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

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.

Marginal note:Exception

105 Section 103 does not apply to a disposal rights agreement that was entered into before these Regulations came into force.

Pooling, Production Allocation and Unit Agreements

Marginal note:Single spacing unit production

• 106 (1) If a well is producing from First Nation lands, the Minister must determine the percentage of production from the well to be allocated to each contract in the spacing unit from which the well is producing, based on the area of the First Nation lands that are subject to each contract, in proportion to the area of the spacing unit.

• Marginal note:Notice to holder and council

  (2) The Minister must send each holder and the council a notice indicating the percentage of the production that is allocated to each contract.

Marginal note:Multiple spacing unit production

• 107 (1) If a well is producing from more than one spacing unit and the lands from which it is producing are not entirely First Nation lands or are not subject to a single contract, the Minister must determine the percentage of production from the well to be allocated to the First Nation lands and to each contract, based on the criteria used by the provincial authority in making such allocations.

• Marginal note:Notice to holder and council

  (2) The Minister must send each holder and the council a notice indicating the percentage of the production that is allocated to the First Nation lands and to each contract.

Marginal note:Unit agreement

• 108 (1) The Minister may, with the prior approval of the council, enter into a unit agreement.

• Marginal note:Allocation of production

  (2) The calculation of royalties payable under a contract that is subject to a unit agreement must be based on the production allocated to each tract as specified in the agreement.

Surrender, Default and Cancellation

Marginal note:Surrender of subsurface rights or interests

• 109 (1) A subsurface contract holder may surrender their rights or interests under the contract, in whole or in part, by sending the Minister a notice of surrender in the prescribed form.

• Marginal note:Partial surrender of subsurface rights or interests

  (2) In a partial surrender of subsurface rights or interests,

  • (a) all the rights and interests in a spacing unit must be surrendered; and

  • (b) the rent for subsequent years is reduced in proportion to the reduction of the lands that are subject to the contract, to a minimum of $100.

• Marginal note:Notice to council

  (3) When rights or interests under a subsurface contract are surrendered, the Minister must send the council a copy of the notice of surrender and, in the case of a partial surrender, a copy of the amended contract.

Marginal note:Surrender of surface rights or interests

• 110 (1) A surface contract holder may surrender their rights or interests under the contract, in whole or in part, by applying in the prescribed form for the Minister’s approval.

• Marginal note:Copy to council

  (2) The Minister must send the council a copy of the application.

• Marginal note:Approval

  (3) The Minister must approve the surrender if

  • (a) the holder is not in default under the contract, these Regulations or an order given under the Act;

  • (b) the Minister and the council have inspected the contract area to be surrendered and the Minister has confirmed that the remediation and reclamation of the surface in that area are satisfactory; and

  • (c) in the case of a partial surrender, the boundaries of the remaining contract area continue to meet the requirements of these Regulations and the partial surrender approval application fee set out in Schedule 1 has been paid.

• Marginal note:Adjusted rent

  (4) If the surrender of rights or interests under a surface contract is partial, the rent for subsequent years is reduced in proportion to the reduction of the lands that are subject to the contract. However, the rent must be no less than the rent payable for 1.6 hectares.

• Marginal note:Notice to council

  (5) If the surrender of rights or interests under a surface contract is approved, the Minister must send the council a notice to that effect and, in the case of a partial surrender, a copy of the amended contract.