The document outlines an amendment to the Petroleum and Natural Gas Royalty and Freehold Production Tax Regulation, B.C. Reg. 495/92, set to take effect on September 1, 2024. This amendment, enacted by the Lieutenant Governor with the advice and consent of the Executive Council, primarily focuses on adjusting royalty rates, production tax percentages, and the producer cost of service allowances for oil and gas well events during specified production periods.

One key adjustment involves the definition of the “initial production period.” For gas well events, this period starts on the first day of the first producing month and ends when the gas well reaches 8,760 production hours. Similarly, for oil well events, the initial production period ends when the well reaches 4,380 production hours. Furthermore, the term “production hour” now applies to both gas and oil well events, updating the previous language that only referred to gas wells.

Changes to the producer cost of service allowance are also significant. The allowance for gas well events with a spud date on or after September 1, 2022, is set to zero during the initial production period. This same adjustment applies to oil well events with a spud date on or after September 1, 2024. Essentially, these changes eliminate the ability for producers to claim cost allowances during the early production phases of both oil and gas wells, preventing them from offsetting certain costs during this time.

A new subsection in Section 5 introduces a 5% royalty or tax rate for oil produced from an oil well event with a spud date on or after September 1, 2024, during the initial production period. This reduced rate does not apply to certain specified classes of oil. This amendment ensures that oil well events benefit from a reduced royalty rate during their initial production phase until the well reaches the required number of production hours.

Section 6 extends these adjustments to gas well events as well. During the initial production period of an oil well event, a 5% royalty or tax rate will also apply to natural gas and its by-products. For gas well events, a two-phase structure is introduced. After the initial production period, a 5% royalty or tax rate will continue for a subsequent period, ending once the gas well reaches an additional 3,647 production hours. This creates a prolonged period in which producers benefit from a lower tax rate, incentivizing early production for both gas and oil well events.

To qualify for the 5% royalty rate in the subsequent period after the initial production phase, a gas well must meet several conditions. These include having a spud date on or after September 1, 2024, producing natural gas during the initial production period, and meeting certain economic criteria, which are calculated using a specified formula. This formula ensures that only gas wells that meet efficiency and economic benchmarks will benefit from the extended lower royalty rates.

British Columbia (571/2024) September 3, 2024