Report on Performance

Overview of Ministry Goals and Linkage to Government Strategic Goals

Report on Results

The Ministry of Energy and Mines had excellent success in 2004/05 however some conditions beyond the control of the ministry prevented Energy and Mines from accomplishing all of its performance goals. Further explanation of these variances is provided in the report on results section. The following chart summarizes this year's performance.

Synopsis of Ministry Results

Goal 1

To maintain and increase investment in energy and mineral resource development in British Columbia.

Core Business — Mining and Minerals.

Objective 1

Increase mining exploration and development activity.

Rationale: Mining revenues and jobs are increasing as commodity prices, government policies and investor confidence are attracting the mining industry to develop these rich resources. The Province is committed to attracting exploration investment and building the mining industry in order to ensure benefits for all British Columbians.

Key Strategies 1

1. Market British Columbia's mining opportunities to the investment community.
2. Work with exploration and mining companies, communities, and other provincial and federal agencies to enhance mine exploration and development.
3. Facilitate infrastructure development to improve exploration and mine access.
4. Enhance relationships between First Nations, industry and government to develop greater opportunities and certainty on the land base.
5. Provide information to the public and industry on mineral deposits and potential.
6. Develop alternative mechanisms to fund the further advancement of baseline minerals geoscience in British Columbia.
7. Enhance mineral title administration by implementing a web-based map selection system.

Strategy Summary: The ministry:

1. Actively participated in exploration forums such as Roundup in Vancouver and the Prospectors and Developers Association annual meeting in Toronto.
2. Conducted regional joint solutions workshops with the exploration community and other provincial agencies to discuss and resolve issues.
3. Worked with the Ministry of Forests to facilitate the availability of resource roads.
4. Continued to work with First Nations groups to facilitate better understanding of exploration and mining processes while building partnerships with First Nations to assist in reviewing mining proposals.
5. Developed maps indicating economic benefits of exploration on regional communities.
6. Secured a $25 million contribution for Geoscience BC to the British Columbia, Yukon Chamber of Mines. MEM is working with the Federal Government to lever matching funding.
7. Implemented Mineral Titles Online, a web based system for staking and acquiring mineral claims, was implemented.

Explanation of variance: International commodity prices and increasing demand for minerals and mineral-related products, particularly from Asia, continues to drive investment activity in the minerals sector. As a result of this much improved international market for minerals, Canadian mineral exploration and mine development has seen considerable growth over the past year. In addition, British Columbia has also increased its share of the new Canadian exploration investments and exploration activity by improving the mining investment climate and implementing an efficient regulatory regime for resource developments.

Objective 2

Increase British Columbia's oil and gas production and activity, and expand into new basins.

Rationale: Production is a key indicator widely used by industry to communicate activity levels and success. Activity levels are closely linked to employment and business opportunities.

Key Strategies 2

1. Develop and implement new royalty and other incentive programs to increase production and activity.
2. Facilitate infrastructure development to improve access to oil and gas exploration and development opportunities.
3. Develop improved knowledge and information base for petroleum geology to identify new energy development opportunities within British Columbia.
4. Identify, stimulate and facilitate development opportunities for under-explored and unconventional resources, including coalbed gas, deep gas and tight gas, in both existing and new basins.
5. Identify and implement measures to enhance British Columbia's oil and gas service sector.

Strategy Summary: The ministry:

1. Began to evaluate a net profit mechanism for unconventional and frontier gas and amended the Producer Cost of Service (PCOS) calculation that reflected the Province's and industry's costs in order to help increase production and activity. A number of recommendations of the Best Practices Steering Committee were adopted resulting in significant annual savings to industry.
2. Constructed or upgraded 232 km of all weather roads plus the Sierra-Yoyo-Desan (SYD) Road concession agreement was signed on June 15, 2004. The SYD Road is a successful private-public partnership that won the National Partnership Project Financing Gold Award.
3. Improved the oil and gas knowledge base by providing or initiating new geological mapping, studies and reports.
4. Completed and implemented the new Interior Basin Development Strategy has been developed and implemented.
5. Completed 6 of the 16 Recommendations under the Service Sector Strategy.

Explanation of variances:

Natural gas: Raw natural gas production in fiscal 2004/05 was 3.2 per cent lower than 2003/04 but 11.6 per cent above 2000/01 levels. Raw gas production in calendar 2004 (Jan – Dec) increased 1.5 per cent against calendar 2003. The gas production profile for wells connected in 2004 declined at a higher rate than wells connected in 2003. Production for 2004/05 was only .11 Tcf below target. Given variability of weather and other factors, this is considered a very successful production forecast.

Crude Oil: Crude oil production in 2004/05 was 5 per cent lower than 2003/04 and was 18 per cent lower than 2000/01. The oil production profile for wells connected in 2004 showed less production capacity than wells connected in 2003. Most of the reserve additions are occurring from revisions of existing pools by increased recovery or extension of the pool, such as Hay River.

Wells drilled: Wells drilled in 2004/05 were 5.8 per cent lower than 2003/04. Wells drilled in the first quarter of 2005 declined throughout Canada due to a late winter/early spring thaw.

Objective 3

Increase investment in British Columbia's oil and gas sector.

Rationale: Capital investment has a direct impact on drilling activity, production, reserve replacement and revenues to the Crown. The annual targets are based on the past investment trend combined with the expected impact of ministry policies and programs to attract greater investment.

Key Strategies 3

1. Position British Columbia as a fiscally competitive jurisdiction for resource development opportunities.
2. Implement an investment attraction strategy to promote and market opportunities in British Columbia's energy resources.
3. Enhance relationships between First Nations, industry and government to develop greater opportunities and certainty on the land base.
4. Undertake community information programs on proposed oil and gas projects.
5. Clarify freehold mineral title to facilitate access to both energy and mineral resources.

Strategy Summary: The ministry:

1. Continued to promote the Province's elimination of sales tax on production machinery and equipment and relatively low corporate income tax rate of 13.5 per cent.
2. Facilitated an investment mission to Calgary showcasing British Columbia's oil and gas capabilities, piloted the facilitation of oil and gas job fairs and assisted in the establishment of an oil and gas education and training consortium. This consortium funded (jointly with industry) 13 specific education and training programs and facilitated the announcement and funding of an Oil and Gas Centre of Excellence on Northern Lights College campus in Fort St. John.
3. Conducted meetings and information sessions throughout the Province with First Nations, industry, stakeholders and community groups in order to exchange information about potential oil and gas developments including coalbed gas.
4. Developed and resourced a new community engagement program; and signed a Memorandum of Understanding with the Peace River Regional District providing additional funding for community infrastructure.
5. Undertook research across the province to identify areas in which freehold mineral rights were originally granted.

Explanation of variance: Thanks to its abundant resources and supportive investment climate, British Columbia has successfully increased its competitiveness compared to other Canadian jurisdictions. Provincial oil and gas industry investment increased from $1.1 billion in 1999 to an estimate of $4.5 billion in 2004, moving from only 7 per cent of total oil and gas capital investment in Canada to more than 13 per cent last year.

Objective 4

Facilitate the development of British Columbia's offshore oil and gas resources in an environmentally sound manner.

Rationale: The Province of British Columbia believes that the potential opportunities provided by offshore oil and gas development are of significant public value if done so in a scientifically sound and environmentally responsible manner.

Key Strategies 4

1. Work with the federal government to advance the state of scientific knowledge about the British Columbia offshore and its potential energy resources.
2. Work with First Nations, coastal communities and stakeholders to identify concerns, provide information and establish workable solutions.
3. Develop options for the provincial positions regarding a comprehensive regulatory and management regime for the British Columbia offshore, and commence negotiations with the federal government.

Strategy Summary: The Offshore Oil and Gas Team has:

1. Researched and prepared a perspective on British Columbia offshore development.
2. Begun work at the local First Nations and coastal community level, building on the recent protocol agreement with the Nisga'a Nation and the Memorandum of Understanding with the Union of British Columbia Municipalities (UBCM).
3. Continues to engage federal officials on proposed joint initiatives relative to regulatory and management regime development.

Explanation of variance: The federal government completed its review process regarding the federal moratorium on offshore oil and gas development in the Queen Charlotte Basin in November, 2004. Although the scientific review found no scientific reason to maintain the moratorium, the public review failed to provide clear direction on next steps and Canada has not made a decision on its moratorium. The Offshore Oil and Gas Team proposed to Canada a series of joint initiatives to be completed over the next two to three years, including development of a regulatory regime, but Canada has not yet responded.

Objective 5

Stimulate investor interest in British Columbia's electricity, clean and alternative energy and energy efficiency sectors.

Rationale: The Province of British Columbia acknowledges society's future requirements for energy. It also acknowledges the limits to conventional energy production and environmental concerns pertaining to it. As such the Province will implement various policies in order to assist in stimulating the alternative energy sectors while promoting energy efficiency.

Key Strategies 5

1. Promote, develop and implement policies to increase investment in the following priority areas: alternative energy technology (including hydrogen and fuel cells); wind power; biomass; solar; small hydro; ocean; geothermal; community energy planning; alternative energy solutions for remote communities; and energy efficiency and conservation.
2. Establish a mechanism to monitor investment levels in electricity and alternative energy and update the current investment baseline.
3. Pursue financial and cooperative partnerships with the federal government for priority activities in areas of common interest.
4. Be an advocate for electricity, alternative energy and energy efficiency and conservation investments in British Columbia.
5. Develop and implement strategies and targets to improve energy efficiency in new and existing buildings.
6. As part of the British Columbia Climate Change Plan, implement all initiatives that are under the responsibility of the ministry, as listed in Appendix 1, Consistency with Government's Strategic Plan.

Strategy Summary: The Alternative Energy Policy Branch began implementation of all the above strategies which form the continuing policy development and business planning of the Branch. Accomplishments in relation to the strategies are identified under Highlights of the Year. For 2005/06, the recommendations to be delivered to Government by the Alternative Energy and Power Technology Task Force will be a primary driver of activities under this objective.

Explanation of variance: All six independent power projects beginning commercial operation in 2004/05 are investments in clean electricity; the target indicator (112 GW.h) was exceeded by a factor of three.

Objective 6

Implement and/or oversee the implementation of the Policy Actions in the provincial Energy Plan by the end of 2004/05.

Rationale: The Energy Plan made 26 commitments to meet the Province's energy needs and to generate jobs, economic growth and private sector investment in an environmentally responsible way. Implementing and/or overseeing the implementation of those recommendations are the final steps to accomplishing the goals of the Plan.

Key Strategies 6

1. Facilitate the full implementation of the publicly owned, independent transmission operator through implementing appropriate regulations/orders under the Transmission Corporation Act.
2. Develop and implement a legislated heritage contract, stepped rates and transmission access.
3. Participate in regulatory review processes, for example, environmental assessment and BCUC reviews.
4. Participate actively with utilities and others in the development of Grid West (formerly RTO West) and monitor regulatory issues in other jurisdictions to ensure access for Independent Power Producers (IPPs) and BC Hydro to regional markets.

Strategy Summary: Of the 20 Policy Actions related to electricity and alternative energy, 17 are completed and three are underway. In relation to the strategies identified above, the ministry:

1. Worked with BCTC and others to address outstanding issues such as accounting and school tax treatment.
2. Fully implemented the Heritage Contract, established by Order in Council, through the British Columbia Utilities Commission's (BCUC) Decision on BC Hydro's revenue requirement for 2004/05—2005/06. In March 2005, BC Hydro submitted to the BCUC an application for stepped rates and transmission service.
3. Participated in several BCUC and Environmental Assessment processes to enhance understanding of the Energy Plan.
4. Engaged in several initiatives in the western grid area to a facilitate efficient, robust regional markets, including chairing a provincial Steering Committee to provide guidance to BCTC in its participation in the development of Grid West (formerly RTO West), participating in a BC-Alberta Transmission Policy Working Group to address inter-provincial transmission issues, and participating in a variety of cross-jurisdictional working groups within the western interconnected grid.

In addition to these strategies, the ministry was also active in addressing issues affecting the establishment of new IPPs in the Province. It played a key role in addressing property tax issues, leading to an exemption from school taxes for penstocks for new run of river IPPs, and working to address local government issues through the implementation of a Memorandum of Understanding on IPP development with the UBCM.

Explanation of variance: N/A.

Goal 2

To maintain high environmental, and health and safety standards at mines and exploration sites.

Core Business — Mining and Minerals.

Objective 1

Maintain high health and safety standards.

Rationale: The health and safety of mining and mineral sector workers are of paramount concern at all times. Government is committed to ensuring these standards are continually reviewed and improved.

Key Strategies 1

1. Complete site inspections at all major mines with a frequency as determined by performance and risk. Major mines are defined as those with a capacity to produce over 50,000 tonnes per year and any underground mines.
2. Complete in-depth audits at randomly selected mine sites to ensure compliance with standards and regulations.
3. Complete site inspections at a minimum of 20 per cent of small mines to provide reasonable statistical certainty of compliance.
4. Complete site inspections at a minimum of 15 per cent of exploration sites.
5. Work with industry, labour and other jurisdictions to keep provincial regulations current, practicable and effective.

Strategy Summary: The ministry:

1. Completed site inspections at all major mines in the province. A risk based inspection matrix was developed and was initiated in 2004.
2. Developed an audit process and pilot audits were conducted at two mines in 2004.
3. Developed a risk matrix that provides reasonable statistical certainty of compliance.
4. Additional resources are resulting in increased inspections at exploration sites.
5. Revised the Health Safety and Reclamation Code through a tri-partite committee comprised of labour, industry and government. The ministry met with other provincial jurisdictions to assess regulations trends. Regulations will continue to be revised as technology or information warrants.

Explanation of variance: N/A.

Objective 2

Ensure a high standard of environmental protection with respect to mine sites.

Rationale: Mining and mineral development will not be done at the risk of the environment. High standards of environmental protection will ensure mining in British Columbia is done in a sustainable manner.

Key Strategies 2

1. Complete site inspections at all major mines with a frequency as determined by performance, risk and activity.
2. Complete site inspections at closed mine sites on a risk assessment basis to ensure ongoing monitoring and maintenance requirements are achieving the required outcome.
3. Work with industry to establish mine closure requirements at mine sites that are ceasing operations to ensure practicable, timely and effective reclamation.
4. Work with operators of active mines to ensure practicable, effective planning for ongoing reclamation and closure.

Strategy Summary:

1. Site inspections were conducted. Additional resources are allowing for increased inspection frequencies.
2. Risk assessment protocols are being developed.
3. The ministry is actively working with industry and other provincial agencies on a site by site basis to develop closure plans that are applicable and achievable for individual mine sites. Reclamation work of a high standard is being conducted at major closed mine sites.
4. Reclamation and closure plans for active mine sties are developed and reviewed every five years. Effective planning for closure is being accomplished at all active provincial mines. Ongoing reclamation work is of the highest standard and outstanding reclamation activity is recognized annually.

Explanation of variance: N/A.

Goal 3

To be an exemplary organization and a ministry of choice as an employer in the British Columbia Public Service.

Core Business — Executive and Support Services.

Objective 1

Implement effective human resource practices consistent with best practices.

Rationale: Implementation of human resource best practices in an organization ensures employees have a healthy, safe and effective environment from which to successfully complete their vocation.

Key Strategies 1

1. Implement the process for Employee Performance and Development Plans (EPDP), aligned with the ministry Service Plan goals, objectives and outcomes.
2. Update and implement the Ministry Human Resource Plan.
3. Link the Ministry Human Resource Plan to the Corporate Human Resource Plan.

Strategy Summary: The ministry:

1. Successfully implemented the Employee Performance and Development program this year, with 100 per cent of staff completing Plans.
2. Updated and implemented the HR Plan.
3. Completed the HR Plan with full linkages to the Corporate HR Plan. The ministry also held its second annual Staff Forum, with the theme "Looking to the Future".

Goal 4

Core Business — Executive and Support Services.

Objective 1

Develop a performance measurement and tracking system for all service plan targets and outcomes.

Rationale: Effective performance measurement allows an organization to properly measure the success of policy and programs.

Key Strategies 1

1. Develop performance measures and a quarterly progress report for Treasury Board for revenue generation projects.
2. Develop an alternative funding model for revenue generating projects.
3. Develop and implement a system of measuring and tracking service plan performance and outcomes.
4. Undertake a systematic review of ministry legislation, regulations and policies to achieve a one-third reduction in regulatory requirements from 2001 levels by June 2004.
5. Develop an "Energy and Mines - Beyond the Count" regulatory streamlining plan to achieve further significant and meaningful reductions in regulatory requirements.

Strategy Summary: The ministry:

1. Provided a report to Treasury Board on additional activities resulting from new programs. In addition, the ministry also provides quarterly and annual revenue forecasts for the energy and mineral sectors.
2. Implemented a funding model supporting individual revenue generating projects based on expected incremental revenue. This model has been applied to a broad range of infrastructure and targeted royalty initiatives.
3. Produces quarterly update reports fully accounting for the status of all performance measures contained in the Service Plan. These reports are provided to the Executive of the ministry.
4. Achieved a one-third regulatory regulation.
5. Developed a three-year plan to review various pieces of legislation with the intent of further regulatory reduction and/or regulatory improvement. The plan also commits to maintaining the current regulatory count.

Explanation of variance: Incremental revenues — Reduced bonus bids have had a dramatic effect on incremental revenue as calculated by the existing methodology which simply compared oil and gas revenues to a baseline established in 2003. As of the Second Quarterly Report, MEM's incremental revenue forecast included $178.5 M from royalties/tax, and $40 M from bonus bids. As of the 3rd Quarterly (January 2005), the contribution of bonus bids had dropped to $0. However, more broadly, reduced incremental revenue performance reflects that sector revenues have grown successfully, but not at the stretch target rates established in 2003.