SUBJECT:    ZONE SPECIFIC RETENTION

The Ministry of Energy, Mines and Petroleum Resources (Ministry) works to encourage long term investment in energy development for the benefit of all British Columbians.  As part of the Ministry’s efforts to support continued growth in the oil and gas industry, the Ministry has developed a Zone Specific Retention (ZSR) system.  Under this system, new petroleum and natural gas leases would retain those zones found to contain oil or gas at the end of the initial five or ten year term of a lease.  All other zones, outside the hydrocarbon bearing zones, would return to the Province.  This will allow the Province to repost these rights, giving new industry parties opportunities to explore for oil and gas in the reverted zones.  The new rule is forward looking, and does not apply to pre-existing titles.

Applying ZSR to new leases is the logical next step to deep rights reversion, which was enacted in 1985 and has resulted in significant Crown revenues from the sale of deep rights.   The Ministry has now proceeded with this initiative.  The legislation bringing this system into force received Royal Assent on March 29, 2007.  As a result, titles acquired after that date will be subject to these new rules at the end of the initial term of a new lease, or a lease that is eventually selected from a new Permit or Drilling Licence issued after March 29, 2007.  No pre-existing title will be affected under these new rules.

This will defer the return of unproductive shallower rights for several years, as the earliest expiry dates of new five and ten year-term leases issued today are 2012 and 2017.  An additional four to six years time is added to this for leases selected in future from new Drilling Licences issued now, extending the transition period to 2016 to 2023.  For Leases derived in future from new Permits issued now, an additional one to eight years is added, extending the transition period to 2013 to 2025.  These long transition periods will ease administrative burden on industry while continuing to support the Ministry's long-term objectives for industry growth. 

The existing provisions of the Petroleum and Natural Gas Act, including Programs of Work, drilling commitments, and the submission of geological, geophysical and engineering information that supports the existence of a pool of oil or gas, will continue to be accepted methods of continuing title to leases. 

Amendments to the Petroleum and Natural Gas Act are listed under BILL 12—2007,  Miscellaneous Statutes Amendment Act under Sections 59 and 67, a copy can be found at;

http://www.leg.bc.ca/38th3rd/3rd_read/gov12-3.htm 

Patrick O’Rourke
Assistant Deputy Minister
Titles and Offshore Division

May 18, 2007