Frontier Lands Petroleum Royalty Regulations

9 (1) A return allowance of an interest holder of a production licence in relation to a project shall be calculated for the month in which the project commencement date falls and every month thereafter, up to but not including the month of payout, where the interest owner or the representative of the interest owner has notified the Minister of the month in which the interest owner proposes to commence production for the purpose of sale.

(2) The month proposed by the interest owner for the commencement of production for the purpose of subsection (1) shall be consistent with the information contained in the development plan for the project approved by the Minister pursuant to section 5.1 of the Oil and Gas Production and Conservation Act.

(3) Subject to subsections (4) and (5), the return allowance of an interest holder in relation to a project in respect of any month for which a calculation is required by subsection (1) shall be equal to the product of

• (a) (1.1 + X)^1/12 - 1, where X equals the long term government bond rate

and

• (b) the amount by which the adjusted cumulative cost base of the interest holder in relation to the project in respect of that month exceeds the cumulative adjusted gross revenues of the interest holder in relation to the project in respect of that month.

(4) Subject to subsection (5), where production of petroleum from project lands for the purpose of sale does not begin on or before the proposed month referred to in subsection (1), the return allowance of an interest holder for each month in the period beginning with the month immediately following the proposed month and ending with the month immediately preceding the month in which such production begins shall be equal to the product of

• (a) the ratio that the inflation index for the month bears to the inflation index for the immediately preceding month, and

• (b) the amount by which the adjusted cumulative cost base of the interest holder in relation to the project in respect of that month exceeds the cumulative adjusted gross revenues of the interest holder in relation to the project in respect of that month.

(5) For the purpose of calculating the return allowance of an interest holder for a month, each allowed capital cost of the interest holder shall be adjusted as follows:

• (a) where the cost was incurred before the project commencement date, it shall be multiplied by the ratio that the inflation index for the month in which the project commencement date falls bears to the inflation index for the month in which the allowed capital cost was incurred; and

• (b) where the cost is a qualified frontier exploration expense, it shall be reduced by the amount of any credit that has been deducted under paragraph 3(1)(c) to determine the prescribed royalty payable in a preceding month where that credit includes an investment royalty credit that is calculated on the basis of that expense.

(6) For the purpose of paragraph (5)(b), where the credit deducted under paragraph 3(1)(c) is less than the amount of the investment royalty credit balance in respect of the month in which the prescribed royalty is payable, the credit shall be considered to be calculated on the basis of expenses in the order in which they were incurred.