Validations and audits on oil and natural gas transactions
Oil and natural gas transactions reported in B.C. are reviewed through two processes: validations and audits.
Validations are performed on oil, natural gas and natural gas by-product royalty and tax transactions in B.C. This post-transaction review verifies the data submitted by oil and natural gas producers against information available from other sources.
If you disagree with the outcome of a validation, you must explain why or provide us with additional information by the deadline we provide you.
Validations on pre-Petrinex periods
We may perform a validation review for a pre-Petrinex period (producing months before October 2018). As part of the validation process, we may ask you to provide us with reports and information.
If you do not respond to our request for information within 30 days, we will conduct the validation using available data from other sources.
If the review determines an amendment is required, we will work with you to deem appropriate volumes and pricing. You will then receive an amended invoice.
Validations on Petrinex periods
We may perform a validation review for a Petrinex period (producing months October 2018 and after). As part of the validation process, we may ask you to provide pricing or other information.
If you do not respond to our request within 30 days, we may apply a penalty to the applicable production period(s).
If the review determines that an adjustment is required, we will issue you an invoice for pricing errors. If the adjustment relates to volumetrics, we will require you to amend your information in Petrinex.
Interest applies on all late payments.
You may, at any time, be subject to an audit that may result in an assessment or reassessment of your royalties and taxes.
An audit is an examination of your business’ records to ensure that you're correctly reporting and paying royalties and taxes, and to identify any areas where you may be doing this incorrectly.
All audits are held to the service and conduct standards outlined in the Taxpayer Fairness and Service Code.
What happens during an audit?
If your business has been selected for an audit, the auditor will contact you to discuss the exchange of information and go over the general audit process. Most audits are completed through a desk audit process; however, if a field audit is required, the auditor will contact you to arrange a convenient time and date for the audit.
What happens after an audit?
When the audit is complete, the auditor will provide you with a proposal letter and working documents that fully explain the findings. The auditor will also make you aware of your options if you disagree with the results.
How are audits invoiced?
If the audit relates to a pre-Petrinex period, we will issue you an assessment on your next regular invoice.
If the audit relates to a Petrinex period:
- Pricing, gas cost allowance or producer cost of service errors are assessed by us on your next regular invoice, and
- Other information errors require you to amend your information in Petrinex in order to generate the assessment. Further instructions will be provided at that time.
Adjusting information previously audited
If you need to make an adjustment to information previously audited, you need to contact us. If you make a material change in Petrinex, we will be notified and will review your adjustment.
It is important that you keep records for at least seven years (84 months). You will be asked to produce records for the audit, such as:
- accounting records
- contracts and agreements
- schematics and flow diagrams
You may want to prepare and retrieve records ahead of time so that the audit can be completed as quickly as possible. In the case of records stored off-site, it’s a good idea to ask the auditor which records are needed to avoid wasting time and money.
After 72 months, you must have written permission from the Minister before you dispose of your records.
If your records aren’t available when they are requested under an audit, the royalty collector is authorized to deem a price or amend volumes and then reassess based on information available from other sources.