Credits and Exemptions

The following oil production is exempt from payment of royalty and tax:

• Oil that, in the opinion of the royalty administrator, was lost without fault on the part of the producer and for which the producer did not receive compensation.
  
  
• Oil that is produced in the first 36 producing months from a new oil pool and which is not more than either:
  1. the monthly allowable production multiplied by 36
  2. 11,450 cubic meters

Please see Section 4.3 of the Oil and Gas Royalty Handbook for more information.

The following gas production is exempt from payment of royalty and tax:

1. Natural gas and natural gas by-products that, in the opinion of the royalty administrator, was lost without fault on the part of the producer and for which the producer did not receive compensation. Compensation for the loss, such as insurance proceeds, is subject to royalty or tax
   
   
2. Natural gas or natural gas by-products used for oil and natural gas production, for drilling purposes, or for injection into the formation from which they were produced. The locations of production and use must be held by the same producer or be within the same unitized operation.
   
   
3. Volumes from wells meeting conditions of discontinued incentive programs. See the Handbook Section 5.9-14 for more information on discontinued incentive programs.
   
   
4. Natural gas and natural gas by-products produced from a deep discovery well event. The Deep Discovery Well Exemption provides royalty relief to encourage higher-risk exploration drilling. See Section 5.9-13 in the Handbook for more information on the Deep Discovery Well Exemption.

The Deep Well and Deep Re-Entry Credits are designed to approximately reflect higher drilling and completion costs.

Deep well credits can be used only to reduce royalties on production of gas and by-products from deep well events in that well. Deep Well Credits cannot be deducted from royalties on production from well events in the same well that are not deep well events or from well events in other wells.

When we receive BC-11 reports with True Vertical Depth and Measured Depth to Top of Pay indicating the well event is a deep well event, we use this and other information to calculate the amount of the Deep Well Credit. An e-mail is then sent to each producer showing their share of the credit.

Producers should report all marketable gas production from deep well events on Marketable Gas and By-Product Producer Allocations (BC-08 reports). Gas royalty invoices for the deep well events will show the amount of Deep Well Credit used to reduce royalties on the invoice, and the remaining balance of the credit.