Understanding oil royalty calculations

​​This information will help you understand the amount of oil royalties that you’re invoiced for and what factors the Ministry of Finance uses to calculate your oil royalties.

How your invoice is calculated

Oil producers receive royalty invoices each month for each Stream ID they have a Royalty Taxpayer percentage in that is producing or reporting sales. The amount charged is calculated using the following information:

• Whether the oil was produced on Crown or freehold land
• The oil classification (new, old, third tier, or heavy oil)
• If the oil is third tier or heavy oil, the threshold price
• Average wellhead price
• Royalty Taxpayer percent for each producer (as created by the oil pipeline splits reporting)
• Monthly sales volumes and values
• Monthly production volumes 

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

1. The royalty or tax rate

The royalty or tax percentage rate is calculated using the Stream ID’s royalty or tax attributes and information you report in Petrinex. The royalty or tax rate depends on:

• The volume of oil produced
• If produced on Crown land or freehold land
• Whether the oil is new, old, third tier, or heavy 
• The average wellhead price

2. The royalty Crown share

The full Crown share is calculated as follows:

Royalty or tax rate x Monthly volume produced

The producer’s Crown share is then calculated as follows:

Their Royalty Taxpayer Percent x Full Crown share

This is a volumetric representation of the royalty due.

The first sale of oil includes the entire royalty taxpayer Crown share. There will never be inventoried Crown share.

3. The gross royalty or tax payable

For this step, the producer must report sales in Petrinex by the oil valuation reporting deadline and enter the gross sales price and transportation cost.

First, the average wellhead price is calculated through the following formula:

(Gross sales price – transportation cost) ÷ Volume sold

The gross royalty or tax payable is then calculated using the Crown share information from step 2 and the average wellhead price:

The producer’s Crown share x Average wellhead price

4. The net royalty or tax payable

If the Stream ID is entitled to any exemptions, they are deducted from the gross royalty or tax payable, which results in the net 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

Oil producers may reduce their royalties if they qualify for the:

• Discovery well exemption
• Infrastructure credits (such as road credits)