Ultra-Marginal Royalty Program

Producers do not need to apply separately for this program. Qualified wells will automatically receive

low productivity reduction factor based on the BC – 08 Monthly Production Statement. 

More information can be found in Royalty Rates for Ultra-Marginal Gas Wells.

            (a) the well event is a gas well event,

            (b) the well event is either in a vertical well with a true vertical depth of less than 2,500 metres or in a
                  horizontal well with a true vertical depth of less than 2,300 metres,

            (c) one of the following applies to the well event:

(i) the well event is in an exploratory wildcat well and the result of the following calculation is less than 17 m3 for every metre of ultramarginal well depth:

                                                            (TP/TPH) X 24                

Where

TP        means the total production from the well event in the following applicable period:

 

(A) if the well event is not a reactivated well event, the period of 12 consecutive calendar months that begins with the calendar month in which marketable gas is first produced from the well event;

 

(B) if the well event is a reactivated well event, the period of 12 consecutive calendar months that begins with the calendar month in which the reactivated well event commenced or recommenced producing, and

TPH     means the total number of hours during which the well event produced natural gas in that 12 calendar month period,

 

(d) the 12 calendar month period referred to in paragraph (c) (i) and (ii) ends after January 31, 2007,

 

(e) the well event is either

(i) a reactivated well event with a re-entry date after December 31, 2005 in a well with a spud date after May 31, 1998, or

 

(ii) in a well that has a spud date after December 31, 2005, and

 

(f) the well event is not part of a coalbed methane project.

Where the following terms are defined:

"Vertical well" means any well that is not a horizontal well;

"Horizontal well" means a well that meets the following criteria:

(a) a wellbore in the well is drilled at an angle of at least 80 degrees from vertical, and, for the purposes of this paragraph, the wellbore is deemed to be a line connecting the wellbore's initial point of penetration into a productive zone to the wellbore's end point in that productive zone;

 

(b) the length of the wellbore referred to in paragraph (a) is at least 100 metres, measured from the wellbore's initial point of penetration into the productive zone referred to in paragraph (a) to the wellbore's end point in that productive zone;

“Ultramarginal gas” means non-conservation gas produced by an ultramarginal well event;

“Ultramarginal well event” means a well event referred to in subsection (6);

"Reactivated well event" means

(a) a marginal well event that

(i) was suspended or abandoned on or before June 30, 2003, and

 

(ii) after that date, commenced or recommenced producing, or

(b) an ultramarginal well event that

(i) was suspended or abandoned on or before December 31, 2005, and

 

(ii) after that date, commenced or recommenced producing;    

“Ultramarginal well depth” means,

(a) for a well event in a vertical well, the true vertical depth of the wellbore’s intersection with the top of the pay of the well event, and

 

(b) for a well event in a horizontal well,

(i) if the total measured depth less the measured depth to top of pay is less than 1 000 metres, the total measured depth, or

 

(ii) if the total measured depth less the measured depth to top of pay is equal to or greater than 1 000 metres, the amount determined by adding

(A) measured depth to top of pay plus 1 000, and

 

(B) one half of the amount determined by subtracting the sum of the measured depth to top of pay plus 1 000 from the total measured depth;

 Royalty Calculation:

 Where:

RP       Reference Price

SP       Select Price

If the well event is an ultramarginal well event, the reduction factor (LPRF), may be determined in accordance with the following formula:

LPRF = [(60,000 - S) / 60,000]^1.5

Where:

S      is equal to the lesser of the average daily natural gas production volume for the ultramarginal well event in the producing month and 60,000.

Example: 

• Horizontal Exploratory Wildcat well, 2 300m deep
• Total 12 month production (BC-S8): 5e⁶m3
• Production hours over that same period: 4 000hrs
• Average daily volume for one month: 20 000 m3

Eligibility Calculation 

–        Step 1: Ultra-marginal well depth (UMD)

•        Horizontal Length Calculation 

–        TMD – MDTP = 2300 – 1200 = 1100m

»        Hz section > 1000m 

•        UMD = MDTP+1000+((TMD-(MDTP+1000))/2) 

–        UMD: 1200+1000+((2300-(1200+1000))/2) = 2250m 

–        Step 2: Check Eligibility 

•         (5,000,000/4000)*24/2250 = 13.3 m3/d/m 

•         The calculation is less than 17m3/d/m the well event qualifies as an ultra-marginal well event. 

•         Ultra-Marginal Royalty Calculation

–        Step 3: Calculate Ultra-marginal Reduction Factor, URF 

•         URF: ((60,000-S)/60,000)^1.5

•         ((60,000-20,000)/60,000)^1.5 = 0.544 

–        Step 4: Calculate the Ultra-marginal Royalty Rate, UMRR 

•         UMRR: 27% * (1 – 0.544) = 12.3%