Frontier Lands Petroleum Royalty Regulations
SCHEDULE II(Subsection 2(1))Determination of Revenues and Allowances
Interpretation
1 In this Schedule,
- allowed operating costs
allowed operating costs of an interest holder of a production licence in relation to a project in respect of a period means the allowed operating costs of the project where there is only one interest holder or, where there is more than one interest holder, the allowed operating costs allocated to that interest holder that are
(a) described and calculated in accordance with section 7 of this Schedule, and
(b) incurred or payable in that period; (frais d’exploitation déductibles)
- average capital
average capital, in respect of a period, means the sum of the average net capital for the period, the land value and the working capital allowance for the period; (capital moyen)
- average net capital
average net capital, in respect of a period, means the sum of the opening net capital and closing net capital for the period divided by two; (capital net moyen)
- average spare parts inventory
average spare parts inventory, in respect of a period, means the sum of the undepreciated book value of spare parts for the facility at the beginning of the period and the undepreciated book value of the spare parts for the facility at the end of the period divided by two; (stock moyen des pièces de rechange)
- closing net capital
closing net capital, in respect of a period, means the book value, before depreciation, at the end of the period, of all depreciable assets forming part of or permanently used at a facility at the beginning of the period plus 101% of the book value, before depreciation, of all depreciable assets acquired during the period and forming part of or permanently used at the facility at the end of the period, less all depreciation allowances in respect of those assets for that period and the preceding periods; (capital net de fermeture)
- depreciable assets
depreciable assets means property in respect of which capital cost allowances may be deducted under the Income Tax Act, as amended from time to time; (bien amortissable)
- facility
facility means a gas plant or transportation facility; (installation)
- gas plant
gas plant means a facility for processing gas to produce residue gas or gas plant products but does not include facilities for putting unprocessed gas into marketable condition; (usine de traitement du gaz)
- gas plant products
gas plant products means separate marketable elements, compounds or mixtures, other than residue gas, whether in liquid, gaseous or solid form, resulting from gas processing; (produits gaziers)
- gas processing
gas processing means any process designed to remove elements or compounds from gas, including absorption, adsorption and refrigeration, but does not include field processes that normally take place on project lands for the purpose of putting unprocessed gas into marketable condition, such as natural pressure reduction, mechanical separation, heating, cooling, dehydration and compression; (traitement du gaz)
- land value
land value means the acquisition cost of land on which a facility is permanently located; (valeur foncière)
- opening net capital
opening net capital, in respect of a period, means the book value, before depreciation, at the beginning of the period, of all depreciable assets forming part of or permanently used at a facility at the beginning of the period, less all depreciation allowances in respect of those assets for the preceding periods; (capital net d’ouverture)
- period
period means a calendar year or, where the operation of a facility begins on a day other than January 1 in any calendar year or ends on a day other than December 31 in any calendar year, that portion of the calendar year during which the facility was in operation; (période)
- residue gas
residue gas means gas resulting from gas processing and consisting principally of methane; (gaz résiduaire)
- return on average capital
return on average capital, in respect of a period, means an amount equal to the average capital for the period multiplied by that percentage equal to five per cent plus the average of the long-term government bond rate for that period; (rendement du capital moyen)
- working capital allowance
working capital allowance, in respect of a period, means an amount equal to the sum of 110 per cent of the operating costs divided by six, and the average spare parts inventory for a facility. (déduction pour fonds de roulement)
Determination of Gross Revenues
2 The gross revenues of an interest holder from petroleum produced from project lands are
(a) where the petroleum is sold by the interest holder to a purchaser with whom the interest holder is dealing at arm’s length, the aggregate of
(i) the amount of money and other consideration payable to the interest holder for the petroleum,
(ii) all amounts payable to or on behalf of the interest holder by the purchaser in respect of costs or expenses that by industry custom are normally paid by the interest holder, and
(iii) in the case of a sale under a take or pay agreement, the amount, if any, by which the fair market value of the petroleum, as of the last day of the month preceding the month in which the prescribed royalty is due, exceeds the aggregate of the amounts described in subparagraphs (i) and (ii),
less the sum, not exceeding 95 per cent of that aggregate, of any gas processing allowance and transportation allowance for that petroleum as determined in accordance with sections 4 to 7 of this Schedule;
(b) where the petroleum is sold by the interest holder to a purchaser with whom the interest holder is not dealing at arm’s length, the greater of
(i) the fair market value of the petroleum as of the date of sale, and
(ii) the amount of money and other consideration payable to the interest holder for the petroleum,
less the sum, not exceeding 95 per cent of that value or amount, of any gas processing allowance and transportation allowance for that petroleum as determined in accordance with sections 4 to 7 of this Schedule;
(c) where the petroleum is lost and that loss is insured under a policy of insurance, the greater of
(i) the insurance proceeds payable to the interest holder under the policy, and
(ii) the fair market value of the petroleum as of the date of the loss,
less the sum, not exceeding 95 per cent of those proceeds or that value, of any gas processing allowance and transportation allowance for that petroleum as determined in accordance with sections 4 to 7 of this Schedule; and
(d) in any case not described in paragraph (a), (b) or (c), the fair market value of the petroleum as of the last day of the month preceding the month in which the prescribed royalty is due, less the sum, not exceeding an amount equal to 95 per cent of that value, of any gas processing allowance and transportation allowance for that petroleum as determined in accordance with sections 4 to 7 of this Schedule.
3 For the purposes of section 2 of this Schedule, the fair market value of petroleum shall be determined by reference to
(a) the revenues received by the interest holder in respect of other petroleum produced from project lands and sold under comparable conditions to purchasers with whom the interest holder deals at arm’s length;
(b) the revenues received by other interest holders for petroleum produced from project lands and sold under comparable conditions to purchasers with whom those other interest holders deal at arm’s length;
(c) revenues from petroleum of similar quality produced from other projects and sold under comparable conditions;
(d) posted prices for petroleum and prices for spot sales of petroleum; and
(e) such other factors as may be reasonable in the circumstances.
Gas Processing Allowance
4 The gas processing allowance of an interest holder in respect of gas processed at a gas plant is
(a) where the plant is wholly owned by a person or persons with whom the interest holder deals at arm’s length, the amount payable by the interest holder to the owner or owners of the gas plant for that processing; and
(b) where the plant is owned in whole or in part by the interest holder or by a person with whom the interest holder does not deal at arm’s length, that portion of the facility allowance determined in accordance with section 6 of this Schedule for the gas plant that is reasonably attributable to that processing.
Transportation Allowance
5 (1) Subject to subsection (2), the transportation allowance of an interest holder for petroleum delivered through a transportation facility to a purchaser at a point beyond the boundary of the project lands is
(a) where the facility is wholly owned by a person or persons with whom the interest holder deals at arm’s length, the amount payable by the interest holder to the owner or owners of the facility for transporting the petroleum; and
(b) where the facility is owned in whole or in part by the interest holder or by a person with whom the interest holder does not deal at arm’s length, that portion of the facility allowance determined in accordance with section 6 of this Schedule for that transportation facility that is reasonably attributable to the transportation of the petroleum.
(2) The transportation allowance of an interest holder for petroleum delivered to a purchaser at a point beyond the boundary of the project lands through a transportation facility, the tolls and tariffs of which are regulated pursuant to the laws of Canada or of a province, is the amount payable by the interest holder for that transportation in accordance with the approved tolls and tariffs for the facility in force at the time the petroleum is transported.
Facility Allowance
6 (1) Subject to subsections (2) and (3), the facility allowance of an interest holder in respect of a gas plant or transportation facility for any period shall be equal to the sum of those portions of the following amounts allocated to the interest holder:
(a) 110 per cent of the aggregate of the allowed operating costs of the facility as described in section 7 of this Schedule for the period;
(b) the depreciation allowance for the facility for the period; and
(c) the return on average capital for the period.
(2) For the purpose of calculating the depreciation allowance referred to in paragraph (1)(b) for a period, all depreciable assets forming part of or permanently used at the facility shall be depreciated on a straight line basis over the useful life of the facility.
(3) Where the period in respect of which a facility allowance is calculated is less than one calendar year, the depreciation allowance and return on average capital for that period shall be reduced pro rata.
7 (1) Subject to subsections (2) and (3), allowed operating costs of a facility are costs or expenses, other than costs or expenses relating to depreciable assets, that may reasonably be considered to be attributable to the facility and that are
(a) incurred on account of the salary, wages or other remuneration or related benefits of persons employed by the operator of the facility;
(b) incurred
(i) in respect of the repair or maintenance of the facility, where the cost of the repair or maintenance is less than fifty per cent of the cost of an equivalent new facility,
(ii) on account of taxes in respect of the facility, or
(iii) on account of the rental or leasing of the facility;
(c) incurred on account of premiums paid in respect of a policy of insurance other than insurance for loss of revenue;
(d) incurred on account of
(i) the use of or the right to use any property,
(ii) compensation for the performance of a service, or
(iii) the acquisition of material, parts or supplies;
(e) incurred on account of telecommunications, power, water or fuel; or
(f) incurred on account of the disposal of sewage.
(2) Subject to subsection (4), the following are not allowed operating costs of a facility:
(a) the part of a cost subject to reimbursement, compensation or other payment, including any amount of assistance or benefit from a government, municipality or other public authority, whether as a grant, subsidy, forgivable loan, deduction from royalty or tax, investment allowance or any other form of assistance or benefit where, at the time the cost is incurred, the interest holder who incurs the cost has received or has an absolute right to receive the payment;
(b) an amount on account of interest, including an amount or expense described in paragraph 20(1)(c), (d) or (e) of the Income Tax Act, as amended from time to time;
(c) a payment to a person who does not deal at arm’s length with the interest holder making the payment to the extent the payment exceeds the fair market value of the property, the use of the property, the right to use the property or the performance of a service in respect of which the payment is made;
(d) a cost or expense in respect of the administration, management, overhead or financing of an interest holder or of the operator of the facility;
(e) a cost or expense resulting from any act or omission that constitutes a breach of any federal, provincial or municipal law;
(f) an allowed operating cost of another facility;
(g) a cost or expense in respect of the processing of petroleum that is required to put petroleum into marketable condition;
(h) a cost or expense in respect of the transportation of petroleum produced from the project lands to a point within the boundary of the project lands;
(i) a tax imposed under Part IX of the Excise Tax Act, as amended from time to time; or
(j) a cost or expense not expressly provided for in subsection (1).
(3) Allowed operating costs that are attributable to more than one facility shall be allocated to each facility on a reasonable basis.
(4) For the purposes of paragraph (2)(a), where a person has transferred or assigned a right referred to in that paragraph, the person is considered to have received the amount of the reimbursement, compensation or other payment at the time of transfer or assignment.
- Date modified: