Deemed Royalties for Oil & 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 may be reversed when 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?
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.
Deemed royalties ensure royalty revenues are protected and that reporting omissions are resolved as quickly as possible.
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.
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.
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.
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 further 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
This can occur in specific situations where a person is both a royalty taxpayer and a facility operator.
Example: In your role as a facility operator you provide 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.
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) for a list of the error codes and the associated deemed royalty.
If a reporting facility operator has a volumetric imbalance, the amount may be subject to a deemed royalty. For example, if a reporting facility reports 1,000 m3 of oil delivered or stored in a producing month, 1,000 m3 must be reported as received in the producing month. A deemed royalty would be calculated using the following formula:
|Unaccounted Quantity||x||Crown Interest (100%)||x||Royalty Rate (40%)||x||120% of Average Price|
Unaccounted for Quantity: Volumes of oil not accounted for as required in a reporting month.
Note: Condensate produced from a gas well being sold along with oil will be deemed a royalty as if it were oil. This is because Petrinex is unable to distinguish between condensate and oil at a reporting facility when volumes have not yet been allocated back to a well.
Crown Interest: Volumes will be assumed to be 100% Crown owned. In order for volumes to be recognized as Freehold or Net Profit, imbalances need to be reconciled.
Royalty Rate: Volumes will have a 40% rate.
Price: Volumes will be assumed to have been sold at 120% of the average price of oil sold in B.C. in the same production month. Deemed royalty assessment prices (120% average) will not exceed the highest price for oil sold in the same production month.
Deemed royalty assessments for marketable gas are calculated using the following formula:
|Unaccounted Quantity||x||Crown Interest (100%)||x||Royalty Rate (27%)||x||Highest Reference Price in B.C.|
Unaccounted for Quantity: Volume of marketable gas not allocated as required in a reporting month.
Crown Interest: The unaccounted for quantity will be assumed to be 100% Crown owned. In order for volumes to be recognized as Freehold or Net Profit, imbalances need to be reconciled.
Royalty Rate: The unaccounted for quantity will be assumed to have the highest rate possible under the Royalty Regulation. The highest rate currently possible is 27%.
Price: The unaccounted for quantity will be assumed to have been sold at the highest reference price for marketable gas determined for any producer during the month the gas is treated as having been sold.
A deemed royalty assessment for each natural gas by-product is calculated using the following formula:
|Unaccounted Quantity||x||Crown Interest (100%)||x||
NGL Royalty Rate (20%)
Sulphur Royalty Rate
|x||120% of Average Price|
Unaccounted for Quantity: Volume of natural gas by-products not allocated as required in a reporting month. Petrinex will notify us of the unaccounted for quantity volume per by-product type:
Crown interest: The unaccounted for quantity volumes will be assumed to be 100% Crown owned. In order for volumes to be recognized as Freehold or Net Profit, imbalances need to be reconciled.
Royalty Rate: The unaccounted for quantity will be assumed to have the highest rate possible under the Royalty Regulation.
- The highest rate currently possible for Natural Gas Liquids is 20%.
- The highest rate currently possible for Sulphur is 16.667%.
Price: The unaccounted for quantity will be assumed to have been sold at 120% of the average price of natural gas by-products sold in B.C. in the same production month. Deemed royalty assessment prices (120% average) will not exceed the highest price for natural gas by-products sold in the same production month.
Note: If deemed royalty assessment prices (120% average) exceed the highest price for that product type sold in a month, the highest price for that month will be used. This means that each by-product type will have a unique fixed price associated with it.
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.
Credits and allowances apply to the calculation of royalties issued to royalty taxpayers. Credits and allowances cannot be applied to deemed royalties.
Compound interest is calculated on unpaid deemed royalty. Refund interest is not paid on deemed royalty amounts that were paid and subsequently reversed because the data was corrected.
However, if you are charged interest on an unpaid deemed royalty and do not pay it, and the deemed royalty is subsequently reversed, you will still owe the accrued interest.