.40
$1.30
$1.20
$0.32
Processing
$1.00
$1.86
$0.80
$0.60
$0.65
Operating
Gathering
$0.40
$0.40
$0.20
$0.00
$0.07
$0.27
Drilling
$0.06
Exploration
COSTS
Land
$0.14
Gas Royalty
$0.07
Provincial Tax
$0.12
$0.01
Federal Tax
Fee + Levy
BURDENS
BC Natural Gas Industry Competitiveness Study
REVENUE
Gas Revenue
DRILLING COST - $ / MCF
7% DISCOUNT
AB31
AB63
BC Exploration Cost
AB40
AB71
BC Drilling Cost
AB80
AB33
Alberta Exploration Cost
BC11
AB20
Alberta Drilling Cost
BC9
AB61
AB32
BC10
Median = $0.38
AB10
BC14
AB34
BC5 McM
Mean = $0.45
BC5 AA
AB50
BC3
AB62
BC4 ELM
AB72
BC16
BC6
BC8
AB90
$0.00
$0.10
$0.20
$0.30
$0.40
$0.50
$0.60
$0.70
$0.80
$0.90
BC Natural Gas Industry Competitiveness Study
$1.00
OPERATING, GATHERING AND PROCESSING COSTS
$ / MCF
7% DISCOUNT
BC16
AB63
BC Processing
AB31
BC Gathering
BC5 McM
Alberta Processing
BC5 AA
Alberta Gathering
AB20
Alberta Well OC
AB32
AB33
BC6
AB80
AB62
AB71
AB34
Median = $0.79
BC8
Mean = $0.81
AB50
AB10
BC4 ELM
AB40
AB61
BC10
BC9
AB72
BC11
BC14
AB90
BC3
$0.00
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20
BC Natural
Gas Industry
Competitiveness
Study
$1.40
TOTAL BURDENS - $ / MCF
7% DISCOUNT
BC3
BC Bonus
BC Fees
BC Crown Royalty
BC Provincial Tax
Alberta Bonus
Alberta Fees
Alberta Crown Royalty
Alberta Provincial Tax
Federal Tax
BC6
BC14
AB90
BC8
BC16
BC11
AB71
BC9
AB31
AB50
BC10
Median = $0.50
BC4 ELM
Mean = $0.48
AB34
AB72
BC5 McM
AB33
AB40
AB62
AB61
BC5 AA
AB10
AB32
AB20
AB80
AB63
$0.00
$0.10
$0.20
$0.30
$0.40
$0.50
$0.60
$0.70
$0.80
$0.90
BC Natural Gas Industry Competitiveness Study
$1.00
PROVINCIAL BURDENS - $ / MCF
7% DISCOUNT
BC3
BC14
BC Administration Fees
BC16
BC Crown Royalty
BC6
BC11
BC Provincial Tax
AB90
BC8
Alberta Administration Fees
AB71
AB50
Alberta Crown Royalty
AB31
Alberta Provincial Tax
BC10
BC9
Mean = $0.24
AB34
Median = $0.24
BC5 McM
BC4 ELM
AB61
AB33
AB40
AB72
AB10
AB20
AB62
AB32
BC5 AA
AB80
AB63
$0.00
$0.10
$0.20
$0.30
$0.40
$0.50
BC Natural Gas Industry Competitiveness Study
$0.60
CROWN ROYALTY - $ / MCF
7% DISCOUNT
BC3
$0.06
BC14
$0.10
BC11
$0.10
BC16
$0.10
BC10
AB71
BC6
AB31
BC5 McM
BC9
BC Crown Royalty
$0.11
$0.11
Alberta Crown Royalty
$0.12
$0.12
$0.12
$0.14
AB50
$0.15
AB90
$0.15
BC8
$0.16
AB34
$0.16
AB40
Mean = $0.16
Median = $0.16
$0.16
AB61
$0.17
AB33
$0.18
AB10
$0.18
AB20
$0.20
AB72
$0.20
BC4 ELM
$0.20
AB32
$0.20
AB62
$0.20
BC5 AA
$0.21
AB80
$0.23
AB63
$-
$0.25
$0.05
$0.10
$0.15
$0.20
$0.25
BC Natural Gas Industry Competitiveness Study
$0.30
ADMINISTRATIVE FEES AND LEVIES - $ / MCF
7% DISCOUNT
$0.002
AB90
$0.002
AB63
$0.003
AB80
$0.004
AB72
BC Fee+Levy
Alberta Fee
$0.004
AB62
$0.004
AB71
$0.005
AB32
$0.005
AB33
$0.006
AB61
$0.006
AB31
$0.006
AB20
$0.007
BC3
$0.007
AB34
Mean and Median = $0.007
$0.007
BC14
$0.008
BC11
$0.008
AB40
$0.008
BC6
AB10
$0.0082
AB50
$0.008
BC10
$0.010
BC16
$0.010
$0.010
BC9
BC5 McM
$0.010
BC5 AA
$0.010
BC4 ELM
$0.010
$0.012
BC Natural Gas Industry Competitiveness Study
$0.010
$0.008
$0.004
$0.002
$0.000
$0.006
$0.012
BC8
LAND COSTS- $ / MCF
7% DISCOUNT
BC3
$0.02
BC14
$0.02
AB63
$0.02
BC6
$0.03
BC5 McM
$0.04
BC5 AA
$0.04
AB72
AB40
BC Bonus
Alberta Bonus
$0.05
$0.05
BC10
$0.06
AB90
$0.06
AB31
$0.06
AB62
$0.07
BC9
$0.07
BC8
$0.07
AB33
Median = $ 0.07
$0.08
BC11
$0.08
AB71
$0.09
Mean = $0.09
AB80
$0.10
BC16
$0.10
AB10
AB32
$0.12
$0.13
AB34
$0.15
AB50
$0.15
AB61
$0.16
BC4 ELM
$0.16
$0.32
AB20
$0.00
$0.05
$0.10
$0.15
$0.20
$0.25
BC
Natural Gas
Industry Competitiveness
Study
$0.30
$0.35
GAS AND LIQUIDS GROSS REVENUE - $ / MCF
7% DISCOUNT
AB63
AB80
AB72
AB90
AB62
AB71
AB10
AB32
BC10
AB61
AB20
Mean = $2.10
AB40
BC5 McM
Median = $2.08
BC5 AA
BC4 ELM
BC6
BC8
BC9
AB33
AB31
AB50
Liquids Revenue
BC11
BC Gas Revenue
BC14
Liquids Revenue
AB34
Alberta Gas Revenue
BC3
BC16
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
BC Natural Gas Industry Competitiveness Study
$3.00
NET REVENUE AT PLANT EXIT
Costs and Burdens Subtracted From Gas Revenue
$ / MCF
7% DISCOUNT
AB63
AB71
AB80
AB31
AB32
BC5 McM
AB62
AB40
BC5 AA
AB10
BC10
AB33
AB72
AB20
AB61
BC11
BC9
AB50
BC14
AB34
BC Liquid Revenue
BC6
BC Gas Revenue -(Costs + Burdens)
BC4 ELM
BC16
Alberta Liquid Revenue
AB90
Alberta Gas Revenue -(Costs + Burdens)
BC8
BC3
-$0.20
$0.00
$0.20
$0.40
$0.60
$0.80
BC
Natural Gas
Industry Competitiveness
Study
$1.00
Costs do not include downstream costs such as pipeline transportation, storage, marketing and rate of return.
$1.20
Liquid Recovery Change
30.00
20.00
C3+ Recoverd Bbl./Mmscf
15.00
C3+ Unrecovered Bbl./Mmscf
10.00
5.00
BC 5 (Alberta
Plt, Solex)
BC 5 Before
BC 10 (Solex)
BC 10 Before
BC 9 (Solex,
Wstod)
BC 9 Before
BC11 New
Plants
0.00
BC11 Before
C3+ bbl/Mmscf of Raw Gas
25.00
BC Natural Gas Industry Competitiveness Study
ECONOMIC INDICATORS
90%
$12,000
Alberta NPV @ 10%
BC Mean NPV @ 10% = $2,650
$10,585
BC NPV @ 10%
BC Median NPV @ 10% = $1,879
$10,000
80%
ROR
Alberta Mean NPV @ 10% = $1,417
Alberta Median NPV @ 10% = $787
$8,000
$7,799
70%
Distribution Mean NPV @ 10% = $1,939
$7,080
60%
Distribution Median NPV @ 10% = $1,215
$6,000
50%
Mean = $1,939
Median = $1,215
40%
$4,000
$3,167
$2,893$2,771
$2,000
30%
$2,210
$1,965 $1,879
$1,739$1,656
$1,382$1,237
$1,192
$866 $787
$699
$603
20%
$458$379 $326
$310 $295
$62
$0
-$114
-$2,000
-$1,819
BC Natural Gas Industry Competitiveness Study
10%
0%
BC Gas Wells Drilled from 1996 to Sept. 1999
350
300
200
Development
Exploration
150
100
50
BC Natural Gas Industry Competitiveness Study
Area 2
Area 13
Area 1
Area 3
Area 8
Area 7
Area 6
Area 15
Area 4
Area 16
Area 12
Area 5
Area 11
Area 10
Area 9
0
Area 14
Gas Wells Drilled
250
POSITIVES
Larger pool sizes, higher initial production
rates, better drilling success rates.
 Project Net Present Value and Rate of
Return are competitive in many areas.
 Direct burdens are very competitive.
 Treaty 8 MOUs ==> Costs predictable.
 EA Review thresholds have been raised.
 WCB issues are not significant problems.

BC Natural Gas Industry Competitiveness Study
Environmental Assessment Review Thresholds
Subject to Review:
 Plants greater than 200 mmcf/d and 2 tonnes sulphur
per day.
 Pipelines:
 less than 4” diameter but longer than 60 km
 diameter more than 4” but less than 12”, longer
than 50 km.
 diameter more than 12” and longer than 40 km.
New thresholds effectively exclude the size of
plants recently proposed and built, and most
gathering systems
and pipelines.
BC Natural Gas Industry Competitiveness Study
WCB Issues





Large gap between WCB and Industry perceptions of
operating environment (with Energy and Mines
caught in between).
WCB: Problems resolved years ago after
consultation.
Style difference - “Involved” vs. “Hands-off”.
Regulations are similar in Alberta and BC.
Anecdotes or documented incidents?
1998 Drilling Industry Assessment Rates:
 Alberta: $1.99 per $100 payroll
 BC: $1.69 per $100 payroll
BC Natural Gas Industry Competitiveness Study
Labour Cost
Wages are about 3% higher in BC due
to the negotiated exclusion from the
Employment Standards Act. (Drilling
example)
 Used CAODC data for a typical rig.
 Same hours worked but more hours
paid as overtime.

BC Natural Gas Industry Competitiveness Study
Costs Due to Resource Characteristics
Completed well costs are higher in BC
because pools are deeper, and often in
remote areas. Road improvements would
help reduce these costs.
 Facility and processing costs are higher due
to higher CO2 and H2S contents.
 Revenue is less due to lower liquids
content.

BC Natural Gas Industry Competitiveness Study
Well Load Factors are lower in BC.
Ratio of hours a well operates to
possible operating hours (“on-time”).
 Significantly affects economics and
profitability.
 Comparison suggests plant capacity or
suitability is less optimal than in Alberta.

BC Natural Gas Industry Competitiveness Study
Area Well Load Factors
100%
88%
85% 85% 86% 87%
84%
90%
89% 89% 90% 90% 90% 90%
88%
93% 93% 94%
90% 91% 92%
80% 80%
80%
73%
74% 75%
70%
60%
50%
40%
30%
20%
10%
0%
BC Natural Gas Industry Competitiveness Study
94% 94% 95%
Facilities constrain production and well
connections and increase costs.
Example: Well Load Factor Effects - BC 11 Area
(2 horizontal wells case)
100%* Well Load Factor:
 ROR = 33.7%
 NPV = $10,363,400
Observed 73% Well Load Factor:
 ROR = 25.1%
 NPV = $8,193,100
* 100% used as an
onlyCompetitiveness
- unrealistic
BCexample
Natural Gas Industry
Studyin practical
terms. Best observed is 95% in AB 10.
Trends:
1. Increasing proportion of connections to
smaller plants due to:
 higher well loads
 more efficient liquids extraction
 flexible tolling
2. Increasing exploration target land sales
in border areas and near smaller plants.
BC Natural Gas Industry Competitiveness Study
Zone to Plant Connections
90%
80%
70%
60%
50%
40%
30%
20%
10%
NEB
81%
73%
77%
76%
Non-NEB
66%
57%
43%
56%
44%
34%
27%
23%
24%
19%
0%
1990
1991
1992
1993
1994
BC Natural Gas Industry Competitiveness Study
1995
1996
to
Sept
1997
Taxes
The Compressor Fuel Tax adds two cents
per mcf to costs to the plant exit.
 Social Services Tax increases costs 2.4%.
 Property taxes appear to be slightly higher
in BC.

Estimated at 2.4 cents per mcf in Alberta versus
2.8 cents per mcf in BC.
 Need better data - too much uncertainty.

BC Natural Gas Industry Competitiveness Study
Social Services Tax increases costs by 2.4%, not 7%.
Activity
Drilling and Completions
Facilities and Equipment
Total Capital
Operating Expenditures
Total Expenditures
Spending Subject to Tax
34%
48%
40%
20%
34%
BC Natural Gas Industry Competitiveness Study
Effective Tax
2.4%
3.4%
2.8%
1.4%
2.4%
Roads

Poor public road infrastructure increases all
costs, constrains production and revenue
and discourages investment.
BC Natural Gas Industry Competitiveness Study
OPPORTUNITIES FOR IMPROVEMENT
Improve road infrastructure and
maintenance.
 Improve plant infrastructure and promote
even more competition in the processing
sector.
 Improve liquids infrastructure.
 Fort St. John as centre of competitive
service industry.

BC Natural Gas Industry Competitiveness Study