Natural Gas Deep Drilling Program Questions
Why is the Government of Alberta making changes to the NGDDP?The intent of the Natural Gas Deep Drilling Program (NGDDP) is to encourage new exploration, development, and production from deeper and high cost natural gas wells. Adjustments for deep natural gas wells have existed since 1985. The NGDDP was originally introduced in 2009. Modifications to this program are intended to promote the development of new resources identified through drilling and to reflect the costs for all of the productive drilling in these wells. One of the principle new targets of the NGDDP is the Alberta Cretaceous Deep Basin. A study by Petrel Robertson indicated that the Deep Basin contains about 425 trillion cubic feet (Tcf) of natural gas. Of this roughly one quarter (108 Tcf) is estimated to exist between a vertical depth of 2,000 metres and 2,500 metres. Wells that have producing intervals that exceed 2,000 metres True Vertical Depth (TVD) are now eligible under this program.
What qualifies and what doesn’t under the royalty adjustment?The well must;  be a natural gas well with a gasoil ratio of greater than 1,800 : 1 and,
 have a Crown interest greater than zero, and
 have been spud or deepened on or after May 1, 2010, and
 have a TVD greater than 2,000 metres
The following does not qualify under the royalty adjustment  dry holes
 oil wells producing oil only or with gas at a gasoil ratio of less than 1800:1
 crude bitumen wells
What is the revised NGDDP benefit schedule for a development well?NGDDP Royalty Adjustment Per Well Development Wells Benefit per metre drilled in the depth range ($/m)

Measured Depth (metres)  >2,000 – 3,500  >3,500 – 4,000  >4,000 – 5,000  >5,000  >2,000  $625     >3,000  $625     >3,500  $625  $2,500    >4,000  $625  $2,500  $2,500   >4,500  $625  $2,500  $2,500   >5,000  $625  $2,500  $2,500  $3,000 
For development wells with depths greater than 2,000 m and less than or equal to 3,500 m the available benefits are calculated by taking the measured depth (MD) of the well minus 2,000 m and multiplying this result by $625/m. For development wells with depths greater than 3,500 m and less than or equal to 5,000 m the available benefits are calculated by taking the measured depth greater than 3,500 m, multiplying this result by $2,500/m and adding $937,500 ($937,500 being the result from the calculation for the 2,000 m – 3,500 m drilled depth range). For development wells with depths greater than 5,000 m the available benefits are calculated by taking the measured depth minus 5,000 m, multiplying this result by $3,000/m and adding $4,687,500.
What is the revised NGDDP benefit schedule for an exploratory well?NGDDP Royalty Adjustment Per Well Exploratory Wells Benefit per metre drilled in the depth range ($/m)

Measured Depth (metres)  >2,000 – 3,500  >3,500 – 4,000  >4,000 – 5,000  >5,000  >2,000  $625     >3,000  $625     >3,500  $625  $2,500    >4,000  $625  $2,500  $3,125   >4,500  $625  $2,500  $3,125   >5,000  $625  $2,500  $3,125  $3,750 
For exploratory wells with depths greater than 2,000 m and less than or equal to 3,500 m the available benefits are calculated by taking the measured depth (MD) of the well minus 2,000 m and multiplying this result by $625/m. For exploratory wells with depths greater than 3,500 m and less than or equal to 4,000 m the available benefits are calculated by taking the measured depth minus 3,500 m, multiplying this result by $2,500/m and adding $937,500. ($937,500 being the result from the calculation for the 2,000 m – 3,500 m drilled depth range.) For exploratory wells with depths greater than 4,000 m and less than or equal to 5,000 m the available benefits are calculated by taking the measured depth minus 4,000 m, multiplying this result by $3,125/m and adding $2,187,500. For exploratory wells with depths greater than 5,000 m the available benefits are calculated by taking the measured depth minus 5,000 m, multiplying this result by $3,750/m and then adding $5,312,500.
Will the supplemental adjustment be given to any well?The supplemental adjustment of $875,000 will be given to wells that have a spud date on or before May 27, 2010 with a depth of 4,000 metres or greater.
How is the measured depth determined for the purpose of benefit calculations?The depth is based on the sum of the length, in metres, from the kelly bushing of the well to the base of the deepest producing interval in the well. Wells spud on or after May 1, 2010 that have additional legs will receive an additional benefit based on the sum of the lengths, in metres, of all other laterals in the well from the kickoff point of each lateral to the perforation that is furthest from the kickoff point. Note: Examples below illustrate how the royalty adjustment is calculated using the measured depth of the deepest leg and the sums of the lengths of the laterals.
Are measured depths of all laterals eligible for the NGDDP?Yes. Additional producing laterals would get a $/m royalty adjustment based on the TVD of the lateral (for example, less than 3,500 m gets $625/m and 3,500 m or deeper gets $2,500/m). Benefits for Additional Laterals   Qualifying true vertical depth (TVD of the Well Event)  Benefit per drilled metre (Measured Depth –
Kick off Point of the Well Event)  < 3,500  $625  >=3,500  $2,500 
The laterals’ producing interval must exceed 2000 m TVD. TVD is the vertical distance,
measured in a perpendicular line from the kelly bushing of a well to the base of the deepest producing interval.
Example 1  Exploratory well with 2 well events
Well event/0 has a TVD of 3,500 m and MD of 3,600 m. Well event/2 has a TVD of 3,600 m and MD of 3,800 m. Both events report the gas production and qualify for the NGDDP benefits. Benefit of the deepest lateral well event/2: For the MD between 2,000<Depth<=3,500 the amount equals to (3,500 m 2,000 m)* $625/m= $937,500. For the MD between 3,500<Depth<=4,000 the amount equals to (3,800 m 3,500 m)* $2,500/m= $750,000. Total benefit is $1,687,500. The measured depth at the start of the additional leg is 2,300 m. Therefore, the length of the laterals from the kickoff point to the perforation is 1,300 m (3,600 – 2,300). Benefit of the additional leg: For the TVD >=3,500 m the amount equals to 1,300 m* $2,500/m=$3,250,000. Total royalty adjustment for this well is $4,937,500 ($1,687,500 + $3,250,000).
Example 2  Exploratory well with 1 well event
Well event/0 has a TVD of 3,700 m and MD of 4,200 m. An event reports production of gas and qualifies for the NGDDP benefits. Benefit for the well event is calculated as follows: For the MD between 2,000<Depth<=3,500 the amount equals to (3,500 m 2,000 m)* $625/m= $937,500. For the MD between 3,500<Depth<=4,000 the amount equals to (4,000 m 3,500 m)* $2,500/m= $1,250,000. For the MD between 4,000<Depth<=5,000 the amount equals to (4,200 m 4,000 m)* $3,125/m= $625,000. Total royalty adjustment for this well $2,812,500.
Example 3  A Development well with 2 well events
Well event/0 has a TVD of 3,700 m and MD of 4,200 m. Well event/2 has a TVD < 2,000 m and MD of 2,600 m. Both events report gas production but only well event/0 qualifies for the NGDDP benefits. Because event 2 is less than 2,000 m TVD, no lateral benefit is applied. Benefit of the well event/0: For the MD between 2,000<Depth<=3,500 the amount equals to (3,500 m 2,000 m)* $625/m= $937,500. For the MD between 3,500<Depth<=4,000 the amount equals to (4,000 m 3,500 m)* $2,500/m= $1,250,000. For the MD between 4,000<Depth<=5,000 the amount equals to (4,200 m 4,000 m)* $2,500/m= $500,000. Total royalty adjustment for this well is $2,687,500.
Example 4  A Development well with a deepening situation
A well event/0 with FDD in January 2009 has a TVD of 2,900 m and MD of 3,400 m. Well event/2 with FDD in July 2010 has a TVD of 5,000 m and MD of 7,000 m. Both events report gas production and qualify for the NGDDP benefits. Benefit of the well event/0: For the MD between 2,500<Depth<=3,500 the amount equals to (3,400 m 2,500 m)* $625/m=$562,500. Starting January 2009 the well is eligible to receive royalty adjustments for 5 years until December 2013. Well event/2 is the deepening situation. Once FDD is determined well event/2 becomes the longest lateral and the new FDD establishes the new effective date of the 5 year limit. Royalty adjustment for the longest lateral is calculated as follows: For the MD between 2,000<Depth<=3,500 the amount equals to (3,500 m 2,000 m)* $625/m= $937,500. For the MD between 3,500<Depth<=4,000 the amount equals to (4,000 m 3,500 m)* $2,500/m= $1,250,000. For the MD between 4,000<Depth<=5,000 the amount equals to (5,000 m 4,000 m)* $2,500/m= $2,500,000. For the MD greater than 5,000 m the amount equals to (7,000 m 5,000 m)* $3,000/m= $6,000,000. Total royalty adjustment $10,687,500. Now, well event/0 becomes the additional lateral. The measured depth at the start of the additional leg is 2,800 m. Therefore, the length of the laterals from the kickoff point to the perforation is 600 m (3,400 m  2,800 m). Benefit calculated to the sum of additional legs: For the TVD <3,500 m the amount equals to 600 m* $625/m=$375,000. Total royalty adjustment for this well is calculated as $11,062,500. This exceeds the maximum allowable adjustment for development wells and therefore the benefit is reduced to the maximum which is $8,000,000. If this well event has used any previous NGDDP benefits, this amount will be deducted from the total royalty adjustment of $8,000,000.
Example 5  A Development well with 3 well events
Well event/0 has a TVD of 3,500 m and MD of 3,600 m. Well event/2 has a TVD of 3,600 m and MD of 3,800 m. Well event/3 has a TVD of 3,300 m and MD of 3,400 m. All three events report gas production and qualify for the NGDDP benefits. Benefit of the deepest lateral well event/2: For the MD between 2,000<Depth<=3,500 the amount equals to (3,500 m 2,000 m)* $625/m= $937,500. For the MD between 3,500<Depth<=4,000 the amount equals to (3,800 m 3,500 m)* $2,500/m= $750,000. Total benefit is $1,687,500. The measured depth at the start of the well event/ 0 leg is 2,300 m. Therefore, the length of the lateral from the kickoff point to the perforation is 1,300 m (3,600 m – 2,300 m). Benefit of the additional leg: For the TVD>=3,500 m the amount equals to 1,300 m* $2,500/m=$3,250,000. The measured depth at the start of the well event/ 3 leg is 2,300 m. Therefore, the length of the lateral from the kickoff point to the perforation is 1,100 m (3,400 m2,300 m). Benefit of the additional leg: For the TVD<3,500 m the amount equals to 1,100 m* $625/m=$687,500. Total royalty adjustment for this well is $5,625,000 ($1,687,500 + $3,250,000 +$687,500).
