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‹ í      *  ‹ +,-       %   & t ‹ /  {  &   &  .,/, %  012/  3042.   .,,+5 ‹ ./ Ç  h  6 D w    .,// %  017/27 2 ‹ h            84-             ./2 ./ D í  5  w% b  D t   2000 – 2011 (48% gas production increase) ./ /  h  5  t   BC’s Reserve Additions from Drilling and Revisions BC’s Remaining Raw Gas Reserves vs. R/P Ratio Initial Raw Gas Reserves by Geological Period Where has industry directed its efforts? British Columbia’s Resources Ü    b % /   /   >,- ; /288 ./C= -  ./ 5& t   & ù 6 4+,,    5 2    >- Ü   a 2    >- 8,- ; .244 ./C= t DÜ2 a 2    >- 6 7>,,    I% &=5    C- a   &   78-

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b*   7- I w     /,- /   >- W2 a  6 Y*    1- Shale Gas Regions in BC Unconventional Resources

‹ Enormous resource base in four basins ‹ Total GIP estimates may exceed 1,200 Tcf

‹ - several shale units – Upper and Lower Montney now producing in Montney play region – wet/dry gas. ‹ Shale gas potential within strata of Horn River Basin, Cordova Embayment and Liard Basin. ‹ Several thick Devonian shale units have been the focus of most industry activity in the Horn River. Some initial well production rates of 10 to 12 mmcf/d. Shale Gas Basins North American Comparison

Joint MEM/NEB ultimate potential report for Horn River Basin released May 6, 2011 BC’s Historical and Current Land Sale Results

2011 & 2012 land sales in BC Land Sale Bonus Totals from Shale Gas Regions Shale Gas Regions Dominate! Wells Drilled in British Columbia Rig Releases

Record drilling achieved in 2005 but drilling levels have been down since.

591 wells to be drilled in BC in 2012! PSAC forecast – April 2012 Where is the Drilling? Montney, Horn River Basin, Cordova Embayment, Liard Basin

‹Much of BC’s drilling activity since 2010 has focused on shale gas regions

‹Montney play region, Horn River Basin and Cordova Embayment are the most active

2010 rig releases in northeast BC (701 wells) 2011 rig releases in northeast BC (656 wells) 2012 rig releases in northeast BC (234 wells to June 1) Wells Drilled by Producer

Top 20 in 2011 (Oil and Gas Directed) The Horn River Basin Setting

‹ !     &   &   C b  ‹ !   2 /27/  2 3/>, %  5 ‹ t    5     D &   a *% =9 =h  t* ‹ Ü  DLt     >>C Ç ‹ h & 0.2+         .,// ‹ 0.7"77,  .8+       .,/. The Horn River Basin Production

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‹ h D/    1> .           .,/,2 The Horn River Basin Drilling The Horn River Basin Industry Activity

Apache Ltd. most active shale gas operator in the Horn River Basin since 2003 – continues to optimize play. Interest in 81,000 net hectares, 73 wells drilled.

‹Primarily working in the Two Island Lake (Etsho and Ootla areas) where Apache estimates a net marketable gas potential of 10 Tcf.

‹Apache finished hydraulic fracture operations on its d-70-K sixteen-well pad in the Horn River Basin in April 2010: • Mostly Otter Park, but some Klua/Evie production • averaged approx. three fracture stimulations/day • frac spacing about 110 metres • 274 successful fracs performed; used 50,000 tons of sand and 980,000 cubic meters of water.

‹In 2011, Apache performed completion operations on 27 wells in the basin, most of which were drilled in 2009 and 2010.

‹Plans include the completion of two more pads with another 42 wells coming on production.

‹Peak working interest production in the third quarter of 2011 reached 149 mmcf per day. The Horn River Basin Industry Activity

Encana Corporation holds 116,549 net hectares (288,000 acres) in Horn River Basin.

‹Since 2003, Encana has drilled 70 shale gas-directed wells in the HRB. Current production at approx. 95 mmcf per day.

‹Leads the way with deep horizontals and multiple fracture stimulations (as high as 28 fracs per well).

‹ Has advanced its resource play hub design – a central pad can drain up to 6 square miles with horizontal reach of almost 2 miles.

‹To handle the large water requirements for hydraulic fracturing operations (25,000 to 70,000 m3 per well), Encana and Apache have designed and built the Debolt water treatment facility.

‹In the Kiwigana area (western part of the basin), Encana announced, last July, an extended farm-out agreement with Korea Gas Corporation to invest $185 million in approx. 8,100 hectares. Drilling of the first well pad in the area has finished and first gas production from Kiwigana is expected soon.

‹Has a 30% interest in the Kitimat LNG export terminal. *Includes a capacity reserve of 30% in the Kitimat LNG export facility and matching capacity on the proposed Pacific Trails Pipeline (Summit Lake to Kitimat). The Horn River Basin Industry Activity

EOG Resources Inc. holds net 63,740 hectares (157,500 acres) in the Horn River Basin with potential reserves of 9 Tcf.

‹First company to nominate and purchase large tracts of land in the Horn River Basin (Maxhamish, Tattoo) at relatively low costs in 2004 and 2005

‹Will obligate only the minimum drilling capital required to hold leases in 2012. Drilled four wells during the 1st quarter of 2012 and has three wells remaining to be drill in the 2nd quarter.

‹Reluctance to grow North American natural gas volumes until current price levels improve.

‹Allowing production to grow incrementally while it works on securing long-term transportation and processing agreements for its gas from the area.

‹Maintains a 30-per cent working interest partner in Kitimat LNG and Pacific Trail Pipelines. The Horn River Basin Industry Activity

Nexen Inc. is a significant player in the Horn River with a 100% working interest on over 36,000 hectares in the Dilly Creek area.

‹Has secured tenure for 10 more years on the majority of Dilly Creek lands. – could contain as much as 6 Tcf of recoverable contingent resources.

‹A nine-well pad in the Etsho and Komie areas was fracture stimulated and completed in the third quarter of 2011.

‹With completion of this pad, it is expected Nexen will ramp up production to more than 50 mmcf per day in the Horn River Basin.

‹Drilling is underway on an 18-well pad with production volumes expected in late 2012. Nexen could be producing as much as 200 mmcf per day out of the Horn River by early 2013.

‹In November 2011, Nexen announced it had made agreement to create a strategic partnership with INPEX CORPORATION, a consortium led by Japanese oil and natural gas producers, to develop shale gas in the Horn River Basin, Cordova Embayment and Liard Basin. The Horn River Basin Industry Activity

Devon Canada Corporation now holds over 70,000 net hectares in the HRB with potential to produce up to 700 mmcf per day.

‹Continues to drill and complete vertical and horizontal wells in the Komie, Petitot River and Tattoo areas of the Horn River Basin.

‹Capital spending in these areas was down almost 40 per cent in 2011 after spending of $165 million in 2010.

‹Devon conducted minimal drilling in the Basin in 2011 in order to hold its acreage.

‹Devon also holds an interest of 27 per cent in the 71-per cent Enbridge Inc. owned Cabin Gas Plant, which is now under construction and will process natural gas from areas within the Horn River Basin.

‹Devon has participated in the Province’s Infrastructure Royalty Credit Program with four projects approved as of September 2011. The Horn River Basin Industry Activity

Quicksilver Resources Inc. continues with its horizontal well program testing for the Devonian- aged Muskwa and Klua shales in the Fortune area (10 Tcf resource potential, 99 Bcfe reserves). Holds over 52,500 hectares in Horn River Basin.

‹Drilled four wells in the 1st quarter of this year to complete its 2011/2012 winter drilling program.

‹Has converted all of its 20 exploratory licences to 10- year development leases.

‹Has now drilled 20 horizontal wells into the Muskwa and Klua formations with four wells on production.

‹Average daily production from Horn River is 11.3 mmcfe per day.

‹Expects to bring eight wells online in June and drill up to another eight by the end of this year (2012).

‹On the look for an upstream joint venture partner for its Horn River Basin development. The Horn River Basin Industry Activity

ExxonMobil Canada Energy/Imperial Oil Limited remains an active driller in the Horn River Basin as a joint venture. Holds one of the largest acreage positions in the basin at 130,000 hectares.

‹Continues to define resource quality and distribution in the HRB. Encouraged by results on the 130,000 hectares leased in the HRB.

‹So far, performing 10 to 12 frac stages per well with recoveries ranging from 500 mcf to 1.5 mmcf a day per frac stage.

‹2011 winter program – drilled exploration wells and started a horizontal multi-well pilot production pad to evaluate long term well productivity and cost performance.

‹Proceeded with a horizontal multi-well pad pilot development project in the Komie area (map group 94- O-1) in early 2011 to evaluate longer-term well productivity. Liard Basin & Fold Belt Location and Setting

A relatively unexplored region situated immediately east of the Cordilleran Fold and Thrust belt. Covers an area of approximately 1.25 million hectares and contains sedimentary strata of to Upper age. Some of the potential hydrocarbon objectives include: Devonian Dunedin/Nahanni Formation, Mississippian Banff, Debolt, and Mattson formations and the Cretaceous Chinkeh.

Source: AAPG Explorer Liard Basin & Fold Belt Land Sales

Bonuses reached over $110 million at June 2010 BC land sale. Fourteen licenses covering 66,645 hectares were sold in Sandy and Patry areas.

Most wells drilled before 2009 were the result of Questerre Energy Corporation/Transeuro Energy Corp. conducting joint operations in the Beaver River area to evaluate Mississippian-age shales of the Mattson/Besa River. Apache’s work in the Patry area began in early 2009. Five wells drilled. Latest rig release was in August 2011. Nexen Inc. now holds approx 52,000 ha. in the Liard Basin. Cordova Embayment Land Sales

‹ 150 kilometres northeast of Fort Nelson in far northeast corner of the province ‹ Area of approx. 379,000 hectares ‹ Geologically similar to Horn River ‹ Potential exists in Devonian strata - Muskwa/Evie ‹ Several experimental schemes underway ‹ OGIP 200 Tcf Cordova Embayment Operators/Activity

Penn West Exploration. has acquired over 70,000 hectares in the Cordova Embayment. ‹longer term development costs could be lower in the Cordova compared to HRB (a shallower target, a lower CO2 cut of 5% and spare capacity at Penn West’s Wildboy plant). ‹Mitsubishi Corporation is now a joint venture partner with Penn West to develop shale gas in Cordova. Goal is to increase production from assets in the area to 500 mmcf a day. ‹19 rig releases in 2011 – another 5 wells rig released in 2012. Another 26 wells licensed in 2011 but not yet drilled. ‹completion operations are underway on an eight-well pad in the area. IP testing occurring now. ‹gathering and processing infrastructure in the area allows for quicker economic returns.

Nexen Inc. over 3,300 hectares in the Cordova Embayment with a 100% working interest. ‹first experimental scheme approved in 2008 (Muskwa, Otter Park) ‹Nexen has drilled two vertical and two horizontal wells in the Cordova since 2008. ‹continues to gather information and knowledge through a series of drilling, well completion and production testing programs ‹aided considerably by Nexen’s Nov 2011 agreement with INPEX CORPORATION of Japan.

Canadian Natural Resources Ltd. ‹allocated long-term capital to the experimental stage of its Cordova Embayment project ‹further evaluation of the Muskwa potential by drilling more wells The Montney Play Region Location and Setting

‹ A thick, regionally charged formation - continues to be one of the most active gas plays in B.C.

‹ Unconventional tight gas/shale distributed over an area extending from north central Alberta to the northwest of Fort St. John, British Columbia

‹ Major facies include fine-grained shoreface, shelf siltstone to shale, fine-grained sandstone turbidites, and an organic rich phosphatic shale.

‹ The revised Montney play trend now covers approximately 2.6 million hectares (10,196 km2) in the Peace region.

‹ Primary focus is on the Upper and Lower Montney (horizontal drilling techniques)

‹ The main Montney producing area is in the South Peace region with proven production (Upper Montney) in the Dawson Creek/Fort St John area

‹ The North Montney has increased activity with wells targeting the Upper, Lower and Middle Montney, particularly in the Altares and Town areas. The Montney Play Region Land Sales and Drilling

‹Land sales peaked in 2008 at $1.32 billion.

‹Montney play trend accounted for 89 per cent of the 2011 BC land sale bonus totals.

‹Gas production from the Triassic Upper Montney has seen exceptional growth.

‹High producing areas include Groundbirch, Swan, Dawson, Saturn, Monias and Tupper. The Montney Play Region 2011 Activity Stats

‹Thirty-five operators completed drilling on 426 wells in 2011.

‹Almost 85% of wells rig released in 2011 in the Montney trend region listed the Triassic Doig and Montney formations as the projected target. The Montney Play Region Industry Activity

Shell Canada Limited has a material position in the Montney region and has expanded its program in the Sunset Prairie-Groundbirch area complex.

‹Holdings of 243,000 hectares of prime Montney gas fairway with a resource estimate of 8 trillion cubic feet equivalent

‹Production from the complex in early 2011 reached 150 mmcf per day from 225 wells on 40 pads

‹Gas production from Groundbirch can now be easily transported to the Alberta market (Groundbirch Mainline Project).

{      D  The Montney Play Region Industry Activity

Murphy Oil Corporation saw strong Canadian natural gas production growth over the last two years - much of that due to development of Triassic shale gas potential from the Montney turbidites in the Tupper Creek area (Tupper West, Tupper Main).

‹Murphy acreage in Montney approx. 63,000 ha.

‹Daily production from the Montney play is over 250 mmcf per day.

‹Gas production from Tupper Main reached over 100 mmcf per day in 2011 with 84 wells producing.

‹ Gas production from Tupper West also reaching 150 mmcf per day with 59 wells flowing.

‹EUR approximately 3.5 Bcf per well.

‹Construction of a 180-mmcf-per-day-capacity gas plant at Tupper West (20 km west of Dawson Creek) commenced operations in February 2011.

‹Murphy’s drilling and completion costs in the Montney are now less than $3.75 per mcf. The Montney Play Region Industry Activity

Talisman Energy is now targeting the Upper Montney, Lower Montney and Doig in the Farrell Creek area.

‹Major focus on Farrell Creek, Greater Cypress and Groundbirch areas.

‹ Holds approximately 85,000 net hectares along the Montney fairway with contingent resources of 33 Tcfe

‹Estimated ultimate recoveries are now 7 Bcf per Montney well. IP’s of 4.5 to 6 mmcfe/d.

‹Expanded Farrell Creek facility is on line, which takes its capacity in the area to 120 mmcf a day.

‹Greater Cypress area has also been an active for Talisman. Its pilot program is continuing - encouraging results from the same three zones (Upper and Lower Montney, Doig).

‹Nine wells were brought onstream at Cypress in 2010 and three more in early 2011.

‹Talisman’s activity in these areas is bolstered by its joint venture with Sasol. The Montney Play Region Industry Activity

The Montney is one of the strongest performing assets for Encana Corporation.

‹Significantly ramped up its operations in the Montney play trend over last three years.

‹EnCana holds over 280,000 net hectares of Montney rights in its Cutbank Ridge resource play.

‹Cutbank Ridge resource play performed well in 2011 with production averaging 401 mmcfe per day - driven by Montney production.

‹Completed a second Doig horizontal well at Steeprock with an initial production rate of 18 mmcf per day.

‹Hythe/Steeprock complex is highly touted in terms of midstream expansion opportunities. Could see increase of approximately 2 Bcf/d from region over next 20 years.

‹Mitsubishi Corporation now a joint venture partner (40%) in Encana’s Cutbank Ridge natural gas properties. The Montney Play Region Industry Activity

ARC Resources Ltd. is a dominant producer of Upper Montney shale gas in the Dawson and Parkland areas as well as West Montney lands (Monias, Saturn, Sunset, Groundbirch, Sunrise, Sundown). Entered the Montney play region over seven years ago.

‹Land base in the main Montney fairway is up to 434 net sections and is a major growth engine for ARC.

‹Discovered resource potential is significant at 25.5 Tcf of Discovered Gas Initially In Place (DGIIP)

‹Daily production of 235 mmcf per day and 1,800 barrels per day of liquids from Montney assets.

‹Construction of three 60 mmcf/d gas plants over the next three years at Dawson and Montney West lands. “Dawson Phase One” gas plant on stream in 2nd quarter of 2010. “Dawson Phase Two” gas plant on stream as of April 2011.

‹ARC’s busiest area is the Dawson field where 12 wells were drilled in 2011 with field production increasing to 165 mmcf per day. The Montney Play Region Industry Activity

Progress Energy Resources Corp. has amassed approx. 334,000 hectares within the commercially productive Montney fairway and has always had one of the largest land positions in the northeast BC foothills.

‹Progress Energy’s capital program is weighted towards Montney fairway; further investment of $345 million in Montney activities slated for 2012.

‹Goal is to expand the areal extent of productive Montney fairway in the Foothills to the north with vertical delineation wells and re-completions.

‹Progress has identified a potential drilling inventory of 2,500 to 7,500 locations within its North Montney holdings, encompassing both the Upper and Lower Montney.

‹Goal is to double production over next five years with multiple 50-mmcf per day development pads.

‹Progress closed a strategic partnership with PETRONAS to develop its Montney assets (incl. LNG exports). Strategic location for delivery of natural gas to BC coast. The Montney Play Region Industry Activity

Canadian Natural Resources Ltd. continues to look at tight gas/shale gas reservoirs in the Montney trend.

‹Holds 262,000 net hectares along Montney fairway. Liquids rich gas – 1.3 Tcfe contingent resource (best estimate).

‹Targeting the Upper Montney in the Septimus area - drilled nine horizontal wells in the area in 2011– another 17 planned for 2012.

‹Septimus plant expansion to 120 mmcf per day for late 2012 or first quarter of 2013.

‹Producing 60 mmcf per day and 1,800 barrels of natural gas liquids at Septimus.

‹Looking to increase liquid recoveries from 30 barrels/mmcf to 50 barrels/mmcf.

‹Initial expectations for reserves in Montney fairway are for about 4 Bcf per well, which would result in production of about 200 mmcf per day of gas and 10,000 barrels per day of liquids. The Montney Play Region Industry Activity

Tourmaline Oil Corp. is pursuing the Triassic Upper, Middle and Lower Montney in the Groundbirch- Sunrise-Dawson area where the Montney is thickest, most over-pressured and liquid-rich sweet gas charged.

‹Tourmaline is 7th largest Montney producer in Western Canada.

‹A total of 43 horizontals have been drilled at Dawson- Sunrise over the past two years. Forty have been completed with an average test rate of 8.14 mmcf per day.

‹Three distinct over-pressured Montney horizons to exploit.

‹Past 10 wells have average IP’s at 18 mmcfe per day.

‹All wells exhibiting high deliverability with a reasonably strong liquids content (average of 35 bbls per mmcf).

‹Expansion of the Sunrise 3-18 gas facility during the second half of 2011 from 35 mmcf per day capacity to 75 mmcf per day capacity.

‹Future drilling inventory of 300 horizontal locations in greater Dawson-Sunrise complex. The Montney Play Region Industry Activity

Crew Energy Inc. continues to focus its efforts on the liquids-rich area of Septimus (50 kms. southeast of Fort St. John). Holds over 36,300 hectares in the area.

‹Montney Formation at Septimus is approximately 300 metres thick with gas saturated rock.

‹Accessed through long-reach horizontal wells with up to five multi-stage, water-based fracture treatments.

‹Wells at Septimus testing at initial rates as high as 15 mmcf per day.

‹Reserves per well up to 2.9 Bcf.

‹Septimus area holds significant potential for Crew with 2.7 Tcf of discovered petroleum initially in place (DPIIP).

‹Crew expanded the Septimus gas processing facility by doubling its capacity to 50 mmcf per day.

‹Crew also hold 23 contiguous net sections in the Kobes area of the Montney (net acreage = 9,000 ha.). Significant reserve potential – Upper, Middle and Lower Montney is productive.

‹Two horizontals drilled and completed at Kobes.

‹Drilled and completed two Montney exploration wells in the Portage area. (net acreage = 6,500 ha.). Initial testing yielded rates up to 4.4 mmcf per day. a   & t   5   W & .,/. t   [ { & í  /  E /"/7+ % " +,8 %     W & .,/.

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‹ Organic-rich basal layer (Wilrich/Moosebar shale) ‹ Average thickness – over 100 metres ‹ Adsorbed gas capacities range between 0.03 and 1.55 cm3/g

Shale gas activity directed towards Cretaceous horizons is being assessed in several areas of the Fort St. John and Northern Foothills regions.

The Blair Creek and Farrell Creek areas in the Northern Foothills region have seen a steady increase in PNG rights.

Lower Cretaceous sequences are the exploration focus in the Beg/Jedney areas and further south in the Blair Creek and Farrell Creek areas.

Companies such as Painted Pony Petroleum Ltd., which currently operates in the Blair Creek area, are evaluating fracture stimulation programs and continue to optimize completion methods that could potentially increase well productivity. Its 2011 well program consisted of drilling two wells in the area along with the recompletion and testing of another three wells in the Buckinghorse Formation. Tight Gas Northeast British Columbia

Tight gas production in northeast British Columbia still makes a significant contribution to BC’s overall natural gas production.

Definition of Tight Gas - All gas resources occurring as free gas in the pores of clastic and carbonate reservoirs in regionally pervasive continuous gas accumulations.

‹Key attributes: reservoir permeabilites are sub economic by conventional standards (0.1 millidarcies or less)

‹Tight gas production in northeast BC has significantly increased due to advances in drilling and completion technology.

‹To date, most activity has focused on exploiting "sweet spots" where fracturing or lithological factors have enhanced the reservoir quality. What Do BC’s Royalty Programs Have to Offer?

British Columbia Targeted Royalty Programs

Infrastructure Summer Deep Royalty Marginal Ultra-Marginal Net Profit Coalbed Royalty Royalty Programs Royalty Royalty Royalty Methane Credit Program • Deep Program Program Program • Deep Discovery Program • Deep Re-entry

Condition: Conditions: Conditions: Condition: Condition: Conditions: • Production < Conditions: • 12 month average • 12 month average 600 • By Request for • By Request • Spud Date Rate < 80 mcf/d/100m between April Rate < 40 mcf/d Applications for Applications • Vertical Well Depth mcf/d/100m 01 & November > 2500m • Monthly Production 30 • Before Sep 1, below 880 mcf/d •Monthly 2009 Horizontal Production below Well Depth > 2300m 2119 mcf/d • After Sep 1, 2009 Horizontal Well Depth > 1900m ‹IRCP Implemented in 2004 to improve access to petroleum and natural gas resources and support year-round production t      & &   ‹Up to 50% of construction costs for projects approved under the Program may be recovered through credits that reduce royalties payable to the Crown t     ‹Resulted in the construction of 84 new or upgraded all-season roads and 115 new pipelines in BC ‹Leveraged $1.4 billion in industry capital investments in oil and gas infrastructure and over $5 billion in drilling and completions investment ‹Province aims to achieve a five-year rate of return on investment of $2.50 per http://www.empr.gov.bc.ca/OG/OILANDGAS/ROY royalty-credit issued ALTIES/Pages/default.aspx Development Strategies Natural Gas & LNG

I  % G • .2/2 b  D {  & • [bD {  & {      "          "    ./ b  D {   2 G==% % % 22 2=  = HH  &2  Summary

‹Shales are thick, with high total organic carbon (TOC) and widespread in northeast British Columbia with open tenure still available in some areas.

‹Horn River, Cordova Embayment and Montney have attracted major investments - operators are now focussing on evaluation and gas extraction.

‹Producers continue to push drilling activity northward in Montney play trend. Increased in liquids production within many portions of the entire trend. A globally competitive asset.

‹Shale gas production will continue to grow in BC as producers advance development of the resource. Natural gas prices going forward???

‹Access to water for hydraulic fracturing and suitable formations for disposal have become key considerations for BC’s natural gas industry.

‹Operational complexities associated with pumping large fracture treatments are becoming better understood.

‹Continued refinement of drilling and completion processes to where economics are favourable.

‹BC's contribution to Canadian gas production is expected to grow over the next five years.

‹Tight gas production in northeast BC remains a significant contributor to BC’s overall natural gas production.

‹Access to alternative global markets is increasingly important as North American markets become oversupplied. BC’s LNG and Natural Gas Strategy is in place. Ç * ò F

Christopher Adams [email protected]

Association of Professional Economists of British Columbia Luncheon Presentation 9th Floor – 1188 West Georgia Street Vancouver, BC www.gov.bc.ca/ener June 6, 2012