2016 Request for Applications Release Date: February 24, 2016

Close Date and Time: April 15, 2016, 2:00 pm PDT

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Please Click on the IM button of your screen to hide the instant messaging area – see red arrow. We will be taking Q&As at the end of the webinar by phone, so you will get a chance to ask questions then.

Part 1: Overview and Past Successes (Stephen Pal) Part 2: Application Process (Lana Smith)

Dates for 2016, Process Map Application process, how to apply and RFA Template Eligible Projects – Road and Pipeline What’s new Web content

Part 3: If a Project is approved (Alex Amstutz)

Start and completion dates Agreements and amendments Schedules (A to D)

Part 4: Completed Projects–Release of Royalty Deductions (Stephen Pal)

Process and requirements Audit reviews

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Supports upstream natural gas and LNG competitiveness The 2016 Program has $120 million available in royalty deductions The 2016 Program is the 15th time it has been offered The Program started in 2004 As part of the BC Budget 2016, Province also announced the IRCP will be offered in

2017 and 2018 Policy Objectives: Incents new upstream exploration and development activity; Key component of competitive royalty framework to support long term

investment decisions; and Enables upstream investment, production and royalties.

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Assists in the construction (new or upgrade) of roads, and construction of new pipelines, which can enable new oil and gas drilling and production in BC.

The Program assists by contributing up to 50% of road or pipeline capital costs through a royalty deduction to a Producer(s) for a road or pipeline project (approved under the program).

Pipeline companies are permitted to apply with a Producer(s) to participate in the Program (note: only Producer(s) are eligible to receive a royalty deduction).

Measuring success: includes opening up new areas; and drilling of new wells. Increased investment, expanding and maintaining jobs in BC, both direct, and also indirect.

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A competitive program offered through an open Request for Applications (RFA) process seeking proposed road and pipeline projects.

The 2016 RFA opened February 24, 2016 and will close to proposed road and/or pipeline applications on April 15, 2016 at 2:00 pm Pacific Daylight Time.

RFA application documents and templates for the 2016 Program can be found at: http://www2.gov.bc.ca/gov/content/industry/natural-gas-oil/royalties-royalty-programs/infrastructure-royalty-credit-program

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Program began in 2004

• Over $1 Billion in approved IRCP royalty credits

• Fostered the development of over 200 road and pipe projects

• Total capital investment in road and pipelines $2.5 Billion

• More than 3,400 new wells have been drilled and are on production. These wells are directly associated with IRCP road and pipeline projects.

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Look at the economics for your proposed project, particularly your “hurdle rate” or other internal financial measures that determine the internal economics of your project. If your project is not economic and “on the bubble” (e.g. close to making it internally, but not quite), then the IRCP might be a good option.

The Province is looking for indication that the amount of royalty deduction being requested is needed to make the project economic and meet the hurdle rate or other internal financial measures.

It is recognized that current natural gas, NGL and oil prices are very challenging to upstream investment currently, and the IRCP is perhaps more relevant than ever as an upstream competitiveness tool in helping enable investments in infrastructure and related new drilling.

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Program requires a Producer(s) to clearly indicate the amount of royalty deduction requested, which can be up to 50% of the eligible cost of the infrastructure project

Producer(s) can request less than 50% in their project application

Why would you request less than 50%? Because it would improve the chances of your project being approved! It boosts three of the five ranking and selection factors (improves the payback period to the Province, benefit cost ratio and Net Present Value scores)

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1. Companies may submit application(s) for eligible project(s) through the Request for Application (RFA) process

2. Completed RFA applications must be submitted to the Ministry prior to the RFA closing deadline

3. The Ministry reviews and evaluates the projects, and then ranks the competing projects according to the 5 factors, and this determines the projects which are approved and those that are not approved

4. Companies are advised of the outcome, and companies with approved projects will move forward to the Project Agreement process

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• RFA Application completed and submitted to Ministry by deadline

RFA

• Evaluation and Ranking – 5 factors

• Eligible Projects selected

• Companies notified

Evaluation & Ranking • Project Agreement

entered into, and project work starts

• Project completed, company applies for credit release

• Royalty deduction release process

Approved Projects

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Infrastructure RFA document: This is the formal announcement outlining terms, conditions, application process, evaluation process, and maximum amount of royalty credits available. Required RFA Application Documentation 1. The RFA Cover Page: This must be signed and the original provided as part of the RFA application. 2. Cover Letter: A 2-3 page letter providing a summary of the proposed project; and a short corporate information overview of the Applicant company and/or companies. 3. Infrastructure RFA template: Applicants must provide detailed, accurate and complete information on the project details and business case.

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4. Proposed Construction Schedule: Applicants must provide the timeframes for each type of work to be completed in the construction of the project.

5. Mapping Requirements: Mapping files are required to clearly show the location of the proposed infrastructure in relation to existing infrastructure in the area.

6. Drilling, Production and Royalty Estimates Table : Must be used to provide information on the expected royalty revenue to be generated by the proposed project.

RFA Application Submission (includes all above): One completed paper copy and one electronic copy (in the specified formats), on a flash drive.

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Keep all applications confidential and secure;

Verify the RFA application meet the eligibility criteria for the Program;

Check all RFA applications to ensure proposed project was not under construction or completed before the RFA closing date; and

All applications will be reviewed and evaluated by a team of internal Ministry staff.

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construction (new or upgrade) of an Oil and Gas Road; or upgrade of an existing Forest Service Road or Mining

Access Road to all season standard; and that are eligible for permitting.

NOTE: Construction or upgrade work of a road cannot be underway prior to the closing date of the RFA.

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construction of a new pipeline or gas gathering system to transport petroleum or natural gas;

construction of a new pipeline to transport water used or obtained in drilling or production of petroleum or natural gas; and

construction of a pipeline to transport petroleum or natural gas, along with a compressor station, dehydrator or other property used for, with or incidental to the operation of a pipeline.

Construction of any pipeline must be authorized by the Oil and Gas Commission, or National Energy Board.

Again: Construction of a pipeline cannot be underway prior to the close date of the RFA.

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Mandatory Criteria a) Applications must be received by the Ministry at the closing location by the specified

closing date and time. b) Applications must be in English and must NOT be sent by facsimile, e-mail or regular

mail. c) Must be delivered by Courier or Hand delivery: (see Cover Page)

1. An unaltered, completed and signed RFA cover page including Applicant Section must be submitted with the application;

2. One (1) complete paper copy of all documents as outlined in Section E; 3. One (1) complete electronic copy submitted on a flash drive; and 4. Letter of Agreement for all partnered applications (if applicable).

d) Submitted in formats outlined in Section E (see pgs. 8-10). e) Project construction cannot start prior to the RFA closing date. This also refers to well

production.

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Evaluation Criteria

Percentage Total Available

Minimum Required

1. Project Details (See RFA Template)

• Project Details, Description of Project • Summary of Project Work and Step(s) Table • Estimated Project Cost

50%

2. Project Business Case (See RFA Template)

• Project Business Case • Benefits Attributable to the Province • Risks and Significant Issues

50%

TOTAL 100% 65%

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Leverage Impact

Acceleration Impact

Calculation of benefit cost ratio over a 5 year horizon

Calculation of the net present value to the Province

Calculation of the payback period to the Province

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• Scores for each of the five ranking and selection factors are combined into a single project ranking score, with projects ordered from highest to lowest in terms of overall ranking score.

• Royalty credit allocations are awarded to the projects that rank the highest in the competitive RFA process.

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◦ In 2016: General administrative update (numbered headings, updated language, hyperlinks, minor updates to definitions, reference to the Province’s commitment to the next three years of the program);

◦ New in 2015: Amendments to project agreements will not be considered within 6 months of the original project agreement; and

◦ New in 2015: Schedule D: Special Equipment, Inventory or Services – all eligible costs for goods and services that are purchased prior to the project start date must now be listed here.

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1. Infrastructure RFA Document;

2. Request for Application Documents;

3. Sample Project Agreement Templates;

4. Guidance Document and Q&A Document

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Project Agreement: Companies must enter into an agreement with the Province;

Schedule A of the Project Agreement is based on the information provided by the company in the Summary of Project Work and Step(s) Table in their original submitted RFA application Template.

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No amendments to the Project Agreement will be considered until at least 6 months has passed from the date of the original agreement;

Amendments must be requested in writing, and then if approved, requires an amendment to the Project Agreement; and

Usually, the amendments will only apply to: ◦ Schedule A - Description of Project Work and Step(s); ◦ Schedule C – (Pipeline) Proposed Construction Schedule or Project Map; and ◦ Schedule C – (Road) Road Layout and Design, project map or proposed

construction schedule.

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Royalty deductions must be applied for within 6 months of completion of a step or a project;

All completed documents must be submitted as listed in Schedule B of the Project Agreement; and

Royalty revenues must be equal or greater than the maximum eligible infrastructure deduction; otherwise, the Royalty Administrator has the discretion to allow a partial deduction, or not allow the deduction, that fiscal year.

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The Producer will receive a letter from the Royalty Administrator advising of the royalty deduction;

The royalty deduction amount as approved by the Royalty Administrator is applied to the Producer’s oil and gas corporate royalties payable; and

The Producer must complete and submit to the Ministry of Finance: ◦ BC-15 form (Remittance Advice form); and ◦ BC-22 form (Application for PCOS).

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The Project Agreement allows for the Royalty Administrator to access the project site to carry out inspections, monitor progress and conduct audit reviews, with reasonable notice to the Producer; and

An audit review may be carried out on any completed project, or step of a project. This is an audit review of the costs actually paid by the proponent for the project, and is normally carried out by an outside accounting firm contractor.

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Can be found on the Ministry’s IRCP website in the Guidance Document and the Questions and Answers document. This may be particularly helpful for new applicants. Request for Application website: http://www2.gov.bc.ca/gov/content/industry/natural-gas-oil/royalties-royalty-programs/infrastructure-royalty-credit-program

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Questions on the RFA should be directed to:

Lana Smith, Senior Project Manager e-mail: Lana.Smith@gov.bc.ca OR Stephen Pal, Director, Infrastructure Development e-mail: Stephen.Pal@gov.bc.ca

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We now invite participants to ask questions. The Telus Agent will assist us in this: To enter the question queue, press 01 on your phone now. To exit the question queue, press # on your phone to return to the conference call.

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