Additionally, regulation can take place at the provincial and municipal level. For example, Alberta introduced the Climate Change and Emissions Management Act, which provides a framework for managing GHG emissions and establishes a target of reducing specified gas emissions relative to gross domestic product to an amount that is equal to or less than 50% of 1990 levels by December 31, 2020. The accompanying regulations, the Specified Gas Emitters Regulation and the Specified Gas Emitters Reporting Regulation, require mandatory emissions reductions through the use of emissions intensity targets and impose duties to report.
The Government of Alberta implemented a new oil and gas royalty framework effective January 2009. The new framework, including subsequent amendments, established new royalties for conventional oil, natural gas and bitumen that are linked to price and production levels and apply to both new and existing conventional oil and gas activities and oil sands projects. Under the framework, the formula for conventional oil and natural gas royalties uses a sliding rate formula, dependent on the market price and production volumes. Royalty rates for conventional oil currently range from 0% to 40% and royalty rates for natural gas currently range from 5% to 36%. The Alberta Government has also introduced a number of royalty reduction and incentive programs to encourage oil and gas exploration and development in Alberta, including a new well royalty program, which has become a permanent feature of the royalty system, that provides a maximum 5% royalty rate for the first 12 months of production from new wells producing oil or natural gas to a maximum of 50,000 barrels of oil or 500 million cubic feet of natural gas. In addition, there is a 5% front end royalty rate for horizontal oil wells spud on or after May 1, 2010. Based on measured depth of the well, the 5% rate can be extended to 18 to 48 months on 50 Mstb to 100Mstb of oil production. The majority of the Company's horizontal wells on Crown lands would qualify for 30 months of 5% royalty for up to 70Mstb of oil production.
BUSINESS PROSPECTS AND STRATEGY
The Company has 165 gross (90 net) sections of land and an inventory of 232 gross (148 net revenue) future drilling locations in the Cardium horizontal light oil play of which only 32% of net locations are recognized to date in the GLJ reserves report. With the completion of infrastructure projects in 2011, newly drilled Cardium horizontal wells can be easily connected to these gathering systems.
In addition to its Cardium light oil drilling inventory, the Company has identified an important new play on its lands - the Second White Specks. The Company has 104 gross (46 net) sections of Second White Specks ("2WS") land and has assembled a drilling inventory of 102 gross (59 net) drilling locations. This zone is 100 meters deeper than the Cardium formation, is the oil-source zone for the Cardium play and is oil-charged with similar quality light oil that is in the Cardium formation. To date, other operators have drilled six horizontal oil wells offsetting the Company lands. The Company believes this play can be exploited by drilling off existing Cardium drilling pads and handling the Second White Specks oil and solution gas at the Company's operated Cardium facilities.
The Company no longer considers itself to be a shallow gas production and development company. The Company is a light oil horizontal development company focused almost exclusively on the Cardium with a stacked resource play in the Second White Specks. The Company's assets are almost entirely west of the fifth meridian ("W5M"), and a two hour drive north of Calgary on predominantly year-round access land. With a new reserves report, excellent drilling results yielding high initial productivity, relatively low capital costs and an expanded drilling inventory, the Company continues to explore its options through a strategic alternatives process. Anderson has prepared a confidential data room to assist in this process. Qualified parties have signed confidentiality agreements to review information in this data room.
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