Oil and natural gas royalty exemptions

When you produce oil or natural gas in B.C., you may be exempt from paying royalties in the following situations:

• Discovery wells
• Natural gas or natural gas by-products used for oil or natural gas production, drilling or injection

Discovery wells

If you encounter a new oil or gas pool and the British Columbia Energy Regulator classifies your well as a discovery well, you may qualify for a royalty exemption. 

If you qualify, the exemption is applied on the royalty invoice to reduce the amount of royalty you pay. 

Oil well

Generally, oil produced from a discovery oil well is exempt from royalties during the first 36 producing months, as long as the volume of oil produced is not more than the monthly oil production allowable, multiplied by 36 producing months, or 11,450 cubic metres, whichever comes first. 

When the well no longer qualifies for the exemption, a Notice of Exemption Termination will be sent to the facility or Production Entity (PE) operator.

Natural gas well

Natural gas and natural gas by-products produced from a deep discovery well are exempt from royalties for the first 36 producing months or the first 283,000,000 cubic metres of raw gas produced, whichever comes first.

A deep discovery well is a well that is not part of a coalbed methane project and has a:

• Completion point that has a true vertical depth deeper than 4000 metres
• Spud date after November 30, 2003
• Surface location that is at least 20 kilometres away from the surface location of any well in a recognized pool of the same formation

Note: A deep discovery well may also qualify for a deep well credit or a deep well re-entry credit.

Use of natural gas or by-products used for production, drilling or injection

Natural gas and natural gas by-products are exempt from royalties when the same producer or unitized operation produces and uses the natural gas or natural gas by-products for any of the following:

• Oil and natural gas production
• Drilling purposes
• Injection into the formation from which they were produced

Royalties do not apply to natural gas when it is used as lease fuel or is flared or vented at the reporting facility.

Note: You may need to pay motor fuel and carbon tax. See Self-Assessing Motor Fuel and Carbon Tax (MFT-CT 006) (PDF, 190KB) for more information.