B.C. oil and natural gas royalty transition impact on existing wells
As a result of government’s Natural Gas Royalty Review project, royalty rates on existing wells are changing. How allowances and deductions apply are also changing.
The transition period has begun. Make sure you know how this affects you.
For existing wells, the current royalty system applies until August 31, 2024. On September 1, 2024, all wells move to the new royalty system.
For existing wells that are using the deep well deductions, the deep well deductions continue to be available for those existing wells until August 31, 2026.
In early 2023, producers who have existing deep well deductions will have the option of transferring their deep well deductions into a healing the land and emissions reduction pool. Deductions in a healing the land and emissions reduction pool are not well-specific and can be used by other wells that the producer has.
Any deep well deductions that have not been used or transferred into a healing the land and emissions reduction pool by September 1, 2026 will expire, unless the remaining deductions in the pool are used to offset emissions reduction expenditures.
For the low productivity, marginal and ultra-marginal royalty programs, on September 1, 2024, existing wells stop getting these reductions and start using the new price-sensitive royalty rates. The new rates depend on commodity price and range from 5 to 40 percent.
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Find answers to questions about how the new royalty system affects existing wells:
All wells spudded (the date the ground is broken for the well) before September 1, 2022 are considered an existing well.
Existing wells continue to pay the royalty rate structure in effect prior to September 1, 2022 until the end of the transition period, and then switch to the new royalty system on September 1, 2024.
The producer cost of service allowance, gas cost allowance and transportation cost deductions remain during the transition period for existing wells (until August 31, 2024).
When the new royalty system is implemented, a gathering and processing allowance replaces all existing cost allowances. The new gathering and processing allowance is still under development.
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During the transition period (September 1, 2022 to August 31, 2024), existing wells can continue to participate in the low productivity, marginal and ultra-marginal royalty programs.
Effective September 1, 2024, existing wells transition to the new price-sensitive royalty rates and no longer receive any royalty rate reductions.
For the deep well royalty deduction, existing wells can continue to reduce royalties using deep well deductions for which they qualified prior to September 1, 2022, until September 1, 2026.
In early 2023, producers will have the option to transfer existing deep well deductions to a healing the land and emissions reduction pool. Any deep well deductions that have not been used or transferred into a healing the land and emissions reduction pool by September 1, 2026 will expire, unless the remaining deductions in the pool are used to offset emissions reduction expenditures.
More information about the healing the land and emissions reduction pool and how to set one up will be available in the coming months.