Alberta s Petrochemicals Diversification Program

Transcription

1 Alberta s Petrochemicals Diversification Program Application Information and Guidelines Page 1

2 INTRODUCTION Overview of the Petrochemicals Diversification Program The Petrochemicals Diversification Program (program) is a new Alberta Department of Energy (department) administered program that provides benefits in the form of royalty credits. These royalty credits can be monetized via an Alberta royalty client. The program s objective is to encourage private sector investment in new Alberta- based facilities within methane or propane based value chains producing higher value products. Program Overview The program will be discretionary on behalf of the Crown. It may provide royalty credits to eligible new Alberta- based projects where the Crown determines it is in the public interest and unlikely to proceed without the program. Royalty credits are not re-paid to the Crown. Program funds are capped. Approved projects may be eligible to receive a maximum value of royalty credits over a limited time period. Royalty credits are earned by an approved project based on the annual amount of eligible feedstock consumed by the project, up to a project annual maximum royalty credit allocation. For purposes of the program, approval is provided prior to construction of the facility or facilities. Credits may be earned only upon commencement of facility operations (i.e. when feedstock consumption begins). Royalty credits can be earned for a maximum of 36 months, or until the aggregate value of royalty credits approved for the project has been reached, whichever is sooner. Earned royalty credits are paid on a bi-annual basis. Acceptance into the program is through application submitted during an Application Season, which is a competitive process for royalty credits. The Minister of Energy will make the final selection of applications eligible for royalty credits. In doing so, the Minister of Energy will establish the authority for the proposed project to receive royalty credits once the project is constructed and in-service. An owner of an approved project or the person designated by an owner will be required to submit written Earned Credit Applications to the department on a bi-annual basis once the project is in-service and manufacturing products for the relevant time period. Bi-annual Earned Credit Applications will be required for the duration of the 36 month period, or until the aggregate value of royalty credits approved for the project has been reached, whichever is sooner. The earned royalty credit is based on the actual feedstock consumed by the facilities in that approved project. Page 2

3 APPLICATION SEASON Anticipated Timelines Application Season Begins February 4, 2016 Application Season Closes April 8, 2016 Program Approval Decisions To be determined ELIGIBILITY Application Evaluation Eligibility To be eligible for evaluation under this program, an application must meet the following minimum requirements: o The application s proposed facility or facilities must be physically located within Alberta; o The application must include a continuous value chain that begins with consumption of either methane or propane as the primary feedstock in a primary facility to produce higher value products; and, o The application must be for a new greenfield or new brownfield investment (excluding investment for the purpose of facility debottlenecking). If an application does not meet the minimum requirements, it will not be evaluated for approval into the program. Meeting the minimum requirements does not guarantee approval into the program. Applications meeting minimum requirements will be evaluated based on a set of evaluation criteria presented in this document. This program is discretionary on behalf of the Crown. To be eligible the Crown must be satisfied in its sole discretion that a project is in the public interest and is unlikely to proceed without program support. In any event, the Crown may reject any and all applications without reason. APPLICATION PROCESS Program Application Facility Ownership Information An application can have one or more facilities within it. Primary Facilities Primary facilities are processing facilities which consume methane or propane feedstock for conversion to higher value products. The output of a primary facility can be sold into the marketplace, or consumed in a secondary facility. Page 3

4 Secondary Facilities Secondary facilities downstream of primary facilities that meet the minimum requirements may also be eligible to receive royalty credits. Examples of secondary facilities include urea production facilities, polypropylene facilities, propylene oxide facilities, etc. Secondary facilities that form part of an application are not required to have the same ownership as the primary facility, but must provide evidence of a long-term binding commitment to operationally integrate the facilities, or the intent to enter into such an agreement. Feedstock consumption for secondary facilities will be based on feedstock sourced mainly from its associated primary facility. Case A. A single facility application would be made in the case where the single facility was the primary facility and there were no secondary facilities contemplated. Approval for royalty credits under the program would be sought for the primary facility. Case B. A multiple facility application would be made where the project contained both a primary facility and a secondary facility or facilities. A total value of royalty credits would be approved for the projects if the primary and other facilities form a continuous value chain. In this case, each facility s proportion of the total value of the project s royalty credits would be approved. Approval of royalty credits for a secondary facility is contingent on approval of the primary facility receiving royalty credits. Applying to the Program To apply to the program, an application by an owner or the person designated by an owner in the owner s application (proponent) must be submitted to the Government of Alberta during the time frame of the Application Season. An application to the program must contain all the necessary information outlined in the section titled Evaluation Criteria Description. The application must also contain the value of royalty credits being requested. o The maximum value of royalty credits a given facility (primary or secondary) may apply for is $200 million. Communications with the Department During the Application Season and the evaluation process, communications by proponents to the department or any elected official or other representative or official of the Crown with respect to this program other than meetings with selected proponents should be by (including any attachments) sent to and received at the following address: Energy.pdprogram@gov.ab.ca The Department will post verbal program clarifications that occur in meetings on the department s website dedicated to this program. Page 4

5 Information and Requests for Clarification Comments and requests for information or clarifications concerning the program should be made through the address provided above. The department will respond to questions and will also provide clarifications to the program on its web site page dedicated to this program which can be found at Confidentiality and FOIP All applications and communications relating to them submitted in the Application Season are confidential and shall be maintained in confidence and kept secure by the department. Notwithstanding the confidentiality of the information, the provisions of the Freedom of Information and Protection of Privacy Act (Alberta) are applicable in the event of any request for access under the Act, provided that the department will also observe the provisions of that Act governing confidentiality of third party commercial or financial information, including the requirement that notice and an opportunity to object to disclosure be afforded to the party that supplied the confidential information. Information may be shared within departments of the government, with cabinet, and others supporting the process (e.g. consultants in the evaluation process under confidentiality agreements). Application Submission Time and Place The period of time in which applications will be accepted runs from February 4, 2016 to April 8, Applications must be physically received during the application season (no electronic delivery) by the department no later than 14:00:59 Alberta time (MST) on April 8, 2016 at the following address: Alberta Department of Energy Attention: Director, Petrochemicals Diversification Program Application Season 2 nd Floor, Street Edmonton, Alberta T5K 2G6 Form, Format and Maximum Length Applications must be: Physically delivered in electronic form (compact disc or USB flash drive; not by ) together with one paper copy; Not more than 200 pages per facility, inclusive of any appendices and schedules, formatted on letter size paper. Page 5

6 Non-Conforming Applications If an application is not strictly in accordance with any provision of the program, (i.e. non-conformance ), the department may: If in the department s assessment the non-conformance is immaterial to or is not detrimental to the objectives of the department as set out in this application, waive the non-conformance; If in the department s assessment the non-conformance is an omission, by notice to the applicant allow up to five business days to supply the omitted material; If in the department s assessment the non-conformance is material to and detrimental to the objectives of the department as set out in the application and is not an omission that can be rectified by the supply of omitted material, reject the application. Application Package Content Cover Page An application must contain a cover page setting out the following: The name of the corporation or other legal entity that is the proponent or is the proponent s corporate lead in respect of the project; If the proponent is a partnership or consortium, the names of all corporations or other legal entities that are part of the consortium, and the name of the consortium, if any; The name, if any that the proponent ascribes to its project; The name, office held by, and contact information of the individual who is designated as the proponent s key contact. Overview / Abstract Following the cover page, an application must include an overview or abstract (maximum five pages) summarizing the project s value chain and the proposed facilities, including a general description of the following: An overview of the project s value chain project and processing facility or facilities; An overview of the project s technology, greenfield or brownfield facilities and their location, associated capital costs, construction schedule, feedstock consumption, products made, target markets, employment, etc.; and The sources and quantities of feedstock. Sections of Application The body of application must be divided into the sequential sections listed in the Evaluation Criteria and Metrics section. Page 6

7 Personal Information and FOIP To the extent that an application includes personal information as defined in the Freedom of Information and Protection of Privacy Act (Alberta) the proponent must: Ensure that the individuals from whom that personal information is being collected are advised that their personal information is being collected for the purpose of evaluating the application, and are advised of the department s representative for answering any questions they may have regarding collection and use of their personal information is: o Mr. David Cunningham, (780) , david.cunningham@gov.ab.ca o Director, FOIP, Department of Energy EVALUATION AND SELECTION PROCESS Overview of Evaluation Due to the magnitude of the program funding, the evaluation of applications will involve considerable complexity and information disclosure. The department will seek to identify applications that, in its assessment, are likely to meet the following overarching objectives: A petrochemical value chain that uses methane or propane feedstock sourced largely in Alberta, and that extends to a high degree a methane- or propane- based value chain within Alberta. A processing facility that establishes incremental capacity in Alberta by constructing and operating a new facility ( greenfield ) or major expansion of an existing facility ( brownfield ), and not through debottlenecking of a facility. A petrochemical complex that receives all required internal and external approvals, proceeds and is constructed and operational within the timeframe intended by this program; and A facility that is technologically feasible and economically viable; and Establishing royalty credits for the consumption of feedstock in the project is in the public interest. Among applications that meet the above overarching objectives, the department will seek to identify the application that offers the best overall return to Alberta, with regard to: Economic diversification through hydrocarbon value added development, and other strategic objectives of the Crown, including environmental performance; Incremental revenue streams over time to provincial government and local provincial jurisdictions (e.g. corporate income tax, personal income tax, municipal property tax, etc.); The economic benefits that a particular new facility brings to the provincial economy and local communities. The social and environmental impacts of the new facilities. Any other factors the department considers relevant. Page 7

8 Evaluation Team The department will formally establish an evaluation team, including representatives from other departments in the government. The team may include external independent experts. The department will establish a committee of assistant deputy ministers or other senior officials of the government to consider recommendations of the evaluation team and otherwise participate in the evaluation and selection process. Department May Engage Consultants The department expects to engage consultants external to the government for the purpose of providing such expert analysis and other services as the evaluation team may require. The department may engage consultants who have or are providing services to a proponent on matters unrelated to this program or the application, provided that ethical walls are assured to the satisfaction of the department. Questions by Department Following the deadline for submission of applications, and at any time prior to the final decision by the Minister of Energy, the department may submit written questions to proponents by to further its understanding of the information in the applications. Proponents responses will be submitted by to the address provided under Communications with the Department. Presentations After the Application Season closes, the department may elect to invite either (a) all proponents or (b) proponents whose projects have been short listed, to make scheduled in-person presentations at an Edmonton location. Decision by the Minister of Energy The Minister of Energy will issue a final decision and may rely on any or all of the following considerations: Analysis and recommendations by the evaluation team and assistant deputy ministers committee; Advice or direction from cabinet or cabinet colleagues or any committee of cabinet; or any other factors the Minister of Energy deems appropriate. Following the evaluation and selection process, the Minister of Energy may do any of the following: Page 8

9 Approve one or more applications for the program, determining the total value of the royalty credits and the terms applicable to the calculation of the royalty credits for each facility or facilities within the application(s); or Reject some or all applications without reasons. Announcement of the Decision by the Minister of Energy Upon the decision by the Minister of Energy: The Minister of Energy may publicly announce the selected application(s) and associated total value of royalty credits allocated to each application; or The Minister of Energy may publicly announce that no applications were selected. EVALUATION AND METRICS Overview of Criteria Applications that meet the initial screening criteria set forth in this document will be evaluated by the evaluation team using the following seven criteria: No. Evaluation Criteria 1. Business Plan 2. Project Timing 3. Technology and Project Configuration 4. Applicant s Capability 5. Project Economic Viability and Royalty Credit Needs 6. Economic Benefits to Alberta 7. Environmental Performance For each criterion, the proponent must: o Address all items, providing supporting documentation for all assertions; and o Provide a self-evaluation, giving justification for ratings. The evaluation team s collective assessments will be used to rank applications using a two dimensional analysis, in which two key overarching objectives are balanced: the Strength of the Application and the Expected Benefits to Alberta. The two dimensional rankings will then be used to inform the selection process. Each criterion consists of four performance levels: o A criterion not met o B criterion partially met o C criterion met o D criterion exceeded. Applications should use Canadian dollar values where appropriate. Page 9

10 Evaluation Criteria Description 1. Business Plan Preamble In this section of the application: Provide an overall description of the project and business plan, including feedstock type and sourcing, technology choice and engineering design, products produced, marketing strategy, competitive advantage, financing, and infrastructure requirements, amongst other components discussed below. Projects that can demonstrate advanced completeness of a business plan will be favored against less advanced plans. Describe how the processing facility fits the overall markets and how it is aligned with expanding markets for Alberta s products. Outlines the proponent s objectives and vision for the processing facility, including future capabilities. Outline the initial stage as well as any intended staging or expansions. Describe the location of the project and the advantages and challenges of that location. Detail the proponent s plan for meeting the logistical challenges of the location. Describe the infrastructure requirements for the project, and set out the proponent s plan for meeting these requirements. Indicate generally the proponent s business plan relative to each of engineering design, construction, financing and operation. Indicate intended non-arms length relationships relative to the project. The business plan must incorporate a value chain that includes consumption of primary feedstock of either methane or propane. Preference will be given to business plans that advance further along the value chain within Alberta. Indicate the size of the facility with reference to world scale size benchmark. Preference will be given to projects that can demonstrate that a significant portion of their primary feedstock will be sourced from within Alberta. Preference will be given to projects which do not place undo competitive pressure directly on Alberta s current petrochemical industry in product markets. Language Ladder Statements A B C D The project is deficient in many of the business plan expectations described in the above Preamble. The project meets most of the business plan expectations described in the Preamble but either misses some of the expectations or the justifications are unclear or not fully convincing. The business plan described in the project is comprehensive and includes the project s alignment with markets with a clear marketing strategy and plan. The processing facility will be located at a location that presents, as convincingly demonstrated by the project, logistical and value added advantages. The history and current status of the project and the remaining steps required to full project sanction are set out clearly AND an innovative vision of how this project fits into the expectations for a growing market for Alberta upgraded energy products is provided. Page 10

11 2. Project Timing Preamble In this section of the application: Provide the project execution plan, describing how the project will be carried out. Preference will be given to those projects that are closer to implementation; i.e., the proponent has conducted the necessary studies and design work that provides a reliable estimate of project costs, of project economics, and of project timing. The proponent has acquired location lands, has applied for approvals, etc. Set out the project s intended timeline and its key milestones: the timelines must state (i) the date that the proponent expects that full project sanction could occur, and (ii) the date that the proponent expects that the petrochemical facility will be fully operational. Describe the current status of the project, including all steps taken to date and how far the project has advanced, including at least the current stage of (i) engineering design, (ii) regulatory approvals, and (iii) financing approvals. Where possible set out key construction milestones, in each case with the date that the proponent anticipates achieving the milestone. Language Ladder Statements A B C D The project is deficient in many of its timing expectations described in the above Preamble. The project meets most of its timing expectations described in the Preamble but either misses some of the expectations or the information is unclear or not fully convincing. The execution plan described in the project is comprehensive and includes its intended timeline and key milestones: the timelines must state (i) the date the proponent anticipates that full project sanction could occur, and (ii) the date the proponent anticipates that the petrochemical facility will be fully operational AND the current state of the project is advanced, including in the areas of engineering design, regulatory approvals and financing approvals. Page 11

12 3. Technology and Project Configuration Preamble In this section of the application: Describe the intended processes and technology that the proponent has selected for the project and the reasons for selection. Describe the intended project configuration, scale, process selection, integration and site plan. Demonstrate that the project will be world scale; or alternatively, indicate what factors were taken into account to propose that the project be smaller than world scale. Describe utilities and off-sites. Provide a simplified material and energy balance, showing feedstock quality, product yields, emissions, GHG production/recovery, other feedstock, and consumption of natural gas, power and water. Indicate the design standards used or intended to be used for plant reliability and environmental performance. Describe how the processing facility will be technologically compatible with the proponent s ultimate vision of the project, including in relation to each stage or expansion phase intended by the proponent. Preference will be given to projects which utilize commercially proven technology. Language Ladder Statements A B C D The project is deficient in many of the technology requirements described in the above Preamble. The project meets most of the expectations described in the Preamble but either misses some of the key technology expectations or the justifications are unclear or not fully convincing. The project provides clear and convincing justification for the process, technology, scale, and design standards to be used and includes an accurately calculated material balance for all feedstock, products and consumables. It demonstrates that all of the infrastructure required to support the project is achievable AND presents a vision of the ultimate potential of the technology that will be used in the project and demonstrates that the initial phase of the project is technologically compatible with the proposed ultimate vision of the fully developed project, and provides for opportunities for integration with other facilities. Page 12

13 4. Proponent s Capability Preamble In this section of the application: If the proponent is a consortium or joint venture or partnership, outline the intended legal structure of the arrangement, indicate which corporate entities will comprise the proponent, and outline the respective roles all such entities will contribute. If the application contains more than one processing facility, outline the intended linkages and structure of the associated facilities. Indicate which corporate entity or entities in the application is or are applying to receive the royalty credits. Note that the facility consuming the primary resource feedstock must apply to receive royalty credits. Secondary facilities using the primary facility s production as feedstock can form part of the application and can jointly apply for royalty credits within the same application. Detail the relevant experience and expertise of the respective entities comprising the proponent within the application in relation to (i) construction projects of magnitude similar to the proposed processing facility; (ii) constructing, operating and/or maintaining similar facilities; (iii) securing financing for projects of similar magnitude; and (iv) producing, selecting and/or marketing of the petrochemical products. Set out the individuals who will comprise the proponent s management team during the application process providing, the relevant experience, expertise and qualification of each such individual and their role. Provide an overview of all current ongoing business activities of entities comprising the proponent that may be relevant for the successful execution of its project. Document any business management, project management or risk management systems deployed by the proponent on a corporate basis that may be relevant to the successful execution of its project. Language Ladder Statements A B C D The proponent is deficient in many of the capability expectations described in the above Preamble. The proponent meets most of the capability expectations described in the Preamble but either misses some of the key expectations or the justifications are unclear or not fully convincing. The proponent provides clear and convincing evidence of the strong capability and experience of its team in all aspects of projects of this size, including strategic partners where needed AND includes demonstrated credibility and reliability in relation to projects of similar magnitude, through strong project management and risk management and contingency planning. Page 13

14 5. Project Economic Viability and Royalty Credit Needs Preamble In this section of the application: Demonstrate the economic viability of each project having regard for financial support provided by royalty credits. Demonstrate the project economic need for royalty credits. Provide an overview of the model used by the proponent to assess the economic viability of the project, and confirm that the department may have access to that model upon request. Include an annual cash flow analysis for the project, providing project internal rate of return or IRR and project net present value or NPV (6%, 8%, and 10% real discount rates) both before and after income tax. Utilize mid-year discounting. Use Canadian dollars. Include an assessment of the expected competitiveness of the facility relative to other similar existing or planned Alberta facilities, including both capital and per m 3 feedstock costs. Provide sufficient detail to enable the department to project, based on the proponent s assumptions, the returns and rewards to the Crown that could be expected to flow from operation of the facility. Indicate all prospective sources of funding other than the royalty credits from this program, for the project from any level of government, including committed as well as potential funding, and demonstrate the impact of such funding on project economics. Indicate the current status of all such funding requests and the proponent s expectations regarding probability and amount of funding. Language Ladder Statements A B C D The project does not meet the requirements of the above preamble, or the project economics do not indicate a viable project, or the information provided is inadequate to make an assessment of the likely viability of the project. The project meets the requirements of the Preamble and indicates a viable project, but the supporting information is not complete or clear. The project indicates a viable project, as supported by detailed and clear information on cash flow analysis and calculation of the NPV of the project.. and the royalty credit cost to the Crown is minimized. Page 14

15 6. Economic Benefits to Alberta Preamble In this section of the application: Provide an overall description of the economic benefits the project will return to Alberta. On a project- specific and annual basis, provide an estimate of provincial corporate income taxes and municipal taxes. Describe and quantify the job creation in Alberta that the project will result in. Describe other intangible impacts that may result from the royalty credit program other than described in section 7 (environmental performance); i.e., access to new markets, diversification, and new product production. Provide an economic impact report giving an estimate of the economic benefits that the project brings to the provincial economy and surrounding communities. The economic impacts from the project must be expressed in terms of output (sales), value added (gross domestic product), earnings, employment (full- and part-time jobs), tax revenues, and investment on all industries and on individual industries in the provincial economy. Key assumptions for the economic impact study must be listed; i.e., whether the economic model measure forward or backward linkages; whether the model is a fixed price or general equilibrium type model; and the time horizon. Economic impacts should be estimated at the direct, indirect and induced levels: The direct impact relates to the first round of inputs purchased by the industry. Direct impacts result from expenditures associated with constructing and operating a project, such as labour, materials, supplies, and capital. The indirect impact relates to the subsequent rounds of inputs purchased by supporting industries. The sum of the direct and indirect impacts is the inter-industry effects. These impacts would not occur but for facility operations. The induced impacts, also referred to as the household-spending effect, results from increased employment (earnings) from the higher level of economic activity resulting from the increased inter-industry activity. Language Ladder Statements A B C D The project is deficient in many of the requirements described in the above Preamble, or the information provided is inadequate to make an assessment of the economic benefits to Alberta flowing from the project. The project meets requirements of the Preamble and indicates some economic benefits to Alberta, but the supporting information is not complete or clear. The project indicates strong economic benefits to Alberta, as supported by a report demonstrating a rigorous and acceptable methodology in arriving at the economic benefits of the project to the province INCLUDING demonstration that benefits provided to Alberta will be at least balanced against the amount of royalty credits required to incent those benefits. Page 15

16 7. Environmental Performance Preamble In this section of the application: Discuss all aspects of the expected environmental performance of the project. Outline the intended approach for meeting all government requirements, and any plans for exceeding government requirements. The department favours projects that intend outstanding environmental performance. Demonstrate the use of best available technical and economically achievable standards and outline any initiatives that will make the project an environmental leader. Describe how the facility will be designed to be in the top quartile of energy efficiency, based on industry benchmarking of existing facilities. Describe plans for mitigation of GHG emissions. Detail the project s plan for water use, the source of such water, the extent of re-use and the amount of water returned. Identify by type the amount of expected air emissions. Language Ladder Statements A B C D The project is deficient in many of the environmental performance requirements described in the above Preamble. The information provided demonstrates that the project is likely to meet or surpass all regulatory requirements with respect to environmental performance. Benchmark information provided on environmental facilities and costs demonstrates that the project will be a leader in environmental performance by using best available technical and economically achievable practices with respect to air, land and water (including GHG emissions).. AND. A commitment and plan has been put in place to address and mitigate significant environmental issues, and the project will have outstanding environmental performance. Page 16

17 Petrochemicals Diversification Program Guidelines Definitions Primary Facility A processing facility within a project that manufactures products using methane or propane as feedstock. Power generation is excluded for purposes of this program. Secondary Facility A processing facility within a project that is downstream from a primary facility that consumes products produced from the primary facility as feedstock to produce higher value added products. Established Royalty Credits Royalty credits that were established for an approved project by the Minister of Energy: For the consumption of methane or propane at a primary facility; and For the consumption of products manufactured from methane or propane at a secondary facility. Earned Royalty Credits Established Royalty Credits that have become earned through the process of plant operations (feedstock consumption) and validated by the department through an Earned Credit Application. Calculation of Credits The royalty credit value assigned to a facility will be calculated as: Per Unit Royalty Credit Value = Annual Maximum Valuation / Expected Feedstock Consumption o Where: Per Unit Royalty Credit Value = royalty credit value per unit of feedstock consumed for a project Annual Maximum Valuation = the maximum royalty credit dollar amount a facility is approved to receive on an annual basis. Expected Feedstock Consumption = the volume of feedstock the facility is expected to consume in a calendar year based on the approval granted by the Minister of Energy in the Application Season. Royalty credits will be valued on a dollar per cubic meter feedstock consumption basis. Earning Royalty Credits Royalty credits can only be earned once a project begins consuming feedstock. A project may be granted a grace period prior to earning and receiving royalty credits to account for facility testing and ramp up of operations. A project will earn a royalty credit for every unit of feedstock consumed during a calendar year. Royalty credits can be earned for a maximum of 36 consecutive calendar months. Page 17

18 In a given year, a facility can earn the maximum annual amount of royalty credits for which they were approved. If they consume more feedstock than approved, they will not earn additional credits. If in a given year the annual maximum royalty credits are not earned, the remaining credits will be carried forward into the next year of earnable credits. If, at the end of the 36 months of eligible months to earn credits there are still unearned credits, an additional 6 months may be granted to earn the remaining eligible credits. At the end of the additional 6 months (42 months total) all remaining unearned credits will be no longer be able to be earned. Receiving Royalty Credits For a project to receive Earned Royalty Credits an owner of an approved project or the person designated by an owner must submit a written Earned Credit Application (ECA) to the department on a bi-annual basis as required by the Minister of Energy s final decision in the Application Season. The ECA for each facility must include: o A letter stating the in-service date of the facility, the actual feedstock consumption used to produce the value-added product during the 6-month reporting period, amount of value-added product produced from the feedstock consumed, calculated dollar amount of credits earned for the time period; the name(s) of royalty client(s), the type(s) of royalty accounts for each royalty client to which the credits are to be applied, and the distribution of those credits amongst the various accounts (100% of royalty credits must be designated to royalty clients; i.e. no royalty credit holdbacks permitted). o Other auditable documents as part of the terms determined by the Minister of Energy and stated in the approval letter issued by the department. The department will issue a letter to confirm the value of the credits earned and the date on which the credits are applied to the royalty client s account. The ECA must contain sufficient information for the department to allocate royalty credits. In the event these royalty allocations need to be amended, the department will accept written notification of these amendments in a letter until such time as the credits have been applied by the department to the designated royalty accounts. ECAs may be audited by the department. Using Royalty Credits Royalty credits are granted to a petrochemical project approved by the Minister of Energy in the Application Season. If the petrochemical project s owner is not a royalty client of the department, the credits will have to be transferred to one or more royalty clients. The types of commercial arrangements between industry participants to transfer the credits will not be restricted by the government. Royalty credits are used to reduce royalties payable on natural gas, natural gas by-products, and bitumen, and must be monetized during the fiscal year in which they are issued. If the royalty account through which Earned Royalty Credits are being monetized has insufficient royalty liability (to be offset by the credits) in a given year, the Earned Royalty Credits will be carried forward until sufficient liability is accrued. There is no expiry date on Earned Royalty Credits. Page 18

19 Natural gas royalty clients will see the deduction for the earned credit value applied as a line item on their royalty invoice under the Other Financial Transactions portion of the invoice. This will occur in the month following application of the credit. Bitumen royalty clients will see the value of the royalty credits in their annual statement. Royalty credits are non-interest bearing. Limitations The Minister of Energy may refuse to grant Earned Royalty Credits under the program to a facility if the Minister of Energy believes that the regulations have been contravened, or that business arrangements were made that artificially affected the determination of the credits. The Minister of Energy may cancel and/or reduce accordingly the value of any Earned Royalty Credits approved under such circumstances. If credits were allocated and redeemed, and the Minister of Energy subsequently determines that all or parts of the consumption submitted is ineligible, the applicant will be required to repay the credits, including compounded interest (prime rate plus one per cent). Records For the purposes of the program, owners are required to retain documents related to the actual consumption of methane and propane for the duration of the program and five years after the issuance of the last royalty credit. The Minister of Energy may request that the department s auditors have access, on a confidential basis, to all documents. Page 19