Producer cost of service (PCOS) natural gas allowance

The Producer Cost of Service (PCOS) allowance 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.

New gas wells spudded between September 1, 2022, and August 31, 2024, must complete their initial production period (8,760 production hours) before applying for the PCOS. 

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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:

  1. Conservation
    Conservation gas produced from the well event or Production Entity (PE) automatically receives a fixed PCOS rate of $16.00 per 103m3 of raw gas.

  2. Non-Conservation
    Annual PCOS rates for each battery are calculated using information you reported in Petrinex through the PCOS process. Rates per 103m3 of raw gas are based on estimated costs for qualifying equipment at the battery that are:
  • in the field (not past the plant inlet)
  • used to carry non-conservation gas
  • owned and operated by a royalty payor

Qualifying equipment includes:

  • gathering lines
  • compressors
  • dehydrators
  • line-heaters
  • field processing units

Once the annual PCOS rate is determined for each battery, the PCOS allowance is deducted from your total gross royalty payable each month for each well event or PE. The allowance is calculated by multiplying the PCOS rate by:

  1. The volume of raw gas produced from the well event or Production Entity (PE), and
  2. The weighted average royalty rate (%) for the well event or PE

For more information on the PCOS allowance, see section 5.5 of the Oil and Gas Royalty Handbook (PDF).

Apply 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 per 103m3.

You do not need to apply for the PCOS allowance on a battery that currently has a PCOS rate calculated. However, prior to the next year’s PCOS calculation, qualifying batteries may submit a request to add, change, delete or share PCOS equipment in Petrinex using the Petrinex – BC Allowable Cost Process by January 31st.

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

For new batteries, the deadline to create PCOS inventory (if needed) and add PCOS inventory to the new battery is the end of the month following the month the battery started operating.

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

New wells spudded on or after September 1, 2022

The royalty framework is changing. Any new gas well spudded during the two-year transition period (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. 

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

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