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Deemed royalties for oil and gas

Last updated on June 26, 2024

Reporting facility operators who do not meet their reporting requirements may be subject to deemed royalties. A deemed royalty assessment is not a penalty and will be offset when we determine requirements are met.

Deemed royalties ensure royalty revenues are protected and that reporting omissions are resolved as quickly as possible.

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Conditions for a deemed royalty

A deemed royalty is a royalty assessment issued to a reporting facility operator on an unaccounted quantity of product. 

Generally, a deemed royalty is issued when you have reporting errors related to:

  • Unaccounted quantities of product
  • Working interest owner(s)
  • Royalty taxpayer(s)
  • Allocations

To avoid a deemed royalty, ensure you have no reporting errors in Petrinex and keep in mind important dates for reporting and making payments.

Royalty taxpayers are not subject to deemed royalties. However, if you are both a royalty taxpayer and an operator of a reporting facility, you may be subject to deemed royalties.

Gas and natural gas by-products

As a reporting facility operator reporting marketable gas or natural gas by-products, you are assessed a deemed royalty if you do not indicate how volumes are allocated.

Facility operators must fully allocate volumes where there is an allocation trigger. The first allocation trigger differs by product.

When you allocate gas or by-products, you are assigning volumes containing the Crown’s royalty share to the stream and owner of those volumes.

Information on allocation triggers is available in Petrinex’s Allocation Triggers Table.

Oil and condensate

As a reporting facility operator reporting oil and condensate, you are assessed a deemed royalty if you have a volumetric imbalance.

For each production month, you must account for oil, as required, and provide volumetric information. This includes data on the production, receipt, disposition, use and storage of oil in a production month.

If you are both a royalty taxpayer and facility operator

If you are both a royalty taxpayer and a facility operator, you may be assessed both a royalty and a deemed royalty.

This is only possible with oil deemed royalties because of the reporting requirement due dates.

Example where you are assessed a deemed royalty

You received an error message for missing volumetric data for the November 2022 production month and did not correct it by the reporting deadline of December 21, 2022. You will be assessed a deemed royalty on January 23, 2023 on your OGD Deemed Royalty account.
In this situation, you need to:

  • Submit the missing volumetric data by the next reporting deadline on January 21, 2023
  • Pay the deemed royalty by the next payment deadline on January 31, 2023 to prevent any interest

Our invoicing system uses the latest information available to calculate royalties on your OGR Royalty account. If you submitted the missing data and paid the deemed royalty, the February 2023 invoice will reverse the deemed royalty charge. You will receive credit for the reversal that you can transfer from your OGD Deemed Royalty account to your OGR Royalty account.

In the above example, if you are both a royalty taxpayer and reporting facility operator, you may receive both a royalty Crown invoice and a deemed royalty for the same production month.

If you are assessed, make sure you correct the Petrinex reporting error that resulted in the deemed royalty assessment. If the error is corrected before the next production month reporting deadline for that error type, the deemed royalty amount will be credited back on your next invoice.

Calculations for deemed royalties

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Calculating deemed royalties for facilities reporting oil

If a reporting facility operator has a volumetric imbalance, the volume that is unaccounted for may be subject to a deemed royalty. For example, if a reporting facility reports 1,000 cubic metres of oil delivered or stored in a production month, 1,000 cubic metres must be reported as received in the production month. A deemed royalty would be calculated using the following formula:

Unaccounted Quantity x Crown Interest (100%) x Royalty Rate (40%) x 120% of Average Price

Unaccounted Quantity: Volumes of oil not accounted for as required in a reporting month.

Note: Condensate produced from a gas well being sold along with oil will be deemed a royalty as if it were oil. This is because Petrinex is unable to distinguish between condensate and oil at a reporting facility when volumes have not yet been allocated back to a well.

Crown Interest: Volumes will be assumed to be 100% Crown owned.  In order for volumes to be recognized as Freehold or Net Profit, imbalances need to be reconciled.

Royalty Rate: Volumes will have a 40% rate.

Price: Volumes will be assumed to have been sold at 120% of the average price of oil sold in B.C. in the same production month. Deemed royalty assessment prices (120% average) will not exceed the highest price for oil sold in the same production month.

 

Calculating deemed royalties for facilities reporting marketable gas (methane)

Deemed royalty assessments for marketable gas are calculated using the following formula:

Unaccounted Quantity x Crown Interest (100%) x Royalty Rate (27%) x Highest Reference Price in B.C.

Unaccounted Quantity: Volume of marketable gas not allocated as required in a reporting month.

Crown Interest: The unaccounted quantity will be assumed to be 100% Crown owned.  In order for volumes to be recognized as Freehold or Net Profit, imbalances need to be reconciled.

Royalty Rate: The unaccounted quantity will be assumed to have the highest rate possible under the Royalty Regulation. The highest rate currently possible is 27%.

Price: The unaccounted quantity will be assumed to have been sold at the highest reference price for marketable gas determined for any producer during the month the gas is treated as having been sold.

 

Calculating deemed royalties for facilities reporting natural gas by-products

A deemed royalty assessment for each natural gas by-product is calculated using the following formulas:

Deemed royalty for natural gas liquids (NGL) = Unaccounted Quantity x Crown Interest (100%) x NGL Royalty Rate (20%) x 120% of Average Price

Deemed royalty for sulphur = Unaccounted Quantity x Crown Interest (100%) x Sulphur Royalty Rate (16.667%) x 120% of Average Price

Unaccounted Quantity: Volume of natural gas by-products not allocated as required in a reporting month. Petrinex will notify us of the unaccounted quantity volume per by-product type:

  • Ethane
  • Propane
  • Butane
  • Pentane
  • Sulphur

Crown interest: The unaccounted quantity volumes will be assumed to be 100% Crown owned. In order for volumes to be recognized as Freehold or Net Profit, imbalances need to be reconciled.

Royalty Rate: The unaccounted quantity will be assumed to have the highest rate possible under the Royalty Regulation.

  • The highest rate currently possible for Natural Gas Liquids is 20%
  • The highest rate currently possible for Sulphur is 16.667%

Price: The unaccounted quantity will be assumed to have been sold at 120% of the average price of natural gas by-products sold in B.C. in the same production month. Deemed royalty assessment prices (120% average) will not exceed the highest price for natural gas by-products sold in the same production month.

Note: If deemed royalty assessment prices (120% average) exceed the highest price for that product type sold in a month, the highest price for that month will be used. This means that each by-product type will have a unique fixed price associated with it.

Invoices for deemed royalties

Deemed royalties are assessed on a Crown Deemed Invoice issued on the 23rd day of Prod+2. Payment is due on the last day of the month that the invoice is issued.

The invoice is delivered to your eTaxBC account the evening of the 23rd day of Prod+2. You can also view your invoice in Petrinex under Ministry Invoices and Statements. See Invoices for oil and natural gas royalties and tax for more information.

Learn what interest applies on deemed royalties.

Application of credits and allowances

Credits and allowances cannot be applied to deemed royalties. Credits and allowances only apply to the calculation of royalties issued to royalty taxpayers.

Contact information

Find out who to contact for your questions about oil and natural gas in B.C.