New Oil
Primarily, oil produced from a pool that had no completed well on October 31, 1975 and incremental oil. See royalty regulation for complete description.
Old Oil
Oil other than new or third tier oil.
Third Tier Oil
Oil produced from a pool that is discovered after June 1, 1998.
Heavy Oil
Oil with a density of at least 890 kilograms per cubic meter.
The royalty regime in British Columbia for petroleum has the characteristics of being both age- and production-sensitive. That is, there is a separate formula for determining the royalty rate depending on whether the oil is classified as “old”, “new” or “third tier” and these rates vary with productivity. The rates are lowest for third tier oil, reflecting the higher cost of exploration and extraction. For all three categories, rates are also lower for low productivity wells, again reflecting the higher unit costs of extraction.
The actual calculation of the royalty due is a three-stage process. The first stage is to calculate the volumetric Crown share. This is done by multiplying the production of the well (or tract for unitized operations) by the royalty rate and summing the products. The royalty rate is determined by application of the appropriate formula as follows:
Old Oil: Q <= 95 m3; R% = Q/7.92
Q >95 m3; R% = 1140+ 40 (Q-95)
Q
New Oil: Q <= 159 m3; R% = Q/10.58
Q > 159 m3; R% = 2390 + 30(Q-159)
Q
Third Tier: Q <= 159 m3; R% = Price Factor *Q 26.45
Q > 159 m3; R% = Price Factor *(956 + 12(Q-159))
Q
The Price Factor for Third Tier oil is equal to the lesser of:
(a) 1 + 3.5 * (Wellhead Price – Threshold Price for Third Tier oil), and Wellhead Price
(b) 2.0.
The Threshold Price for Third Tier oil is established by order of the Administrator. On January 1, 2000, it was set at $125 per m3.
The wellhead price is the greater of:
(a) the average net value of that oil at the wellhead determined in accordance with Section 7(3)(b) of the Regulation (see Section 6.5, field C6 on the Monthly Crown Royalty Statement – Oil, page 6.5-7), and
(b) the Threshold Price.
Heavy Oil: Q<=20 m3; R% = 0
Q>20 m3 <= 200 m3; R% = Price Factor * (Q – 20)^2
24 * Q
Q>200 m3; R% = Price Factor *((Q – 200)* 11 + 1350)
Q
The Price Factor for Heavy oil is equal to:
1 + 2.5 * (Wellhead Price – Threshold Price for Heavy oil) Wellhead Price
The Threshold Price for heavy oil is established by order of the Administrator. On January 1, 2000, it was set at $110 per m3.
The wellhead price is the greater of:
(a) the average net value of that oil at the wellhead determined in accordance with Section 7(3)(b) of the Regulation (see Section 6.5, field C6 on the Monthly Crown Royalty Statement – Oil, page 6.5-7), and
(b) the Threshold Price.
Where “Q” is the monthly production from the well or tract and "R%” is the royalty rate.
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The rates are depicted in the chart below.
The second stage is to value the Crown share. If there is production, but no sale (i.e. oil is placed in inventory), there is no basis for pricing the oil produced and no royalty is due at that time. The first sale of oil is deemed to include the entire Crown share calculated in the first stage, including oil previously placed in inventory. The total Crown share is valued at the average unit selling price for all sales reported by a royalty payer during the period in which the first
sale occurs. This average price is referred to as the “Average Net Value” and is based at the point of first sale, less allowable adjustments including clean oil transportation charges. Gross Royalty is calculated as the product of the Average Net Value and the Crown Share volume.
The third stage is to determine the Royalty Exempt Value. There is a limited royalty exemption program in place in BC and any Crown Shares that fall into this category must be identified, valued, and deducted from the Gross Royalty Payable to determine the Net Royalty Payable. The exempt volume is that portion of the Crown Share that comes from exempt wells. It is valued at the Average Net Value determined in the second stage and deducted from Gross Royalty Payable to arrive at the Net Royalty Payable.
There is no explicit allowance for gathering and processing the Crown Share of oil (except for clean oil transportation costs) as there is in the natural gas royalty regime. Rather, these costs are allowed for implicitly in the construction and parameters of the royalty rate formula.
