Enhanced Production Audit Program EPAP CAPPA Conference Panel

Enhanced Production Audit Program (EPAP) CAPPA Conference Panel Hosted by: Al Mc. Cue 21 October 2009

How we will proceed Each panellist will present for 6 – 7 minutes q We’ll spend the bulk of the time responding to your questions q We’ll close with short remarks from some panellists q 2

Question period After all panellists have made their presentations, we will open up the session to your questions q Your package contains index cards q Write your questions legibly on a card q Hold it high in the air where a volunteer will run it up to the podium q 3

Today’s Panel q Colby Ruff ERCB q Rhon Rose BP Canada (IMG) q Al Davis NAL Resources (CAPPA) q Eric Hazeldine Quorum Business Solutions q Yogi Schulz Corvelle (ERCB – EPAP Project Manager) q Earl Quantz CAPPA 4

Enhanced Production Audit Program ERCB Overview CAPPA Conference Panel Presented by: Colby Ruff 21 October 2009

Presentation Outline EPAP Goals q EPAP Philosophy q EPAP Benefits q 6

EPAP Goals q Raise level of compliance to ERCB measurement and reporting requirements q Raise level of assurance over compliance to ERCB measurement and reporting requirements 7

EPAP Philosophy “Trust, but verify” - Ronald Reagan Trust Operator Declaration Verify Compliance Assessment Process 8

Benefits to Operators q Appropriate level of assurance over compliance with ERCB requirements q Improved volumetric business processes & controls q Higher quality volumetric data 9

Enhanced Production Audit Program New Business Practices CAPPA Conference Panel Presented by: Rhon Rose 21 October 2009

General Context q EPAP targets long term improvement in the compliance to: Directive 007 reporting § Directive 017 measurement § Reporting is more visible q IMG is building a set of business practices for measurement q Most of the IMG areas will impact/involve the Production Accounting community q 11

IMG Business Practices PA Impact Schematic Metering Diagrams Gas and Liquid Analysis Gas Chart Readings Calibrations and Proving SCADA/EFM/Automation Fuel, Flare, and Vent Oil Well Testing Gas Well Testing Effluent Well Testing High Low Low Medium 12

Impacts on You from Measurement Practices q In the Compliance Assessment Report you will get “bad” point (s) for: Data anomalies § Field inspection findings § Your Senior Executives will have to sign an annual Declaration q You will generally need to implement more controls and have clearer lines of accountability q 13

Metering Schematics Do you have current ones? q Does it match how you do your allocations? q Do they contain the required information? q Has someone been assigned responsibility to maintain them? q Does your company have a control in place to ensure they are done and kept up to date? q 14

Metering Schematics IMG Document BP Example Note: Any party tied to a BP plant is asked to request and review these with your PA 15

Enhanced Production Audit Program PA Business Process Best Practices CAPPA Conference Panel Presented by: Al Davis 21 October 2009

CAPPA Objectives Strengthen the profession of Production accounting q Represent P. A. industry technically and procedurally q Provide education program for P. A. q Promote cordial relations among members q Provide production statistics forum q 17

CAPPA Best Practices Committee Mandate q To develop and document Production Accounting best practices § initially focusing on required EPAP procedures 18

Process ERCB has identified 74 noncompliance issues q CAPPA has determined that 33 of these are production accounting q Committee is developing processes q Using ERCB process template q 19

Status 33 processes to be developed q 9 are high risk, 24 are low risk q Draft completed for 6 high risk processes q Draft completed for 16 low risk processes q 66% have drafts completed q currently starting draft reviews q 20

Next Steps Complete remaining drafts – Nov. q Review and finalize all drafts – Jan. q Standardize formats – Feb. q Review with CAPPA board - ongoing q Post on CAPPA website, access to industry q Plan to post some processes for year end q 21

ERCB Process Template Components q Process Description: Process background § Risk of noncompliance § Process owners § Process description § Process map/flow chart q Process control matrix q 22

Process Example Gas Disposition Reporting Background q Gas disposition volumes are used to calculate gas volumes at a facility or well therefore the gas volumes must be reported in an accurate and timely manner 23

Process Example Gas Disposition Reporting Associated risk of non-compliance q Incorrect reporting results in inaccurate production, inaccurate revenue, incorrect royalty payments, increased government monitoring, audits and penalties, incorrect partner information and additional costs associated with reworks. 24

Process Example Gas Disposition Reporting Process owners q Field operator q Production accountant for the receiving facility q Production Accountant for the delivering facilities 25

Process Example Gas Disposition Reporting Process description q The following process is performed monthly: q The receipt facility/pipeline field operator measures gas volumes coming into the receiving facility/pipeline with a compliant gas measurement device and also spot checks gas analysis as required. 26

Process Example Gas Disposition Reporting Process map/flow chart q Outlines the process steps, how they all hang together and associated controls. 27

Process Example Gas Disposition Reporting Process control matrix q Defines the details of every associated control 28

Enhanced Production Audit Program Preparing for EPAP CAPPA Conference Panel Presented by: Eric Hazeldine 21 October 2009

High-Level Considerations q All operators have measurement and reporting business processes Are they documented? § Do they leave an audit trail? § q Also have controls that assure timely and quality results from processes Automated or manual? § Facility-level or Company-level? § Do they assure D 007 & D 017 compliance? § q Answers influence EPAP approach 30

Measurement Program Best Practices q Processes and Controls: Strengthening is easier than creating and replacing § Modifications that move toward automation with full audit trail are most valuable § q Consideration of D-007 and D-017 requirements in context of process modifications will yield appropriate controls 31

Measurement Program Best Practices, continued q Strive for uniform processes and controls across fields / assets Greatly simplifies evaluations of controls § Lower cost to implement and maintain processes and controls § Job sharing and job transfers are easier § q Change Management is key when processes are being changed Increases long-term adherence and buy-in § More than documentation and training § 32

Specific Example q D 017: 8. 4 Sampling and Analysis Frequency § Process Considerations - Does your meter setup process include designation of required sample frequency? - Is your sampling process driven off a schedule? - Are all new and accepted samples recorded centrally? § Controls - Preventive Control: The sample schedule itself - Detective Control: A report of overdue samples 33

Specific Example q D 017: 4. 3. 3 Measurement Data Audit Trail § Process Considerations - Where are raw volumes first recorded? - Raw volumes: EFM, SCADA, Data Historian, Chart Integrator, 3 rd Party - How do they propagate into - Field Data Capture / Measurement system? - Production Accounting system? - Registry? § Controls - Detective Controls: Reconcile… - Production Accounting inputs to Registry inputs - Field Data Capture inputs to Production Accounting inputs 34

Enhanced Production Audit Program Project Summary CAPPA Conference Panel Presented by: Yogi Schulz 21 October 2009

Presentation Outline EPAP development q EPAP components q Implementation schedule q Operator role q Please e-mail any questions you may have to: epap@ercb. ca EPAP is further described under Projects & Issues at: www. ercb. ca 36

EPAP Development Phase Time span Initial analysis 2 Q – 3 Q 2007 Project proposal 4 Q 2007 Opportunity Evaluation 1 Q 2008 Development August 2008 – 4 Q 2009 37

EPAP Components Operator evaluations of controls q Declaration process q Compliance assessment process q Action item process q D-019 Enforcement q 38

Overview of Relationship Evaluation of Control Assesses Business Process 39

Oil & Gas Example For sample of Well Tests, examine review of the log Assesses Review Well Test logs Assesses Conduct Well Tests 40

Implementation Schedule Phase Development Planned August 2008 – 4 Q 2009 Implementation Phase Trial declaration period 2010 First declaration period 2011 Ongoing operation Beyond 2011 41

Operator Role q Operations & Production Accounting Execute business processes § Execute controls § Implement remediation plan § q Audit group Create the annual evaluation plan § Evaluate & strengthen controls § Develop remediation plan for findings § q Senior management Review / approve annual evaluation plan § Review evaluation results § Issue declaration § 42

Operator Next Steps Internal EPAP implementation Conduct an assessment q Plan for evaluations of controls q Communicate EPAP implementation plan internally q Respond to Compliance Assessment Report q Conduct trial evaluations of controls q Strengthen processes & controls q 43

Enhanced Production Audit Program EPAP Actions for PA CAPPA Conference Panel Presented by: Earl Quantz 21 October 2009

EPAP Actions for Production Accountants Embrace and build EPAP visibility q Action monthly compliance assessment report q Collaborate with field operations and measurement staff q Identify the controls on your desk and confirm are they working q Respond to evaluation of controls findings q 45

Annual Operator EPAP Work Create annual evaluation plan q Conduct evaluations of controls q Remediate deficiencies q Collaborate in the compliance assessment process q Submit the annual declaration q 46

Discussion

Extra Slides

ERCB Role Production Audit Team Review declarations q Perform compliance assessment process q Interact with operators on action items q Monitor execution of remediation work q Perform operator escalation process q Apply D-019 compliance enforcement q 49