B.C. oil and natural gas royalty transition impact on new gas wells
Last updated on April 5, 2024As a result of government’s Natural Gas Royalty Review project, royalty rates on new gas wells with a spud date on or after September 1, 2022 have changed. How allowances and deductions apply have also changed.
The transition period has begun. Make sure you know how this affects you.
New gas wells spudded on or after September 1, 2022 have a transitional provision that applies until August 31, 2024.
New oil wells spudded on or after September 1, 2022 do not have transitional provisions and remain under the current royalty system.
On September 1, 2024, all wells move to the new royalty system.
Transitional provision for new gas wells
For new gas wells with a spud date on or after September 1, 2022, a flat 5 percent royalty rate is payable for the initial production period (or 8,760 production hours, equating to approximately 12 production months) following the spud date.
After the initial production period concludes, that well falls under the pre-transition royalty system until August 31, 2024. On September 1, 2024, new price-sensitive royalty rates apply. The new rates depend on commodity price and range from 5 to 40 percent.
For example, for a gas well with a spud date of December 15, 2022, a flat 5 percent royalty rate applies for the initial production period (8,760 production hours). From the end of the initial production period until August 31, 2024, the variable monthly rate under the pre-transition royalty system applies. Starting September 1, 2024, the new price-sensitive royalty rates apply.
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Find answers to questions about how the new royalty system affects new gas wells:
What is the royalty rate for a new gas well spudded on or after September 1, 2022?
The royalty rate is a flat 5 percent rate for the initial production period (8,760 production hours). Once the initial production period concludes, the pre-transition royalty rates apply until August 31, 2024. The new price-sensitive rates under the new royalty system apply thereafter.
What do we have to do if the royalty rate that applies to our gas well changes?
You don’t have to do anything. Our systems will automatically apply the appropriate royalty rate. The adjusted rate will be reflected in the royalty invoice you receive in the month following the month that your initial production period concludes.
Starting in December 2022, if you spudded a new gas well since September 1, 2022 that has begun producing, the OGR Gas Invoice Details CSV file that you normally get through Petrinex will reflect the flat 5% royalty rate introduced during the royalty transition period. Look for a new “NG05” code for crown land or a new “NGF5” code for freehold land in the Base Rates section of the invoice.
What are production months?
In relation to a gas well event, production months are based on a certain number of production hours. The transition regulation provides the following definitions:
- “Initial production period”, in relation to a gas well event, means the period that (a) begins on the first day of the first producing month, and (b) ends on the last day of the producing month in which the gas well event reaches 8,760 production hours
- “Production hour”, in relation to a gas well event, means an hour in which any quantity of oil or natural gas is produced from the gas well event
Is our gas well eligible for the producer cost of service (PCOS) allowance?
For the initial production period (8,760 production hours), a new gas well does not receive a PCOS allowance. After the initial production period concludes, the well will receive the PCOS allowance until August 31, 2024. You apply for the PCOS following the normal process.
After this point, a gathering and processing allowance replaces all cost allowances. The new gathering and processing allowance is still under development.
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How do we apply for the producer cost of service (PCOS) allowance for the remainder of the transition period?
Report your production hours as you normally would. When you reach your 8,760 production hours, apply for the PCOS following the normal process.
Does our gas well receive a gas cost allowance?
Yes, the current gas cost allowance continues until August 31, 2024, at which point a new gathering and processing allowance replaces all cost allowances. The new gathering and processing allowance is still under development.
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Does our gas well qualify for the low productivity, marginal or ultra-marginal royalty reduction?
Effective September 1, 2022, new gas wells no longer qualify for the low productivity, marginal or ultra-marginal royalty programs.
Does our gas well qualify for the deep well deductions?
Effective September 1, 2022, new gas wells do not qualify for the deep well deductions.
Impact on existing wells, new oil wells
Important dates
Contact information
Contact us if you have questions about the transition to the new royalty system.
1-800-667-1182