B.C. oil and natural gas royalty transition impact on existing wells

As a result of government’s Royalty Review project, royalty rates on existing oil and gas wells are changing. How allowances and deductions apply are also changing.

For the transition period, existing wells are defined as:

• Gas wells with a spud date before September 1, 2022
• Oil wells with a spud date before September 1, 2024

For these wells, the current royalty framework applies until December 31, 2026.

On January 1, 2027, the new royalty framework will take effect.

For existing gas wells that are using the deep well deductions, the deep well deductions continue to be available for those existing wells until September 1, 2027.

For the low productivity, marginal and ultra-marginal royalty programs, on December 31, 2026, existing gas wells with a spud date before September 1, 2022, stop getting these reductions and start using the new price-sensitive royalty rates. The proposed new rates depend on commodity price and range from 5 to 40 percent.

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Transition provisions for existing wells

Existing wells with a spud date before September 1, 2022, continue to pay the royalty rate structure in effect prior to September 1, 2022 until the end of the transition period, and then switch to the new royalty framework on January 1, 2027.

The producer cost of service allowance, gas cost allowance and transportation cost deductions remain during the transition period for existing wells. 

When the new royalty framework is implemented, a gathering and processing allowance and drilling cost allowance replace all existing cost allowances. The new gathering and processing allowance is still under development.

During the transition period, existing gas wells with a spud date prior to September 1, 2022, can continue to participate in the low productivity, marginal and ultra-marginal royalty programs.

Effective January 1, 2027, existing wells transition to the new price-sensitive royalty rates and no longer receive any royalty rate reductions.