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 Oil and Gas Commission (OGC) classifies your exploratory wildcat well as a discovery well, you may qualify for an exemption on resources produced from your:

• Oil well
• Natural gas well

An exploratory wildcat gas well is a discovery well that is located 7 kilometres or more away from an existing gas pool.

If you qualify, the exemption will appear on your royalty invoice.

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

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.

For more information about this exemption see section 4.3 of the Oil and Gas Royalty Handbook (PDF, 1.4MB).

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:

• has a completion point that has a true vertical depth deeper than 4000 metres
• has a spud date after November 30, 2003
• has a surface location that is at least 20 kilometres away from the surface location of any well in a recognized pool of the same formation, and
• is not part of a coalbed methane project

For more information about this exemption see section 5.9 of the Oil and Gas Royalty Handbook (PDF, 1.4MB).

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

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:

• oil and natural gas production,
• drilling purposes, or
• injection into the formation from which they were produced

Royalties don’t 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, 180KB) for more information.