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NOW THIS AGREEMENT WITNESSETH that in consideration of the premises Canada and the Province mutually COVENANT AND AGREE as follows:

• 1 DEFINITIONS

  In this Agreement:

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  • (8)  Mcf means the volume of Natural Gas which occupies one thousand cubic feet when at a temperature of 60° Fahrenheit and (unless otherwise stated) at a pressure of 14.65 pounds per square inch absolute;

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  • (19)  Residue Gas Supply means the total volume, expressed in Mcf, of Residue Gas which is:

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  • (20)  Shrinkage means the amount by which the Residue Gas Supply acquired by Westcoast in a Production Month exceeds the total of the volume in Residue Gas sold by Westcoast during such month pursuant to the Gas Sales Contracts;

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• 7 NATURAL GAS NET PROFIT FORMULA

  • (1) For the purposes of this Agreement, the amount of Net Profit derived by the Province, including agencies of the Province, from the disposition of Natural Gas underlying the Reserve shall be determined separately in respect of each Production Month, in accordance with the steps set forth in this paragraph 7, but for the purposes of making the calculations under each of the steps it is agreed that whenever Subject Gas is intermingled with Other Gas (that is, Natural Gas which is not Subject Gas) the Subject Gas shall for all such purposes be deemed to be apportioned among each of the Domestic Utilities and the Foreign Utility in the same proportions as deemed for the purposes of calculating the volume of British Columbia-produced gas sold and delivered under Licence GL-41, (as amended from time to time) issued by the National Energy Board (herein called the “NEB”) and for the settling of accounts between Westcoast and the Petroleum Corporation pursuant to either the Basic Agreement as amended from time to time or the directions of the NEB.

    Step One

    Determine the Domestic Price (“DP”) for the Production Month which is the subject of the calculation (the Production Month which is the subject of the calculation being referred to herein as the “Subject Month”) by use of Alternative One hereunder until the date of execution of this Agreement, and thereafter by use of whichever of Alternative One and Alternative Two will produce the greater Domestic Price in the Subject Month.

    Alternative One

    By use of the formula

    DP = P/V

    where

    P 

    = The total amount of money payable by the Domestic Utilities to Westcoast for the Sales Volume (that is, the volume of Natural Gas produced in British Columbia and purchased by the Domestic Utilities during the Subject Month);

    V 

    = The Sales Volume expressed in Mcf.

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    Step Two

    Calculate the Average Price (“AP”) by use of the formula

    AP = (DP×a) + (EP×b)

    where

    a 

    = Domestic Sales (that is, the volume of Natural Gas sold and delivered to the Domestic Utilities) during the Subject Month, stated as a percentage of Total Sales (defined below) for that month;

    b 

    = Export Sales (that is, the volume of Natural Gas produced in British Columbia and delivered to the US-Canada boundary pursuant to NEB Licence GL-41, as amended from time to time) for the Subject Month, stated as a percentage of Total Sales;

    EP 

    = The total amount payable to Westcoast by Northwest Pipeline Corporation, the successors to or assigns of the right to purchase gas under NEB Licence GL-41 for the Export Sales made during the Subject Month divided by the volume of such sales expressed in Mcf.

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