NATIONAL ENERGY BOARD

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1 Page 1 of 12 NATIONAL ENERGY BOARD IN THE MATTER OF The National Energy Board Act, R.S.C. 1985, c. N-7, as amended, and the National Energy Board Act Part VI (Oil and Gas) Regulations made thereunder; AND IN THE MATTER OF an by KM LNG Operating General Partnership, for a licence authorizing the export of liquefied natural gas. To: Secretary National Energy Board 444 Seventh Avenue S.W. Calgary, Alberta T2P 0X8 A P P L I C A T I O N December 9, 2010

2 Page 2 of 12 SECTION 1 APPLICATION 1.1 KM LNG Operating General Partnership ( KM LNG ) hereby applies to the National Energy Board ( NEB or Board ) pursuant to Section 117 of the National Energy Board Act and the National Energy Board Part VI (Oil and Gas) Regulations (collectively the Act ) for approval of a licence to export up to 10 million tonnes of liquefied natural gas ( LNG ) per year (10 MMt/y) being a natural gas equivalent of approximately 13,300, m 3 /y or 468 Bcf/y over a term of 20 years ( Licence ). 1.2 The terms that KM LNG requests for the Licence include: Term: The term of the Licence shall be 20 years commencing on the first export of quantities under the Licence and continuing for a period of 20 years thereafter. Annual Quantity: During any year the quantity of LNG that may be exported shall not exceed 10 million tonnes (natural gas equivalent of approximately 13,300, m 3 or 468 Bcf). Term Quantity: During the term of the Licence, the quantity of LNG that may be exported shall not exceed 200 million tonnes (natural gas equivalent of approximately 265,000, m 3 or 9,360 Bcf). Annual Tolerance: As a tolerance, the amount of gas that may be exported in any 12-month period may exceed the annual volume by 10%. Export Point: The LNG will be exported at a point on the outlet side of the liquefaction terminal to be located at Bish Cove, near the Port of Kitimat, British Columbia, Canada. LNG Sales Contracts: KM LNG shall file or cause to be filed with the NEB all LNG sales contracts under which all LNG volumes will be exported. 1.3 The is organized as follows: Section 2: Section 3: Section 4: Section 5: Section 6: Overview Gas Supply Market Transportation Potential Environmental Effects

3 Page 3 of 12 Section 7: Market Based Procedure (Complaints Procedure, Export Impact Assessment, Other Public Interest Considerations) Section 8: Contractual Arrangements and Regulatory Authorizations SECTION 2 OVERVIEW 2.1 KM LNG is the operator of the proposed natural gas liquefaction export terminal to be constructed and operated at Bish Cove, near the port of Kitimat, British Columbia, Canada ( Kitimat LNG Terminal or Terminal ). Development of the Kitimat LNG Terminal is proceeding by way of a joint venture arrangement ( Kitimat LNG JV ). The current joint venture participants are affiliates of Apache Canada Ltd. ( Apache ) and EOG Resources Canada Inc. ( EOG ) (collectively Terminal Owners ). The Terminal Owners hold a 51% and 49% participating interest, respectively, in the joint venture and corresponding entitlement to the physical capacity of the Kitimat LNG Terminal. A description of the ownership structure of KM LNG and the Kitimat LNG Terminal is set out in Section 4 of Appendix 2 - Project Description and Status. 2.2 This is the first time that an export of LNG has been applied-for under the present National Energy Board Part VI (Oil and Gas) Regulations, for the purpose of accessing offshore markets. A daily maximum is not requested in light of the particular nature of this application. The unique features to this application are: Gas production will be liquefied at the Kitimat LNG Terminal and directly transported by LNG carriers, primarily to Asia Pacific markets. Asia Pacific presently represents a new, long-term and stable market for Canadian natural gas supply. The Kitimat LNG Terminal is well-positioned to take advantage of the presently forecasted supply deficit market opportunity expected to occur in the timeframe. KM LNG is applying to obtain the licence in an amount equal to the full capacity of the Kitimat LNG Terminal. KM LNG will be processing and exporting all natural gas delivered to the Terminal on behalf of the Terminal Owners. The Terminal Owners, in turn, will be responsible for the provision of gas supply and effecting LNG sales arrangements. Unlike continental North American natural gas markets served by onshore pipelines, Asia Pacific LNG buyers are seeking long-term secure gas supply arrangements with regulatory certainty before committing to long-term contractual commitments. Therefore a long-term gas export licence is required prior to completing gas export sales contracts. This contrasts with the National Energy Board Part VI (Oil and Gas) Regulations requirement for gas export sales contract information as part of the gas export licence application.

4 Page 4 of 12 The application is a response to a rapidly changing North American gas market that is driven by recent technological advances and a current and foreseen abundance of supply. The majority of the gas that is proposed to be exported under the Licence will likely be sourced from Northeast British Columbia. This region is widely considered to hold significant gas resources, although it is in a relatively early stage of development. The applied-for gas export licence depends entirely upon the construction and operation of the Kitimat LNG Terminal, which in turn requires a very large financial investment. That investment will provide an economic incentive for the Terminal Owners to ensure that long-term gas supply is available and markets are accessed for the applied-for LNG exports. 2.3 The Kitimat LNG Terminal will have the initial capacity in 2015 to process approximately 19, m 3 /d (700 MMcf/d) with a send out capacity of up to 5 million tonnes per year (5MMt/y) of LNG (natural gas equivalent of approximately 6,600, m 3 /y (234 Bcf/y)) ( Phase 1 ). The approximate cost of Phase 1 is $3 billion. An additional train is currently proposed for the timeframe at a cost of an incremental $1.5 billion, although this timing could be accelerated based on market conditions and engineering studies ( Phase 2 ). This expansion will double the processing capacity of the Kitimat LNG Terminal to 39, m 3 /d (1.4 Bcf/d) with a send out capacity of 10 MMt/y of LNG (natural gas equivalent of approximately 13,300, m 3 /y (468 Bcf/y)). 2.4 Natural gas produced in Western Canada will be transported from a delivery point on the Spectra Energy BC pipeline ( Spectra ), near Summit Lake, B.C., to the Kitimat LNG Terminal by PTP Limited Partnership s ( PTP LP ) proposed $1.1 billion Pacific Trail Pipeline ( PTP ). A description of the current ownership structure of PTP LP is provided in Appendix 2 - Project Description and Status. 2.5 The NEB s Filing Manual does not expressly contemplate offshore LNG exports, and KM LNG has therefore applied the Filing Manual by taking into account the unique circumstances presented as compared to a conventional onshore pipeline-transmitted export to the United States. A Filing Manual Checklist is attached as Appendix 1 NEB Filing Manual Checklist. SECTION 3 GAS SUPPLY 3.1 Term & Daily Requirements for the Kitimat LNG Terminal: The significant investment required for the Kitimat LNG Terminal and PTP, noted above, and the opportunity to access new gas markets for Canadian natural gas production at a price premium will incent Terminal Owners to ensure sufficient gas supply is available so that the terminal may achieve high utilization rates. Terminal Owners have provided longterm financial commitments for the development of supporting infrastructure and will be strongly motivated to ensure that the capacity of all components of the project is highly utilized to secure appropriate returns on their investments.

5 Page 5 of 12 Terminal Owners base supply requirements are equal to their capacity entitlements which are in turn equal to their percentage participating interest in the Kitimat LNG Terminal, as described in Appendix 2. Each Terminal Owner also has the right to use another owner s unutilized capacity. Terminal Owners are responsible for the delivery of gas supply up to their capacity entitlement. The following table summarizes the gas supply requirements anticipated at the Terminal inlet, and the balance of this Section demonstrates Apache and EOG s abilities to meet their respective share of these gas supply requirements. KITIMAT LNG TERMINAL APACHE EOG Total Term Requirement at Inlet (assumes Phase 2 commences 2015) 20-year Term 51% 20-year Term 49% 289,398, m 3 (10,220 Bcf) 147,600, m 3 (5,212 Bcf) 141,800, m 3 (5,008 Bcf) Total Daily Requirement at Inlet Daily 51% Daily 49% Phase , m 3 (700 MMcf/d) 10, m 3 /d (357 MMcf/d) 9, m 3 /d (343 MMcf/d) Phase , m 3 (1,400 MMcf/d) 20, m 3 /d (714 MMcf/d) 19, m 3 /d (686 MMcf/d) 3.2 Apache Corporate Supply Pool: Apache s share of LNG to be exported under this will be sourced from its ownership of natural gas reserves and production located in Canada, currently British Columbia, Alberta and Saskatchewan, as it may evolve over the duration of the Licence ( Apache Corporate Supply Pool ). All gas reserves quoted by Apache and included in this are owned by Apache. A more detailed summary of Apache s reserves and productive capacity are attached as Appendix 3a Apache Corporate Supply Pool, which includes an Aggregate Supply/Demand Balance and Annual Supply/Demand Balance. 3.3 Apache Reserves/Resource: Apache estimates its overall Marketable Gas volumes to be 300,820, m 3 (10,678 Bcf). Based on this assessment and the other factors described in Appendix 3a, sufficient reserves are available in order for Apache to deliver 51% of the total term requirement at the Terminal inlet. 3.4 Apache Productive Capacity: Apache estimates that available productive capacity of at least 19, m 3 /d (700 MMcf/d) will exist by 2015 and throughout the applied term. This assessment and the other factors described in Appendix 3a, demonstrate productive capacity will be available to supply 51% of the daily requirement at the Terminal inlet. 3.5 EOG Corporate Supply Pool: EOG s share of LNG to be exported under this will be sourced from its ownership of natural gas reserves and production located in Canada, currently British Columbia and Alberta, as it may evolve over the duration of the Licence ( EOG Corporate Supply Pool ). At the present time, EOG is

6 Page 6 of 12 rationalizing its Alberta based reserves and the anticipated commercial transactions will impact this source of supply. Therefore, for the purposes of demonstrating that EOG has adequate reserves and supply to support the requested licence, EOG has focused on its British Columbia reserves. All gas reserves quoted by EOG and included in this application are owned by EOG. A more detailed summary of EOG s reserves and productive capacity are attached as Appendix 3b EOG Corporate Supply Pool, which includes an Aggregate Supply/Demand Balance and Annual Supply/Demand Balance. 3.6 EOG Reserves/Resource: EOG estimates its overall Marketable Gas volumes to be 274,600, m 3 (9,692 Bcf). Based on this assessment and the other factors described in Appendix 3b, sufficient reserves are available in order for EOG to deliver 49% of the total term requirement at the Terminal inlet. 3.7 EOG Productive Capacity: EOG estimates that available productive capacity of at least 20, m 3 /d (725 MMcf/d) will exist by 2015 and throughout the applied term. This assessment and the other factors described in Appendix 3b, demonstrate productive capacity will be available to supply 49% of the daily requirement at the Terminal inlet. 3.8 Additional Gas Supply Information: Terminal Owners will have the ability to purchase gas supply at Spectra s Station 2 if required. Station 2 is a liquid hub where gas from the entire Western Canadian Sedimentary Basin is accessible through swaps and potential future NOVA Inventory Transfers. Further, gas supply available at Spectra Station 2 is likely to increase significantly as Northeast British Columbia s Horn River and Montney Basins are developed. Appendix 3c contains an overview of potential gas supplies in Northeast British Columbia. SECTION 4 MARKET 4.1 KM LNG retained Poten & Partners Inc. ( Poten ) to provide a written independent assessment of the LNG demand in the international market relevant to the Kitimat LNG Terminal. Poten has assessed this issue by identifying primary markets and potential competing supply to the Kitimat LNG Terminal ( Kitimat LNG Market Assessment ). Consideration was also given to the pricing scenarios and an assessment of the overall viability of the Kitimat LNG Terminal. The Kitimat LNG Market Assessment is attached as Appendix 4. The major conclusions of the Kitimat LNG Market Assessment are: (a) (b) The Asia Pacific Market is the natural market for the Kitimat LNG Terminal due to its location. The Asia Pacific Market is one characterized by LNG buyers entering into long-term supply contracts (i.e. up to 20 years and longer). Security of supply is a dominant concern for traditional Asian buyers. To ensure no disruption to economic growth and stability, these countries have in the past sought, and continue to seek, long-term, diverse and secure LNG supply exhibiting a strong interest in politically stable jurisdictions of origin.

7 Page 7 of 12 (c) (d) (e) (f) (g) Strong LNG demand growth expected in Asia Pacific is driven by gas use in power generation. This is particularly true for China, Japan, South Korea and Taiwan. LNG demand is expected to grow in Asia Pacific an average of 3.25%/year during the period. Japan, South Korea and Taiwan are particularly heavily dependent on LNG as they lack indigenous resources and large pipeline import connectivity. The largest supply shortfall is projected for the period Japan, South Korea, Taiwan and China will need additional LNG supplies to fill this demand supply gap in the time period when the Kitimat LNG Terminal is scheduled to start operation. These countries are currently seeking secure long-term supply contracts with proponents whose projects are most likely to commence commercial operations during the period. New infrastructure to liquefy, transport and regasify natural gas will be required, necessitating significant capital investment. Parties investing in this new infrastructure, whether it is government or private enterprise, will also require the security of long-term market and supply. Currently, LNG sold under new long-term supply contracts to the Asia Pacific region is priced around 90% of oil on an equivalent heating-value basis. Asian oil-indexed prices are well above prices formed by gas-on-gas competition in North American markets driven by technological advances and abundant supply of unconventional gas. The high prices for LNG reflect the geographic isolation and scarce indigenous energy resources of the traditional Asian LNG buying countries, along with their large and increasing requirement for secure clean energy supplies. The Kitimat LNG Terminal is well positioned to capture long-term market share given that it meets the following qualities valued by Asia Pacific buyers: i. Security of a long-term contract backed by long-term supply commitments from Apache and EOG; ii. A diversification of supply previously relied on by the market; iii. High likelihood of the project being built and operational to meet the forecasted demand/supply gap; iv. Political stability and regulatory certainty in British Columbia, and in Canada generally; and v. Strong equity players in the project, namely Apache and EOG. A long-term export licence is essential to attracting these buyers.

8 Page 8 of Apache and EOG are currently in active arm s-length negotiations with several potential buyers in the Asia Pacific region. Current expectations are that long-term firm sales arrangements (up to 20 or more years) can be in place by the fourth quarter of A long-term export licence is considered a critical component of the overall ability to attract and finalize transactions with LNG buyers in the Asia Pacific Market. SECTION 5 TRANSPORTATION 5.1 Gas supply for the Kitimat LNG Terminal will be transported from the field to Spectra Station 2 via various producer owned facilities, and the NOVA Gas Transmission Ltd. ( NGTL ) and the Spectra pipeline systems. As development and production is scheduled to increase, particularly out of the Horn River Basin, existing infrastructure will need to be expanded. 5.2 Gas available to Spectra Station 2 (equity production or purchased gas) will be delivered to Spectra Station 4 (Summit Lake) via Spectra T-South mainline capacity. Spectra Station 4 near Summit Lake is the proposed interconnect with PTP. Terminal Owners will be responsible for the required Spectra T-North and Spectra T-South capacity as and when appropriate to meet development of production and the in-service capacity of PTP and the Kitimat LNG Terminal. 5.3 From Spectra Station 4 the gas will be transferred to the Kitimat LNG Terminal via PTP. 5.4 Once the gas is liquefied, LNG will be placed on marine vessels for offshore delivery. Transportation agreements with marine LNG carrier operators are expected to be negotiated individually and in conjunction with the LNG sales agreements. 5.5 Appendix 5 Transportation contains a more detailed description of the transportation arrangements necessary to facilitate the proposed export. SECTION 6 POTENTIAL ENVIRONMENTAL EFFECTS 6.1 The potential environmental effects of the first phase of the Kitimat LNG Terminal and PTP have been evaluated by both federal and provincial environmental review processes. These processes concluded that neither project was likely to cause significant adverse environmental effects, provided that appropriate mitigation was applied and that the recommendations attached to the approvals were followed. These approvals are discussed further in Appendix 2 Project Description and Status. In light of these circumstances, KM LNG does not consider there will be any additional environmental effects resulting from the issuance of the Licence.

9 Page 9 of 12 SECTION 7 MARKET BASED PROCEDURE Complaints Procedure 7.1 The LNG sales contracts between Terminal Owners and third party buyers will be negotiated at arm s-length. Pricing and all other terms will reflect the operation of competitive market forces. Export Impact Assessment 7.2 KM LNG retained the services of Ziff Energy Group and Mr. Roland Priddle to prepare reports that assess the impact of the export upon the ability of Canadians to meet their expected energy requirements over the proposed Licence term. 7.3 The Ziff Energy Group Report provides a gas demand and supply forecast over the Licence term. 7.4 Mr. Roland Priddle s Report provides both a historical perspective to the Board s export impact assessment requirements as well as an assessment of the functioning of the North American gas markets since de-regulation. Mr. Priddle s Report then takes into consideration the Ziff Energy Group Report and concludes that the proposed export is not expected to adversely affect the ability of Canadians to meet their energy requirements over the proposed Licence term. 7.5 KM LNG relies upon the Natural Gas Demand and Supply Forecast prepared by Ziff Energy Group and the Report prepared by Mr. Roland Priddle, together constituting KM LNG s Export Impact Assessment submission ( EIA ). Copies of each of these reports are found in Appendices 6 and 7, respectively. 7.6 The EIA demonstrates that: (a) (b) (c) (d) (e) The proposed export is not likely to cause Canadians difficulty in meeting their energy requirements at fair market prices; The Canadian gas-producing sector will be able to satisfy Canadian needs, given the proposed export; Canadian gas users will not need to adjust their energy consumption patterns by means of additional energy conservation or switching to alternative fuels, given the proposed exports; The proposed exports will not have a significant effect on future natural gas prices; and The NEB s conclusions in its 2009 Reference Case Scenario: Canadian Energy Demand and Supply to An Energy Market Assessment, July 2009 (at page 42) remain intact, namely that Canadians can expect energy markets to

10 Page 10 of 12 function well. Energy prices will provide appropriate market signals for the development of adequate energy resources to meet Canadian and export demand. Other Public Interest Considerations 7.7 KM LNG submits that the satisfies the other public interest considerations which the Board has regard to, as follows: (a) (b) (c) (d) (e) (f) (g) That the supply evidence submitted in Section 3 above and Appendices 3a, 3b and 3c shows that Apache and EOG supply is adequate to satisfy the requirements at the Terminal inlet and therefore meet the export volumes and term applied-for. That there is a strong likelihood that the applied-for Licensed volumes will be taken, largely due to the ability to attract new, premium-priced markets for Canadian natural gas production as indicated in paragraphs 3.1 and 4.1(f) above. Terminal Owners have significant economic incentives to ensure that the project infrastructure (and hence the export Licence) is used to the maximum extent possible. That the LNG sales contracts will be durable over their terms because it is Apache and EOG s intention to negotiate market-based arrangements that ensure an adequate price is received for exported LNG volumes and that the pricing will be able to adjust to changing market conditions. That the potential buyers with which Apache and EOG are presently in negotiation are unrelated to Apache and EOG and that the expected long-term firm sales arrangements will therefore be negotiated at arm s-length. That Apache and EOG, as the suppliers of gas to the Kitimat LNG Terminal, provide producer support for this gas export application. That Apache and EOG will ensure that the long-term firm sales arrangements will generate revenues sufficient to pay the transportation charges associated with reserving and using the capacity on the pipelines referred to in Section 5 above and Appendix 5. That the proposed term of the applied-for Licence is appropriate having regard to: (i) (ii) (iii) The adequacy of the gas supplies actually and potentially available to the Kitimat LNG Terminal; The need to demonstrate regulatory certainty, including long-term export approvals for this new market for Canadian natural gas in which security of supply is a major consideration for gas buyers; and The very large, long-term financial investment to be made by the Terminal Owners in the Kitimat LNG Project and supporting infrastructure.

11 Page 11 of The Kitimat LNG project, including the Kitimat LNG Terminal, PTP and various associated shipping-related activities, will offer numerous spin-off benefits to the public over the short and long-term. These benefits will include enhanced economic, training, employment and business opportunities for various First Nations and other communities situated along the PTP pipeline and the Kitimat LNG Terminal. 7.9 KM LNG anticipates that the involvement of First Nations and local communities in the construction, ongoing operations and support of the various elements of the project will make the project a positive force in local communities for a long period of time. The activity necessary for a project of the magnitude and calibre of the Kitimat LNG Terminal and PTP will result in continuing economic and social benefits for First Nations and other surrounding communities as employment increases and social and physical infrastructure is developed in response. SECTION 8 CONTRACTUAL ARRANGEMENTS AND REGULATORY AUTHORIZATIONS 8.1 A Project Status Sheet summarizing the contractual arrangements and regulatory approvals and authorizations is attached as Appendix 8. More detail in respect of the Kitimat LNG Terminal and PTP is also provided in Appendix 2 Project Description and Status. WHEREFORE THE APPLICANT HEREBY APPLIES TO THE BOARD FOR: An export licence pursuant to Section 117 of the Act authorizing the export of natural gas from Bish Cove near Kitimat, British Columbia, subject to the following conditions and such further and other relief as the NEB may deem appropriate: Term: The term of the Licence shall be 20 years commencing on the first export of quantities under the Licence and continuing for a period of 20 years thereafter. Annual Quantity: During any year the quantity of LNG that may be exported shall not exceed 10 million tonnes (natural gas equivalent of approximately 13,300, m 3 or 468 Bcf). Term Quantity: During the term of the Licence, the quantity of LNG that may be exported shall not exceed 200 million tonnes (natural gas equivalent of approximately 265,000, m 3 or 9,360 Bcf). Annual Tolerance: As a tolerance, the amount of gas that may be exported in any 12-month period may exceed the annual volume by 10%.

12 9th Export Point: The LNG will be exported at the outlet valve of the liquefaction terminal to be located at Bish Cove, near the Port of Kitimat, British Columbia, Canada. LNG Sales Contracts: KM LNG shall file or cause to be filed with the NEB all LNG sales contracts under which all LNG volumes will be exported. Page 12 of 12 All of which is respectfully submitted this 9th day of December, KM LNG 0. GENERAL rdon M. Nettleton Communications with respect to this should be directed to: Mr. Gordon M. Nettleton Osler, Hoskin & Harcourt LLP Barristers and Solicitors 2500, TransCanada Tower 450 1st Street SW Calgary, AB T2P 5H1 gnettletonosler. corn Ms. Janice Kowch Regulatory Consultant do KM LNG Operating General Partnership 1000, 700 Avenue SW Calgary, AB T2P 3V4 janice.kowchapachecorp.com