Petroleum and Natural Gas Royalties

The Province collects royalties on oil and gas production.

In October 2021, the Province launched a review of B.C.’s oil and gas royalty system and released an independent assessment of the royalty system. 

The Province announced a new oil and gas royalty system in May 2022 that balances B.C.’s goals for economic development, a fair return on natural resources and environmental protection. This new system will take effect January 1, 2027.

New Royalty System

The proposed new royalty system is based on a revenue-minus-cost royalty system with price-sensitive royalty rates designed to reflect the value of the resource and intended to achieve a return of 50% of profits after production costs are accounted for. Revenue-minus-cost royalty systems are globally recognized for maximizing economic value.

New wells will pay a flat royalty rate of 5% until the capital spent on drilling and completions is recovered, then they will move to a price-sensitive royalty rates (proposed to be between 5% and 40%). The specific range of price sensitivity varies by commodity type - natural gas, ethane, propane, butane, condensate and oil.

Effective September 1, 2022, new wells that begin drilling (spud) on or after that date are not eligible for the deep-well royalty program, the marginal well royalty program, or the ultramarginal royalty program.

Transition – new wells drilled on or after September 1, 2024

New oil wells spud on or after September 1, 2024, pay a 5% royalty rate for the first 6 production months (4,380 production hours). At the end of this period, these wells pay royalties based on the current royalty system. 

New gas wells pay royalties at a 5% rate for the first 12 production months (8,760 production hours). At the end of this period, the wells are evaluated and categorized into two tranches based on the ratio of petroleum (pentanes plus and condensates) to raw wellhead natural gas produced during this period. 

Gas wells that produce 0.05618 cubic meters of condensate, or more, per 1,000 cubic meters of raw gas, will revert to the current royalty system. 

Gas wells that produce less than 0.05618 cubic meters of condensate per 1,000 cubic meters of raw gas are granted an additional 5 producing months (3,647 production hours) at a 5% royalty rate. At the end of the 17-month period, these wells pay royalties based on the current royalty system. 

Transition - new wells drilled between September 1, 2022 and August 31, 2024

Gas wells drilled on or after September 1, 2022, pay a 5% royalty rate for the equivalent of the first 12 production months (8,760 production hours). At the end of this period, these wells pay royalties based on the current royalty system until January 1, 2027, when all wells transition to the new system.

Transition - existing wells drilled before September 1, 2022

Existing wells drilled before September 1, 2022, continue to pay royalties based on the current royalty framework until until the new system is in effect January 1, 2027.

Learn more about the B.C. oil and natural gas royalty transition.

Healing the Land and Emissions Reduction Pool

In May 2022, the Province announced its intention to establish a Healing the Land and Emissions Reduction (HLER) program to address the legacy of deep well credits and incentivize investment in land restoration in the Northeast and emissions reduction.

The program will enable companies to repurpose some or all of their deep well credits to a pool that can be used for emissions reduction and land restoration projects. Once allocated to a producer’s pool, the royalty deductions will not be available to reduce royalties on the well they were originally associated with.

The HLER program will support work that goes above and beyond regulatory requirements to reduce emissions or impacts on the land base. This could include installing new equipment that eliminates methane emissions by an earlier date than required by provincial regulation, or restoration projects to clean up the legacy impacts of historical oil and gas development.

The HLER program is targeted for implementation in 2025, and will recognize eligible projects that were started on or after January 1, 2023.  HLER will be implemented with the following features:

• A valuation method that recognizes the fair value of remaining deep well credits to be transferred to HLER. The method will rely on an independent third-party validation of usable credits based on what wells would foreseeably produce and subject to ministry validation.
• Producers can use their previously-issued deep well credits until an expiry date of September 1, 2027, and if transferred to HLER, will have until December 31, 2035 to enter project agreements to use their deductions for eligible emission reduction or restoration projects.
• An approach to support investment in both restoration and emissions reduction projects.
• An application process for HLER projects, with a streamlined process for certain eligible projects.
• A royalty deduction limit on the amount of HLER deductions a producer could use to reduce royalty invoices in a month.

The Ministry will continue to engage with First Nations, industry and environmental groups on the final design of the valuation process, an approach to support investment in both restoration and emission reduction, application templates, and eligible projects for the streamlined application process.