Understanding natural gas royalty calculations

This information will help you understand the amount of natural gas royalties you are invoiced for and what factors the Ministry of Finance uses to calculate your natural gas royalties.

​​How your invoice is calculated

Natural gas producers receive royalty invoices each month for each Stream ID they own that has volumes available for sale. The amount charged is calculated using the following information:

• Whether your natural gas was produced on Crown or freehold land
• The gas classification (conservation, non-conservation)
• Gas base royalty rate
• The reference price set by the Ministry of Energy, Mines and Low Carbon Innovation (the greater of the producer price and the posted minimum price (PMP))
• The average daily volume of raw gas production
• Allocations
• Natural gas liquids and sulphur valuations
• Oil valuation (condensate)

The Ministry of Finance calculates the amount of royalty or freehold production tax payable on natural gas following these steps:

1. The royalty or tax rates for natural gas and natural gas by-products

The formula used to calculate the royalty or tax rate is based on several factors, including:

• The gas reference price and the select price for each Stream ID.
• Whether the natural gas was produced on Crown land or freehold land
• Whether the gas is conservation or non-conservation gas

Base royalty rates for conservation and non-conservation gas

The base royalty rate that is used to calculate the royalty rate depends on whether the gas is conservation or non-conservation gas.

For non-conservation gas, the base royalty rate is:

• Base 09
• Base 12, or
• Base 15

For conservation gas, the base royalty rate is:

• Base 15

Royalty rate reductions

In addition, your Stream ID production volumes will indicate if your well qualifies as:

• A marginal well event
• An ultra-marginal well event, or
• A low productivity well event

These well types qualify for production-related rate reductions for the royalty rate.

Natural gas by-products royalty rate

Natural gas by-products have a fixed royalty rate. Gas reference prices do not apply to their sales values. There are three marketable natural gas by-products associated with natural gas production:

2. The gross royalty or tax – marketable gas

The gross royalty or tax is calculated for marketable gas produced from each Stream ID using the following formula:

Reference price x Marketable gas volume x Royalty or tax rate

3. The gross royalty or tax – by-products

The gross royalty or tax is calculated for by-products produced from each Stream ID using the following formula:

Sales value x Royalty or tax rate for each by-product

4. The weighted average royalty or tax rate

The weighted average royalty for each stream ID is calculated using following formula, using the gross royalties or taxes calculated from step 2 and 3:

(Gross royalty or tax for marketable gas + Gross royalty or tax for by-products) ÷ ((Royalty taxpayer’s marketable gas volume x Reference price) + Sales value of all by-products))

5. The net royalty or tax

First, the gross royalty or tax is calculated using the weighted average royalty or tax rate and reported gas production volume as follows:

Weighted average royalty or tax rate x Raw gas volume

The net royalty or tax is then calculated by subtracting any deductions, including producer cost of service allowance and deep well deductions from the total gross royalty or tax.

For more information and sample calculations:

• See the Petroleum and Natural Gas Royalty and Freehold Production Tax Regulation
• Contact the Ministry of Finance

Reduce your royalties

There are certain circumstances where natural gas producers may qualify for:

• Allowances
• Exemptions
• Credits and deductions
• Lower royalty rates

Royalty transition period

For new gas wells spudded during the royalty transition period (September 1, 2022 to August 31, 2024), a flat 5 percent royalty rate applies for the initial production period (8,760 production hours). Once the initial production period concludes, that well falls under the pre-transition royalty system until August 31, 2024.

Existing wells spudded prior to September 1, 2022, are not impacted and continue under the pre-transition royalty framework until August 31, 2024.

When the new royalty framework is implemented on September 1, 2024, all wells start using new price-sensitive royalty rates. The new rates depend on commodity price and range from 5 percent to 40 percent.