CRITERIOS APLICABLES AL SISTEMA DE DILUCIÓN VA- VA-RIABLE PARA MEDIR LAS EMISIONES DE LOS GASES DE

invoice that is issued by the Ministry of Finance to each natural gas producer.

PRODUCER PRICE

The Petroleum and Natural Gas Royalty and Freehold Production Tax Regulation (the royalty regulation) provides the authority for the Royalty Administrator to set out the “rules” that will be applied in determining a Producer Price. These rules are set out in Order of the Administrator 2008-3. A Producer Price is determined for each producer delivering natural gas to a natural gas processing plant or dry gas source. The royalty regulation defines a “producer” as:

(a) "a holder of a location who markets or otherwise disposes of oil, natural gas or both, that has been produced by

(i) the holder of the location, or

(ii) a person authorized to do so by the holder of the location, and

(b) a person authorized by a holder of a location to produce and market or otherwise dispose of, on the holder’s behalf, oil, natural gas or both”.

For administrative purposes, the producer is identified using the following rules: (a) for marketable gas delivered to the Spectra Energy Westcoast transportation

system, a producer is identified as the party appearing on Spectra Energy’s Determination of Production report unless the producer, or production source operator, has notified the Ministry of Energy, Mines and Natural Gas in writing. (b) for marketable gas delivered to the TransCanada transportation system, Alliance

transportation system or any other transportation systems other than a Spectra Westcoast transportation system, a producer is identified from plant split information provided to the Ministry of Finance by plant operators on the BC-19 Monthly Natural Gas Plant and Processing Statement.

Producer Prices will only be calculated for producers identified as above.

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PRODUCER PRICE cont’d

For each producer, a volume weighted average sales price is determined based on all of a producer’s sales, other than plant inlet sales, at a common pricing point. The common pricing point is Station 2 on the Spectra transportation system or at the inlet to the TransCanada or Alliance transportation systems. The price at the common pricing point is then netted back to the inlet of each plant at which the producer has production using producer and plant specific transportation charges and processing fees (custom

processing fees, or Gas Cost Allowances). A weighted average of this “netback price” and the prices of any sales made by the producer at the inlet of each plant are blended to determine a Producer Price for each plant that a producer has production behind. Order of the Administrator 2008-3 also specifies the following rules:

(i) When gas is disposed of and there is no arm’s length sale (e.g. transferred into storage, intra-company sales or swapped), the price is deemed to be the net selling price of all other sales for the producer in the region in which the disposition takes place,

(ii) Energy based prices will be converted to volumetric prices using the average heating value of the producer’s gas at a plant; and,

(iii) The value of fuel consumed in the transportation of a producer’s gas, where the producer has not received consideration for the fuel, is factored into the calculation of a Producer Price by including the fuel gas volume in the volume delivered to a buyer when calculating the per unit sales price. Producers wishing to have fuel costs factored in must submit supporting documentation showing fuel volumes.

REPORTING

Producer Prices are determined monthly in the 2nd month after the gas is produced, when a producer’s actual sales information is available. On a monthly basis producers must submit to the MEM copies of all sales invoices showing actual sales volumes and values. For gas sold into a producer’s pool, the producer must submit a summary outlining all buyers from the pool, sales revenue (excluding marketing, administration and financial hedging transactions), sales volumes and transportation costs. Note that gas purchases are not included in the calculation of the Producer Prices. The sales information submitted by the producer will be used to verify the resale price and, in combination with cost of service information, determine the Producer Price. A Plant operator is a primary source of information used for calculating Producer Prices. Spectra Energy provides the MEM with a monthly summary of production by producer and a statement of deliveries and cost of service invoices for each producer with service on the Spectra Westcoast transportation system. Other plant operators provide marketable gas volumetric splits for each producer delivering natural gas to their gas plants.

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REPORTING cont’d

Producers are required to submit sales and cost of service invoices to the MEM by the 11th _{day of the 2}nd _{month after the month in which gas has been produced. Producers}

invoiced by a party other than Spectra Energy for processing or transmission service must provide the MEM with the appropriate invoices (this includes Spectra Energy Midstream’s processing invoices) to ensure that these costs are factored into the Producer Price calculation. Failure to submit this information will result in the costs not being deducted in the calculation of Producer Prices. The MEM may also request that producers submit third party processing contracts.

Late invoices may result in a Producer Price not being issued in time to be used for the royalty estimate. Insufficient royalty estimates may be subject to interest charges. Producers are notified of Producer Price calculations through a Producer Price report. A

Summary of Sales report and, if applicable, a Cost of Service report is also provided to

the producer. These reports provide the details of sales revenue and costs used in the calculation of Producer Prices.

The MEM may request documentation to support the calculation of a producer’s

Producer Price throughout a calendar year. Examples of supporting documentation that may be requested are as follows:

• Contracts supporting marketable gas sales volumes and values. • Processing and transportation contracts.

• Documentation supporting non-arms length or sales with unusual pricing provisions.

• Summary of Sales’ pricing formulas.