Crown Share Adjustment Payments Regulations (SOR/2012-113)

Interpretation

• 1 (1) The following definitions apply in these Regulations.

  Act

  Act means the Canada-Nova Scotia Offshore Petroleum Resources Accord Implementation Act. (Loi)

  conversion date

  conversion date means the day that is 30 days after the day on which the Board’s fundamental decision to approve the development plan is implemented. (date de conversion)

  gross revenues

  gross revenues in relation to a project, includes oil, natural gas and NGL production revenues as determined using the prices of those resources at the project boundary, insurance proceeds, asset sale proceeds and revenues derived from the provision of a service for another project in relation to the production of oil, natural gas and NGL in the offshore area. (recettes brutes)

  income tax payable

  income tax payable means the corporate income tax payable for a year under the Income Tax Act, Chapter 217 of the Revised Statutes of Nova Scotia, 1989, on the Provincial Crown share of the project. (impôt sur le revenu à payer)

  NGL

  NGL means natural gas liquids — including propane, butane, ethane and condensates — derived from the production of natural gas. (LGN)

  project boundary

  project boundary means the point at which the product leaves the infrastructure as set out in the development plan for the project. (limite du projet)

  Provincial Crown share

  Provincial Crown share means 12.5% in the case of natural gas and NGL production and 6.25% in the case of oil production. (part de la Couronne provinciale)

• (2) The calculations set out in sections 4 and 6 shall be made in respect of each of the oil, natural gas and NGL components of a project, if the project consists of at least 2 of those components.

Forecasts

2 Any forecast referred to in these Regulations, other than one provided in the development plan under section 7, shall be the average of the forecasts made closest to the date of conversion by three independent organizations designated jointly in writing by the Federal Minister and the Provincial Minister.

Annual Average Cost of Borrowing

• 3 (1) For the purposes of the definition average annual cost to the Province of borrowing money in subsection 246(1) of the Act, the average annual rate of interest is equal to

  • (a) the weighted average of the effective yield on all outstanding debt instruments, including promissory notes, issued by the Province during the 12-month period immediately preceding the date of calculation of the rate of return referred to in subsection 247(2) of the Act adjusted for the effect of any debt swap arrangements in effect during that period; or

  • (b) if the Province has issued no debt instruments in that period, the average of long-term Government of Canada benchmark bond yields for that period.

• (2) The Provincial Minister shall provide to the Federal Minister a list, certified by an independent auditor, of the debt instruments that includes their dates of issuance, their dates of maturity and their effective yields.

Crown Share Adjustment Payment

Profit Realized

4 For the purposes of subsection 247(1) of the Act, the profit realized for a year is equal to the amount determined by the following formula:

Information Required to Determine Profit Realized

• 5 (1) The operator of a project shall, over the life of a project beginning on the day on which the development plan is submitted under subsection 143(2) of the Act, provide the following information to the Federal Minister no later than June 30th of each year for the preceding year:

  • (a) the project operating costs;

  • (b) the project capital costs categorized in accordance with their tax treatment; and

  • (c) at the request of the Federal Minister, any other information necessary to determine the profit in relation to a project or to verify the accuracy and completeness of the information provided under this section.

• (2) An interest holder, as defined in section 49 of the Act, shall, over the life of a project beginning on the day on which the development plan is submitted under subsection 143(2) of the Act, provide the following information to the Federal Minister no later than June 30 of each year for the preceding year:

  • (a) the project gross revenues;

  • (b) any information provided under the Offshore Petroleum Royalty Act for the purpose of the calculation of the royalties payable under that Act in respect of the project; and

  • (c) at the request of the Federal Minister, any other information necessary to determine the profit in relation to a project or to verify the accuracy and completeness of the information provided under this section.

• (3) If information provided for any year is inaccurate or incomplete, the Federal Minister shall, as soon as feasible, request accurate and complete information.

Rate of Return of the Project

• 6 (1) For the purposes of subsection 247(2) of the Act, the rate of return in respect of the project that would have been obtained on behalf of Her Majesty in right of the Province is equal to the interest rate that would make the net present value of the provincial cash flow, calculated over the life of the project beginning on the conversion date, equal to zero.

• (2) The provincial cash flow for a year is equal to the amount determined by the following formula:

  A × (B₁ – C₁) – D₁

  where

  A

  is the Provincial Crown share;

  B₁

  is the gross revenues of the project for the year determined under section 8;

  C₁

  is the sum, for the year, of the project operating and capital costs, as specified in the development plan approved in respect of the project under section 143 of the Act converted to current dollars using the forecasted Canadian gross domestic product (GDP) deflator in that year, and the project royalties that would be payable under the Offshore Petroleum Royalty Act; and

  D₁

  is the sum, for the year, of the acquisition payment determined under subsection 10(1) and the income tax payable.

• (3) The calculation made under subsection (2) shall be based on the mean production scenario provided in the development plan.

• (4) If the Federal Minister determines that the rate of return in respect of a project meets the requirements of subsection 247(2) of the Act, no further determination shall be made under that subsection due to an amendment to the development plan unless the amendment is in respect of a new pool or field.

Information Required in Development plan

7 For the purposes of paragraph 143(3)(b) of the Act, Part II of the development plan shall include,

• (a) for a mean production scenario,

  • (i) a forecast of the annual project operating and capital costs over the life of the project in constant dollars and categorized in accordance with their income tax treatment,

  • (ii) the pre-development costs in constant dollars,

  • (iii) the forecast volume of annual production of NGL and crude oil over the life of the project in cubic metres, and

  • (iv) the forecast volume of annual production of natural gas over the life of the project in gigajoules;

• (b) the forecast annual difference over the life of the project in constant US dollars per cubic metre between

  • (i) the crude oil price at the project boundary and the West Texas Intermediate (WTI) crude oil price at Cushing, and

  • (ii) the NGL price at the project boundary and the WTI crude oil price at Cushing;

• (c) the forecast annual difference over the life of the project in constant US dollars per gigajoule between the natural gas price at the project boundary and the natural gas price at Henry Hub; and

• (d) the forecast of any other annual gross revenues over the life of the project in respect of the project in constant dollars.

Project Gross Revenues — Rate of Return

• 8 (1) For the purposes of subsection 6(2), the project gross revenue for a year is equal to the sum of

  • (a) the forecast volume of the crude oil production in the year multiplied by the forecast crude oil price in that year;

  • (b) the forecast volume of natural gas production in the year multiplied by the forecast natural gas price in that year;

  • (c) the forecast volume of NGL production in the year multiplied by the forecast NGL price in that year; and

  • (d) the forecast of any other gross revenues in respect of the project in the year multiplied by the forecast Canadian GDP deflator for the year.

• (2) The forecast crude oil, natural gas or NGL price for a year is equal to the amount determined by the following formula:

  (P + E) × I × PFX

  where

  P

  is

  • (a) in the case of NGL or crude oil, the forecast WTI crude oil price at Cushing in constant US dollars per cubic metre; or

  • (b) in the case of natural gas, the forecast natural gas price at Henry Hub in constant US dollars per gigajoule;

  E

  is

  • (a) in the case of NGL or crude oil, the forecast difference in constant US dollars per cubic metre between the crude oil price or the NGL price, as the case may be, at the project boundary and the WTI crude oil price at Cushing; or

  • (b) in the case of natural gas, the forecast difference in constant US dollars per gigajoule between the natural gas price at the project boundary and the natural gas price at Henry Hub;

  I

  is the forecast US GDP deflator for the year; and

  PFX

  is the forecast rate for the conversion of a US dollar into a Canadian dollar for the year.

Provincial Capital Loan Repayment

• 9 (1) The provincial capital loan repayment is equal to the amount determined by the following formula:

  A × (B – C)

  where

  A

  is the Provincial Crown share;

  B

  is the gross revenue of the project for the year; and

  C

  is the sum, for the year, of project operating costs, project capital costs and the project royalties payable under the Offshore Petroleum Royalty Act.

• (2) The provincial capital loan repayments shall be considered during the period beginning in the year in which the cash flow first becomes positive and ending in the year in which the sum of the repayments considered is equal to the cumulative cash flow, plus interest, from the conversion date until the year prior to the year in which cash flow first becomes positive. Any years of negative cash flow after this period shall not be considered for the purposes of determining Crown share adjustment payments.

• (3) The interest referred to in subsection (2) shall be calculated annually using either

  • (a) the weighted average of the effective yield on all outstanding debt instruments, including promissory notes, issued by the Province during the year adjusted for the effect of any debt swap arrangements in effect during that year; or

  • (b) if the Province has issued no debt instruments in that year, the average of long-term Government of Canada benchmark bond yields for that year.

• (4) In this section “cash flow” means the amount determined by the following formula:

  A × (B – C) – D₂

  where

  A

  is the Provincial Crown share;

  B

  is gross revenue of the project for the year;

  C

  is equal to, for the purpose of

  • (a) the description of D in section 4, the sum, for the year, of the project operating and capital costs, and the project royalties payable under the Offshore Petroleum Royalty Act; and

  • (b) the description of D₁ in subsection 6(2), the sum, for the year, of the project operating and capital costs, as specified in the development plan approved in respect of the project under section 143 of the Act and converted to current dollars using the forecasted Canadian GDP deflator in that year, and the project royalties that would be payable under the Offshore Petroleum Royalty Act; and

  D₂

  is the income tax payable for the year.

Acquisition Payments

• 10 (1) The acquisition payment for a year is equal to one half of the net revenue for the year.

• (2) The net revenue is equal to the amount determined by the following formula:

  A × (B₃ – C₃)

  where

  A

  is the Provincial Crown share;

  B₃

  is, for the purposes of

  • (a) the description of D in section 4, the gross revenues of the project for the year; and

  • (b) the description of D₁ in subsection 6(2), the gross revenues of the project determined under section 8 for the year.

  C₃

  is, for the purposes of

  • (a) the description of D in section 4, the sum, for the year, of the project operating and capital costs, and the project royalties payable under the Offshore Petroleum Royalty Act; and

  • (b) the description of D₁ in subsection 6(2), the sum, for the year, of the project operating and capital costs, as specified in the development plan approved in respect of the project under section 143 of the Act and converted to current dollars using the forecasted Canadian GDP deflator in that year, and the project royalties that would be payable under the Offshore Petroleum Royalty Act.

• (3) The acquisition payments shall be considered during the period beginning in the year in which the cumulative net revenue since the conversion date becomes positive and ending the year in which the sum of the acquisition payments considered is equal to the sum of the incentives — adjusted in accordance with the following formula — that were paid in respect of the project under the Petroleum Incentive Program Act, chapter 107 of the Statutes of Canada, 1980–81–82–83, from the conversion date, plus simple interest:

  2.5 × A × H × [1 + 0.01n]

  where

  A

  is the Provincial Crown share; and

  H

  is 25% of the eligible costs and expenses in respect of which an incentive was made under the Petroleum Incentive Program Act chapter 107 of the Statutes of Canada, 1980–81–82–83, and which have not already been considered in the calculation of a Crown share adjustment payment in respect of another project; and

  n

  is the number of months in the period beginning in the month following the month in which the incentive referred to in element H was made and ending in the month in which the conversion date falls.

• (4) Simple interest shall be calculated annually based on the annual average of long-term Government of Canada benchmark bond yields.

Fiscal Incentives and other Benefits

• 11 (1) For the purposes of paragraph 247(3)(b) of the Act, a copy of any proposed fiscal incentive or other benefit shall be provided to the Provincial Minister for approval.

• (2) The Provincial Minister has 60 days from the date of reception of the copy of the proposed fiscal incentive or other benefit to approve it. However, the deadline may, on request, be extended by up to 30 days if circumstances beyond the control of the Provincial Minister justify the extension. If there is no response within the deadline, the Provincial Minister shall be considered to have given his or her approval.

12 If the aggregate amount of fiscal incentives and other benefits for a project for a fiscal year is greater than the Crown share adjustment payment for the project for the year, the difference shall be included in the aggregate amount of fiscal incentives and other benefits for the following fiscal year.

Delay of Crown Share Adjustment Payment

13 If the information referred to in subsection 5(1) or (2) is provided after June 30, the Crown share adjustment payment may be made after the deadline set out in subsection 247(4) of the Act.

Recovery of Overpayment

14 The amount of any overpayment made for a fiscal year shall be subtracted from the Crown share adjustment payment for subsequent fiscal years until all of the overpayment has been recovered.

Payment of Underpayment

15 If the Federal Minister determines that there has been an underpayment of any Crown share adjustment payment for a fiscal year, the amount of the underpayment shall be added to the Crown share adjustment payment for the fiscal year following the determination.

Coming into Force

16 These Regulations come into force on the day on which they are registered.