Deemed royalties for oil and gas

Reporting facility operators who do not meet their reporting requirements may be subject to deemed royalties. A deemed royalty assessment is not a penalty and will be offset when we determine requirements are met.

On this page

• What is a deemed royalty?
• Why are deemed royalties issued?
• Who may be assessed?
• Why am I being assessed?
• What do I do if I’m assessed?
• Why was I assessed both a royalty and deemed royalty?
• How do I avoid a deemed royalty?
• How are deemed royalties calculated?
• How are deemed royalties invoiced?
• Do credits and allowances apply?
• What interest applies?

What is a deemed royalty?

A deemed royalty is a royalty assessment issued to a reporting facility operator on an unaccounted for quantity of product. 

Generally, a deemed royalty is issued when you have reporting errors in relation to unaccounted quantities of product, owner(s), prices or applicable royalty rates.

Why are deemed royalties issued?

Deemed royalties ensure royalty revenues are protected and that reporting omissions are resolved as quickly as possible.

Who may be assessed?

The operator of a reporting facility is subject to deemed royalties.

Royalty taxpayers are not subject to deemed royalties. However, you may be both a royalty taxpayer and an operator of a reporting facility. If you do not report information as required in your role as a facility operator, you may be assessed a deemed royalty.

Why am I being assessed?

For reporting facility operators of marketable gas and natural gas by-products

As a reporting facility operator of marketable gas or natural gas by-products, you are assessed a deemed royalty if you do not indicate how volumes are allocated.

You need to fully allocate volumes where there is an allocation trigger. The first allocation trigger differs by product.

When you allocate gas or by-products, you are assigning volumes containing the Crown’s royalty share to the stream and owner of those volumes.

Information on allocation triggers is available in the Petrinex Industry Readiness Handbook (PDF, 2.5MB). 

For reporting facility operators of oil and condensate

As a reporting facility operator of oil and condensate, you are assessed a deemed royalty if you have a volumetric imbalance.

For each producing month, you must account for oil, as required, and provide volumetric information. Volumetric information includes data on the production, receipt, disposition, use and storage of oil in a producing month.

Deemed royalty on oil is triggered when an oil/condensate facility has a volumetric imbalance. We use this information to recognize the type of well and producers who the sold volumes belong to.

What do I do if I am assessed?

Correct the Petrinex reporting error that resulted in the deemed royalty assessment. If the error is corrected before the next production month reporting deadline for that error type, the amount will be credited back on your next invoice.

Example: You had a deemed royalty error message for the November 2018 production month and did not correct it by the reporting deadline in December 2018 so you are assessed a deemed royalty on January 23, 2019:

• You need to pay the deemed royalty by January 31, 2019 to prevent any interest

• You need to correct the error message by the December reporting deadline for the relevant information in January 2019 in order for the adjustment to be reflected on your next invoice dated February 23, 2019

• You need to correct the deemed royalty error message before January 31, 2019, including correcting the error message after the November reporting date and before the invoice date

Why was I assessed both a royalty and deemed royalty?

This can occur in specific situations where a person is both a royalty taxpayer and a facility operator. This is only possible with oil deemed royalties because of the reporting requirement due dates.

Example: In your role as a facility operator you provide oil volumetric information for a production month on the 22nd day of Prod +1. 

• This information was due on the 21st day of the Prod +1 and therefore generated an error message in our system, triggering a deemed royalty on the 23rd day of Prod +2 for the unaccounted quantity.

• However, if you correct this volumetric error before the next reporting deadline occurs, our invoicing system will use the latest information available to calculate royalties to royalty taxpayers.

As the volumetric information was available before the invoice was generated, it is used to calculate your royalty assessment.

In the above example, if you are both a producer and reporting facility operator you may receive both a royalty Crown invoice and a Deemed royalty for the same production month.

How do I avoid a deemed royalty?

Ensuring you have no reporting errors in Petrinex is the best way to avoid a deemed royalty.

Petrinex provides the following information, reports and processes to help you identify and correct errors or omissions in reporting before the reporting deadline that may result in a deemed royalty.

Business Associates in Petrinex have the ability to request reports from Petrinex at any time of the month to identify balancing errors as well as missing and incomplete data for all their reporting requirements. To minimize errors, you are responsible for running non-compliance and completeness reports up to and including the deadline day.

Petrinex automatically runs non-compliance and completeness reports for all Business Associates each month, two days before the various filing deadlines for the respective data (e.g. volumetric non-compliance reports will run two days prior to the volumetric reporting deadline). Petrinex will notify you of any error or warning messages relating to error types that may result in a deemed royalty assessment.

Non-compliance reports are sent to the Business Associates’ Petrinex inbox. If the Business Associate requests email notifications, you will be notified of the successful completion of the report.

These error messages are available to you in real time. 

Refer to Petrinex Errors Resulting in a Deemed Royalty (PDF, 140KB) for a list of the error codes and the associated deemed royalty.

How are deemed royalties calculated?

How are deemed royalties invoiced?

Deemed royalties are assessed on a Crown Deemed Invoice issued on the 23rd day of Prod+2. Payment is due on the last day of the month the invoice is issued.

The invoice is delivered to your eTaxBC account the evening of the 23rd day of Prod+2. You can also view your invoice in Petrinex under Ministry Invoices and Statements.

Do credits and allowances apply?

Credits and allowances cannot be applied to deemed royalties. Credits and allowances only apply to the calculation of royalties issued to royalty taxpayers. 

What interest applies?

Learn what interest applies on deemed royalties.