Paramount Energy Trust

Paramount Energy Trust

January 04, 2005 09:10 ET

Paramount Energy Trust Advises of Implementation of Royalty Adjustments for Shut-In Gas Over Bitumen; Paramount Energy Trust to Receive Royalty Adjustments for 23 MMcf/d


NEWS RELEASE TRANSMITTED BY CCNMatthews

FOR: PARAMOUNT ENERGY TRUST

TSX SYMBOL: PMT.UN

JANUARY 4, 2005 - 09:10 ET

Paramount Energy Trust Advises of Implementation of Royalty
Adjustments for Shut-In Gas Over Bitumen; Paramount Energy
Trust to Receive Royalty Adjustments for 23 MMcf/d

CALGARY, ALBERTA--(CCNMatthews - Jan. 4, 2005) - Paramount Energy
Trust ("PET" or the "Trust") (TSX:PMT.UN) will receive royalty
adjustments on a total of approximately 23.0 MMcf/d of gas which has
been shut-in or denied production resulting from the gas over
bitumen issue before the Alberta Energy and Utilities Board (the
AEUB). Royalty adjustments for PET's foregone production commenced
at the end of December 2004. At current natural gas prices, PET will
receive a reduction of royalties otherwise payable in excess of $1.5
million per month ($0.023 per Trust Unit). In addition to this
monthly royalty adjustment going forward, producers will also
receive a royalty adjustment retroactive to the date of shut-in for
all gas shut-in or denied production. The amount of the retroactive
adjustment, expected to be received in two equal 50 percent amounts
on the December 2004 and January 2005 Crown royalty invoices by PET,
is estimated at $7 million in total, net of the temporary assistance
of $0.60 per Mcf previously received.

In December, Alberta's new Minister of Energy Greg Melchin (the
"Minister") signed a Ministerial Order prescribing additional
royalty calculation components that will result in a reduction in
the royalty calculated through the Crown royalty system for
operators of gas wells with respect to completed wells which have
been denied the right to produce by the Alberta Energy and Utilities
Board (the "AEUB") as a result of recent bitumen conservation
decisions. On October 4, 2004 the Government of Alberta enacted
amendments to the Natural Gas Royalty Regulation, 2002 (the
"Regulations") with respect to natural gas in the Wabiskaw-McMurray
formation in the Athabasca Oil Sands Area of Northeast Alberta,
therein providing a mechanism to implement a technical change to the
royalty calculation for gas producers affected by recent AEUB Shut-
in Orders. Beginning in December 2004, Alberta Crown royalty
invoices for affected operators will be adjusted to include a
reduction of Alberta Gas Crown Royalties equivalent to a portion of
individual gas well operator's lost cash flow from gas zones which
have been denied the right to produce.

"This Ministerial Order signed by Minister Melchin is in keeping
with our expectations and that of other producers," said Sue Riddell
Rose, President and Chief Operating Officer. "It has been a very
complex and seventeen month long issue for PET but one we felt
demanded our full effort and attention to ensure we preserve Trust
Unit value for our investors. While this royalty adjustment does not
replace 100% of our lost cash flow, it is a major step forward. In
addition, Producers will continue to own the natural gas rights for
the shut-in gas and will therefore persevere to find a technical
solution to resolve the conflict perceived by the AEUB."

The Department of Energy has issued an Information Letter, IL 2004-
36, which sets out the details of the royalty adjustment, the impact
on the existing temporary assistance received to date by affected
gas well operators, the provisions for potential recapture of the
royalty adjustments and continuation of impacted petroleum and
natural gas agreements.

The royalty adjustments will be effective for the production month
of October 2004 which was received by producers at the end of
December. The formula for calculation of the royalty reduction
provided in the Regulations is:

0.5 x ((deemed production volume x 0.80) x (Alberta Gas Reference
Price - $0.4293/GJ))

Producers will receive a royalty adjustment retroactive to the date
of shut-in for all gas shut-in or denied production pursuant to a
Decision Report, or corresponding EUB Order or General Bulletin, or
through correspondence in relation to an EUB ID 99-1 application.
PET estimates that it presently has approximately 20.6 MMcf/d of net
gas production shut-in and that an additional 2.4 MMcf/d has been
denied production pursuant to Decision Reports, or corresponding EUB
Orders or General Bulletins, or through correspondence in relation
to an EUB ID 99-1 application for a total of 23.0 MMcf/d. PET
intends to factor the monthly royalty adjustments into the
determination of future monthly distributions to Unitholders.

Other key components of the royalty adjustment details include:

- Average daily production for a well event will generally be based
on the monthly production of the three months immediately preceding
the shut-in date or deemed production based on well test data for
wells denied production;

- The average monthly production so determined will be adjusted
after the end of each 12 month period following shut-in of the well
event to reflect an annual production decline of 10%;

- The royalty adjustments for a well event would end after 10 years
or when the well event is allowed to come back on production, which
ever occurs first;

- Gas producers with ownership in wells which have been denied
production will retain the natural gas rights and to the extent that
well events denied production are ever allowed to produce, on
recommencement of production from zones previously ordered to be
shut-in, gas producers will pay an incremental royalty to the Crown
along with Alberta Gas Crown Royalties otherwise payable based on
the number of years that gas production was shut-in. The incremental
rate of royalty will be established at 1% after the first year of
shut-in increasing at 1% per annum based on the period of time such
zones remained shut-in to a maximum 10% royalty. The incremental
royalties payable to the Crown would be limited to amounts recovered
by a gas well operator through the reduced royalty;

- Lease rental remission will also be granted for a mineral license
or lease issued by the Crown that has a well or wells shut-in.

The text of the Order in Council enacting the amended Natural Gas
Royalty Regulations can be viewed at
www.gov.ab.ca/home/Orders_in_Council/2004/1004/2004_476.html and the Information Letter
which sets out the details of the royalty adjustment can be viewed at
http://inform.energy.gov.ab.ca/il/Documents/Published/IL-2004-36.pdf. For additional information
with respect to the gas/bitumen issue, visit
http://www.paramountenergy.com/operations/gas_bitumen/.

About PET

Paramount Energy Trust is a natural gas-focussed Canadian energy
trust. PET's Trust Units are listed on the Toronto Stock Exchange
under the symbol "PMT.UN".

Forward-looking Information

This news release contains forward-looking information. Implicit in
this information, particularly in respect of cash distributions, are
assumptions regarding natural gas prices, production, royalties and
expenses which, although considered reasonable by PET at the time of
preparation, may prove to be incorrect. These forward-looking
statements are based on certain assumptions that involve a number of
risks and uncertainties and are not guarantees of future
performance. Actual results could differ materially as a result of
changes in PET's plans, changes in commodity prices, general
economic, market, regulatory and business conditions as well as
production, development and operating performance and other risks
associated with oil and gas operations. There is no guarantee by PET
that actual results achieved will be the same as those forecast
herein.

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Contact Information

  • FOR FURTHER INFORMATION PLEASE CONTACT:
    Paramount Energy Trust
    Susan L. Riddell Rose
    President and Chief Operating Officer
    (403) 269-4400
    or
    Paramount Energy Trust
    Cameron R. Sebastian
    Vice President, Finance and Chief Financial Officer
    (403) 269-4400
    or
    Paramount Energy Trust
    Gary C. Jackson
    Vice President, Land, Legal and Acquisitions
    (403) 269-4400
    or
    Paramount Energy Trust
    Sue M. Showers
    Communications & Investor Relations Advisor
    (403) 269-4400
    (403) 269-6336 (FAX)
    or
    Paramount Energy Operating Corp
    administrator of Paramount Energy Trust
    Suite 500, 630 - 4 Avenue S.W., Calgary, AB T2P 0J9
    The Toronto Stock Exchange has neither approved nor disapproved the
    information contained herein.