Indian Oil and Gas Regulations (SOR/2019-196)

Marginal note:Agreement

92 If the request is approved, the Minister must enter into an agreement with the council that includes the information referred to in paragraphs 88(a) to (d) and 90(a) to (d).

Equitable Production of Oil and Gas

Holder’s Obligations

Marginal note:Compensatory royalty

• 93 (1) A subsurface contract holder is obliged to pay Her Majesty in right of Canada, in trust for the relevant First Nation, a compensatory royalty in respect of each triggering well located in an external spacing unit that adjoins a First Nation spacing unit that is in their contract area.

• Marginal note:Royalty for each spacing unit

  (2) A compensatory royalty must be paid in respect of each First Nation spacing unit in the contract area that adjoins the spacing unit in which the triggering well is located.

• Marginal note:Beginning of obligation

  (3) The obligation to pay the compensatory royalty begins on the first day of the month that follows the day on which the offset period ends.

• Marginal note:Offset period

  (4) The offset period begins on the day on which an offset notice is received and ends on the 180th day after that day or

  • (a) if the offset notice is not sent until after confidential information about the well is made public, the 90th day after that day; or

  • (b) if the offset period has been extended under paragraph 5(1)(d) of the Act, the day on which the extension expires.

Offset Notice

Marginal note:Offset notice

• 94 (1) If the Minister becomes aware of the existence of a triggering well, the Minister must send an offset notice to every subsurface contract holder that is obliged to pay a compensatory royalty under section 93.

• Marginal note:Absence of contract

  (2) If any lands in a First Nation spacing unit that adjoins a spacing unit in which a triggering well is located are not subject to a subsurface contract, the Minister must

  • (a) send the council a notice of the existence of the triggering well;

  • (b) send an offset notice to any person that becomes a subsurface lease holder in respect of those lands; and

  • (c) send an offset notice to any person that becomes a permit holder in respect of those lands one year after the effective date of the permit.

• Marginal note:Confidential information

  (3) If, on the day on which an offset notice is required to be sent, any information about a triggering well is confidential under the laws of the relevant province, the Minister

  • (a) must send, to every contract holder to which the offset notice will be sent, a notice of the existence of the triggering well and the information set out in paragraphs 95(1)(a) and (c) in respect of that well; and

  • (b) must not send the offset notice until the Minister becomes aware that the confidential information has been made public.

Marginal note:Information included in notice

• 95 (1) The offset notice must include the following information:

  • (a) the name of the subsurface contract holder, the contract number and the holder’s percentage share in the contract;

  • (b) a description of the lands in the contract area that are subject to the notice;

  • (c) the unique well identifier of the triggering well;

  • (d) the area of the First Nation lands in the spacing unit in which the triggering well is located, expressed as a percentage of the area of that spacing unit;

  • (e) a description of the external spacing unit in which the triggering well is located and the offset zone;

  • (f) in the case of a horizontal or multilateral triggering well, the total length of the well, the total length of the horizontal section of the well and the length of the section of the well that is producing from the external spacing unit;

  • (g) in the case of a deviated well that is producing from more than one spacing unit, the total length of the well and the length of the section of the well that is producing from the external spacing unit;

  • (h) the offset period; and

  • (i) statements indicating that

    • (i) the spacing unit in which the triggering well is located adjoins the First Nation spacing unit in the contract area described in paragraph (b),

    • (ii) the obligation to pay a compensatory royalty begins on the first day of the month that follows the day on which the offset period ends,

    • (iii) the compensatory royalty must be paid on or before the 25th day of the third month after the month in which the obligation to pay it begins and, subsequently, on or before the 25th day of each subsequent month, and

    • (iv) the obligation to pay the compensatory royalty ends in any of the circumstances set out in subsection 100(1).

• Marginal note:Notice to council

  (2) The Minister must send the council a copy of the offset notice and, when the offset period ends, a notice indicating that the holder’s obligation to pay a compensatory royalty has begun.

Marginal note:No obligation

• 96 (1) The obligation to pay a compensatory royalty does not begin if, during the offset period, the subsurface contract holder submits to the Minister information that establishes any of the following circumstances:

  • (a) the triggering well is not draining from the offset zone referred to in the offset notice;

  • (b) the offset zone of the triggering well has been abandoned, as shown in the records of the provincial authority;

  • (c) an offset well is producing from the offset zone;

  • (d) the spacing unit in which the triggering well is located no longer adjoins the First Nation spacing unit referred to in the offset notice;

  • (e) the offset zone in the First Nation spacing unit is subject to a unit agreement under which oil or gas is being or is deemed to be produced;

  • (f) the triggering well is subject to a storage agreement that has been approved by the provincial authority.

• Marginal note:Notice to holder

  (2) After determining whether a circumstance set out in subsection (1) has been established, the Minister must send the holder a notice of his or her determination.

• Marginal note:Surrender

  (3) A holder is not obliged to pay a compensatory royalty if, during the offset period, they surrender their rights or interests down to the base of the offset zone in the spacing unit to which the offset notice applies, except for any rights or interests in a zone from which a well is productive or that is subject to a unit agreement or to a storage agreement that has been approved by the provincial authority.

• Marginal note:Notice to council

  (4) If the holder has established a circumstance set out in subsection (1) or has surrendered their rights or interests under subsection (3), the Minister must send the council a notice indicating that the holder’s obligation to pay a compensatory royalty is relieved and the reasons that it is relieved.

Calculation and Payment of Compensatory Royalty

Marginal note:Compensatory royalty

• 97 (1) The monthly compensatory royalty that is payable by a subsurface contract holder is

  • (a) in the case of a vertical triggering well or deviated triggering well that is producing from a single spacing unit, an amount equal to the amount that would have been payable by the holder as a royalty for that month if the triggering well were producing from the adjoining First Nation spacing unit that is in their contract area; and

  • (b) in the case of a horizontal triggering well, multilateral triggering well or deviated triggering well that is producing from more than one spacing unit, an amount equal to the percentage, calculated in accordance with the following formula, of the amount referred to in paragraph (a):

    (L/T) × 100

    where

    L

    is the length of the section of the triggering well that is located in the adjoining external spacing unit and is capable of producing oil or gas from the offset zone, and

    T

    is the total length of the section of the well that is capable of producing oil or gas.

• Marginal note:Prorated amount

  (2) If the triggering well is located in an external spacing unit that contains First Nation lands, the monthly compensatory royalty that is payable is an amount calculated in accordance with the formula

  C × (100 – I)/100

  where

  C

  is the amount of the compensatory royalty that is payable under subsection (1); and

  I

  is the area of the First Nation lands in the spacing unit, expressed as a percentage of the area of that spacing unit.

• Marginal note:Calculation of compensatory royalty

  (3) For the purpose of calculating the monthly compensatory royalty,

  • (a) the volume of oil, gas or condensate to be used in the royalty formula is the volume of oil, raw gas or condensate that was produced in the month by the triggering well, as shown by the records of the provincial authority; and

  • (b) the price to be used, in respect of that month, is

    • (i) in the case of oil, in Saskatchewan, the price indicated in the Monthly Crude Oil Royalty/Tax Factor History, published by the Ministry of Energy and Resources, and, in the other provinces, the monthly par price for light, medium, heavy or ultra heavy oil, as the case may be, published by Alberta’s Department of Energy,

    • (ii) in the case of gas, in Saskatchewan, the price indicated in the Monthly Natural Gas Royalty/Tax Factor History, published by the Ministry of Energy and Resources, and, in the other provinces, the Gas Reference Price in the monthly information letter Natural Gas Royalty Prices and Allowances, published by Alberta’s Department of Energy, and

    • (iii) in the case of condensate, the Pentanes Plus Reference Price in the monthly information letter Natural Gas Royalty Prices and Allowances, published by Alberta’s Department of Energy.

• Marginal note:Compensatory royalty — confidential well

  (4) In the case of an offset notice sent under paragraph 94(3)(b), the month referred to in paragraph (3)(a) for the first monthly compensatory royalty is the month whose first day follows the period that begins on the day on which the information sent under paragraph 94(3)(a) is received and ends on the 180th day after that day. For each subsequent monthly compensatory royalty, the month is each subsequent month.

• Marginal note:Heating value

  (5) If the royalty calculation requires the conversion of a price in dollars per gigajoule (GJ) into a price in dollars per 1000 m³, the heating value is 37.7 GJ/1000 m³.

• Marginal note:No deduction

  (6) No deduction for costs or allowances is to be made in the calculation of the compensatory royalty.

• Marginal note:Transitional provision

  (7) This section does not apply to a compensatory royalty owing under the Indian Oil and Gas Regulations, 1995.

Marginal note:Calculation and payment of compensatory royalty

98 On or before the 25th day of the third month after the month in which the obligation to pay the compensatory royalty begins, and on or before the 25th day of each subsequent month, the subsurface contract holder must pay the Minister the monthly compensatory royalty and, in the prescribed form, provide the information that is required to verify its calculation.

Marginal note:Amended spacing unit

99 The obligation to pay a compensatory royalty continues despite any change in the size of the First Nation spacing unit or the external spacing unit in which the triggering well is located if the two spacing units remain adjoined.

Marginal note:End of obligation to pay

• 100 (1) The obligation to pay a compensatory royalty ends if the subsurface contract holder

  • (a) establishes any of the circumstances set out in subsection 96(1); or

  • (b) surrenders their rights or interests down to the base of the offset zone in the spacing unit to which the offset notice applies, except for any rights or interests in a zone from which a well is productive or that is subject to a unit agreement or to a storage agreement that has been approved by the provincial authority.

• Marginal note:Notice to holder

  (2) After determining whether a circumstance set out in subsection 96(1) has been established, the Minister must send the holder a notice informing them of his or her determination and, if the obligation ends, the day on which it ends.

• Marginal note:Final day of obligation

  (3) The obligation to pay a compensatory royalty ends

  • (a) if the holder sends the Minister a notice establishing a circumstance set out in subsection 96(1), on the first day of the month in which the Minister receives the notice; or

  • (b) if the holder has surrendered their rights or interests, on the first day of the month that follows the month in which the Minister receives a notice of the surrender.

• Marginal note:Notice to council

  (4) If the obligation to pay a compensatory royalty ends, the Minister must send the council a notice indicating that it has ended and the reasons that it has ended.

Marginal note:Exception

101 Subject to subsection 97(7), sections 93 to 100 and 111 apply to any subsurface contract that was granted under the Indian Act or the Act.

Offset Wells

Marginal note:Failure to produce

• 102 (1) If an offset well fails to produce any oil or gas for three consecutive months after the offset period has ended, the subsurface contract holder must pay a compensatory royalty in respect of the triggering well whose production was to be offset.

• Marginal note:Beginning of compensatory royalty obligation

  (2) The obligation to pay the compensatory royalty begins on the first day of the month that follows the three-month period.

• Marginal note:Notice to council

  (3) The Minister must send the council a notice indicating that the holder’s obligation to pay a compensatory royalty has begun.

Service Wells

Marginal note:Prior approval

• 103 (1) A well must not be used as a service well without the prior approval of the Minister.

• Marginal note:Application for approval

  (2) The application for approval must be in the prescribed form, be accompanied by a copy of the provincial authority’s approval of the service well and include the following information:

  • (a) a description of the well;

  • (b) a detailed description of the proposed uses of the well and the proposed uses of any related facilities; and

  • (c) the bonus and the annual compensation to be paid for any disposal rights.

• Marginal note:Approval

  (3) The Minister must approve the proposed uses of the service well if

  • (a) the application is made in accordance with subsection (2);

  • (b) the approval of the council has been obtained; and

  • (c) the approval will benefit the relevant First Nation.

• Marginal note:Notice to Minister

  (4) The contract holder must send the Minister notice of any changes in the provincial authority’s approval referred to in subsection (2).

Marginal note:Exception

104 Section 103 does not apply to a service well that is part of a project that has been approved by the provincial authority or a bitumen recovery project that has been approved by the Minister.