Lower your oil and natural gas royalty rates

To encourage drilling and to keep wells operating, the following programs are offered to lower the rate used to calculate your royalties:

• Low productivity well royalty reduction
• Marginal well royalty reduction
• Ultramarginal well royalty reduction
• Net profit royalty program

Low productivity well royalty reduction

Gas Stream IDs that on average produce less than 5,000 cubic metres of natural gas per day in a calendar month and meet additional requirements qualify for the low productivity well royalty reduction.

We determine the productivity of the Stream ID using information from Petrinex. If the well event qualifies, we automatically use a lower royalty rate when we calculate your royalty invoice. You do not need to apply for this reduction.

This reduction is applied to low production Stream IDs that are not eligible for the marginal or ultramarginal royalty reduction. Only one production based royalty reduction can be applied to the same Stream ID.

Note: This program is only available to wells with a spud date before September 1, 2022. 

Marginal well royalty reduction

Shallow gas Stream IDs that have an average daily production of less than 23 cubic metres of natural gas per metre of well depth and meet additional requirements qualify for the marginal well royalty reduction. The marginal well royalty reduction provides a greater reduction than the low productivity well royalty reduction at any rate of production that averages under 25,000 cubic metres per day in a calendar month. Only one production based royalty reduction can be applied to the same Stream ID.

You do not need to apply for either reduction.

Stream IDs must produce for 12 months before they qualify for this reduction.

At the end of the 12-month period, we calculate the marginal well royalty reduction based on the volume produced and allocated as reported in Petrinex.

Once we determine that a Stream ID qualifies for this reduction, we recalculate the royalty for the previous 12 months accordingly.

If the Stream ID qualifies for the reduction, a lower royalty rate is automatically used to calculate your royalties when the average daily rate of production in a calendar month is less than 25,000 cubic metres.

The Ministry of Finance reviews the marginal well eligibility criteria for every new and reactivated gas Stream ID with marketable gas production after July 1, 2003, and prior to September 1, 2022.

Note: This program is only available to wells with a spud date before September 1, 2022. 

Eligibility for the marginal well royalty reduction

A well event is eligible for the marginal well royalty reduction if it meets the following criteria:

• The primary product is natural gas, but it is not part of a coalbed methane project
• The well event is in a well with a spud date between May 31, 1998, and August 31, 2022 (wells that are subject to base 9 or base 12 royalty rates)
• The first month in which marketable gas is produced from the well event is after June 2003 and before August 2008. Well events that were suspended as of June 30, 2003, are eligible if they are reactivated after June 30, 2003
• The average daily rate of production per metre of depth in the 12‑month period that begins with the first month in which it produces marketable gas is less than 23

The average daily rate of production per metre of depth is calculated using the following formula:

((Total production from the well event ÷ total number of hours during which the well event produced natural gas over the 12-month test period) × 24) ÷ Marginal well depth for a marginal well event

The total production from the well event means:

• The 12 consecutive calendar months starting with the calendar month in which marketable gas is first produced from the well event, or
• In the case of a reactivated well event, the 12 consecutive calendar months after the calendar month in which marketable gas is first produced following reactivation

The marginal well depth means:

• For a well event in a vertical well, the true vertical depth to the top of pay. This is the distance between the wellbore’s intersection with the pay of the marginal well event to the point, directly above that intersection point, that is the same elevation as the kelly bushing used in drilling that well, or
• For a well event in a horizontal well, the total measured depth of the well event, which is the length of all of the vertically and horizontally-oriented wellbores from the surface to the well event

How the marginal well royalty reduction is calculated

Step 1: When average daily production over the calendar month is less than 25,000 cubic metres, the royalty rate for the well event is reduced by the base royalty rate multiplied by the production-based reduction factor (PBRF).

The PBRF is calculated by:

(25,000 - Average daily natural gas production volume in the producing month) ÷ 25,000²

If average daily production in a month is 25,000 cubic metres or more, the PBRF is zero.

Step 2: The royalty rate payable for marginal wells is then calculated as:

Base royalty rate - (PBRF × base royalty rate)

Ultramarginal well royalty reduction

Shallow gas well events that meet stringent low productivity and depth requirements, qualify for the ultramarginal well reduction.

We determine the productivity of the well event using production and depth information from Petrinex. You do not need to apply for this reduction.

Well events must produce for 12 months before they qualify for this reduction. After the 12-month qualification period, the royalty on a qualifying well event for the previous 12 months will be recalculated.

If the well event qualifies for the reduction, a lower royalty rate is automatically used to calculate your royalties when the average daily rate of production in a calendar month is less than 60,000 cubic metres. 

Only one production based royalty reduction can be applied to the same well event.

Note: This program is only available to wells with a spud date before September 1, 2022. 

Net profit royalty program

The net profit royalty program (NPRP) promotes the development of high-risk oil and natural gas resources that are otherwise unlikely to be developed.

This program allows producers to pay lower royalty rates in the initial stages of a project in exchange for higher royalty rates once the producers have recovered their capital costs.

Applications are not currently accepted for this program.

For information about how the program works, see Net Profit Royalty Program (PNG 006) (PDF, 270KB).