Producer cost of service (PCOS) natural gas allowance

The producer cost of service (PCOS) allowance is an annual rate that offsets the cost of moving the Crown's share of natural gas from the wellhead to the inlet of the processing plant. It does not include capital and operating costs for producer-owned plants, which are covered by the gas cost allowance. 

How the PCOS is calculated

The amount of the PCOS allowance depends on the volume and type of natural gas. For royalty purposes, the two types of natural gas are:

Conservation

Each reporting facility that produces conservation gas produced from the Stream ID automatically receives a fixed PCOS rate of $16.00 per 1000 cubic metres of raw gas. 

Non-conservation

For non-conservation gas, annual PCOS rates for each reporting facility are calculated using information you reported in Petrinex through the PCOS Management process. Rates per 1000 cubic metres of raw gas are based on estimated costs for qualifying equipment at the reporting facility, which includes:

• Gathering lines
• Compressors
• Dehydrators
• Line-heaters
• Field processing units

Qualifying equipment must be in the field (not past the plant inlet) and used to carry non-conservation gas.

Once the annual PCOS rate is determined for each reporting facility, the PCOS allowance is deducted from your total gross royalty payable each month for each Stream ID. The allowance is calculated by:

Volume of raw gas produced from the Stream ID x Weighted average royalty rate (%) for the Stream ID x PCOS rate

Apply for PCOS in Petrinex

You only need to apply if you are producing non-conservation gas. If you only produce conservation gas, you will automatically receive the fixed PCOS allowance of $16.00 per 1000 cubic metres. 

To receive the PCOS allowance, your facility operator needs to apply every year by January 31 through PCOS Management on Petrinex. 

We will review your request by the March invoice run and the updated PCOS rate will be applied to your January to December production month royalty invoices. 

If you set up a new reporting facility

For new reporting facilities, you will need to create PCOS equipment inventory (if needed) and then apply for the allowance. The deadline to create inventory and add inventory to the new reporting facility is the end of the month following the month the reporting facility started operating. 

We will review your request before the invoice run two months after the start of production and the PCOS rate will be applied to that month through the December production month royalty invoices. 

If you change qualifying equipment

Qualifying reporting facilities may submit a request to add, change, delete or share qualifying PCOS equipment in Petrinex by January 31. 

We will review your request by the March invoice run and the updated PCOS rate will be applied to your January to December production month royalty invoices. 

Impact of the new royalty framework on PCOS allowance

The royalty framework is changing in September 2024. During the two-year transition period (September 1, 2022 to August 31, 2024), newly spudded oil and gas wells may need to apply for PCOS differently. 

Gas wells spudded on or after September 1, 2022

Any new gas well spudded between September 1, 2022, to August 31, 2024, may only receive the PCOS after that well's initial production period (8,760 production hours) concludes. 

Report your production hours as you normally would. When the well reaches 8,760 production hours, apply for the PCOS following the normal process. 

Oil wells spudded on or after September 1, 2022

Oil wells spudded between September 1, 2022, to August 31, 2024, that produce conservation gas automatically receive the fixed PCOS rate of $16.00 per 1000 cubic metres of raw gas, regardless of production hours.

All oil and gas wells on or after September 1, 2024

When the new royalty framework is implemented on September 1, 2024, a new gathering and processing allowance replaces all cost allowances for all wells. 

More information on PCOS

Further information on PCOS is available in section 3.5.2 of the Petrinex Readiness Handbook. Any changes made throughout the year should be reported as required.