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AR 204/2009 NEW WELL ROYALTY REDUCTION REGULATION

(Consolidated up to 89/2013)

ALBERTA REGULATION 204/2009

Mines and Minerals Act

NEW WELL ROYALTY REDUCTION REGULATION

Table of Contents

                1       Definitions

                2       Application of Regulation

                3       New well

                4       Eligible production


                5       Royalty reduction on eligible production

                6       Volume cap

                7       Excluded production

                8       Factors affecting entitlement

                9       Effect of revocation

              10       Reinstatement of royalty reduction

              11       Reporting circumstances affecting eligibility

              12       Minister’s decision final

              13       New wells that are exploratory wells

              14       Expiry

              15       Coming into force

Definitions

1(1)  In this Regulation,

                                 (a)    “Act” means the Mines and Minerals Act;

                                 (b)    repealed AR 89/2013 s42;

                                 (c)    “Crown interest”, in respect of crude oil, natural gas or solution gas recovered from a well event, or gas product or field condensate obtained from that gas, means the percentage of Crown ownership in that crude oil, natural gas, solution gas, gas product or field condensate, as determined by the Minister in accordance with section 26.1 of the Petroleum and Natural Gas Tenure Regulation (AR 263/97);

                                 (d)    “Crown share”, in respect of crude oil, natural gas or solution gas recovered from a well event, or gas product or field condensate obtained from that gas, means the product of the Crown interest in the substance multiplied by the total production of the substance from that well event;

                                 (e)    “crude oil” means

                                           (i)    crude oil as defined in the Petroleum Royalty Regulation, 2009 (AR 222/2008), and

                                          (ii)    oil sands product referred to in section 27(1) of the Oil Sands Royalty Regulation, 2009 (AR 223/2008);

                                 (f)    “eligible production” means crude oil or gas that is eligible production under section 4;

                                 (g)    “eligible production month”, in respect of a well, means a month in which eligible production is recovered or obtained from any well event in the well;

                                 (h)    “excluded production” means any substance recovered from a well that the Minister determines under section 7 to be excluded production;

                                  (i)    “field condensate” means field condensate as defined in the Natural Gas Royalty Regulation, 2009 (AR 221/2008);

                                  (j)    “gas” means natural gas, solution gas, gas products and field condensate;

                                 (k)    “gas product” means gas product as defined in the Natural Gas Royalty Regulation, 2009 (AR 221/2008);

                                  (l)    “gas well” means a gas well as defined in the Oil and Gas Conservation Rules (AR 151/71);

                               (m)    “licence” means a licence for a well issued under the Oil and Gas Conservation Act or the Oil Sands Conservation Act;

                                 (n)    “licensee” means the holder of a licence according to the records of the Regulator and includes a trustee or receiver‑manager of property of a licensee;

                                 (o)    “new well” means an oil well, gas well or non‑project oil sands well that is a new well under section 3;

                                 (p)    “non‑project oil sands well” means a well that contains only non‑project oil sands well events;

                                 (q)    “non‑project oil sands well event” means a non‑Project well event as defined under the Oil Sands Royalty Regulation, 2009 (AR 223/2008) that is subject to royalty under section 27 of that Regulation;

                                  (r)    “oil well” means an oil well as defined in the Oil and Gas Conservation Rules (AR 151/71);

                                 (s)    “operator”, in respect of a well, means the person who is the operator of the well according to the records of the Department;

                                  (t)    “production month”, in respect of a well, means a month in which crude oil or gas, other than excluded production, is recovered from the well,

                              (t.1)    “Regulator” means the Alberta Energy Regulator.

                                 (u)    “royalty reduction” means a royalty reduction under section 5;

                                 (v)    “solution gas” means solution gas as defined in the Natural Gas Royalty Regulation, 2009 (AR 221/2008);

                                (w)    “volume cap” means the volume cap under section 6;

                                 (x)    “well” means an oil well, gas well or non‑project oil sands well;

                                 (y)    “well event” means

                                           (i)    a part of a well completed in a zone and given a unique well identifier by the Regulator,

                                          (ii)    parts of a well completed in 2 or more zones and given a single unique well identifier by the Regulator,

                                         (iii)    a part of a well completed in and recovering crude oil or gas from a zone but which has not yet been given a unique well identifier by the Regulator, or

                                         (iv)    parts of a well completed in and recovering crude oil or gas from 2 or more zones during the period when the parts are considered by the Minister as a single well event for the purposes of this Regulation and before the Regulator makes a decision whether to give the parts a single unique well identifier.

(2)  A reference in this Regulation to a month, whether by its name or not, is the period commencing at 8:00 a.m. on the first day of the month and ending immediately before 8:00 a.m. on the first day of the next month.

AR 204/2009 s1;89/2013

Application of Regulation

2   This Regulation applies to royalty on eligible production recovered or obtained from a new well on or after April 1, 2009 and on or before April 30, 2010.

AR 204/2009 s2;32/2011

New well

3(1)  Subject to subsection (4), a well is a new well if the well

                                 (a)    commences production of crude oil or gas in the period commencing on April 1, 2009, and ending on April 30, 2010, and

                                 (b)    had no production before April 1, 2009.

(2)  Subject to subsection (4), a well that recommences production of crude oil or gas in the period commencing on April 1, 2009, and ending on March 31, 2011, is a new well

                                 (a)    if the well did not produce crude oil or gas, other than excluded production, at any time in the period that commenced on January 1, 2007, and ended on March 31, 2009, or

                                 (b)    if

                                           (i)    the well did produce crude oil or gas, other than excluded production, in the period referred to in clause (a), but not in the period that commenced on January 1, 2009, and ended on March 31, 2009, and

                                          (ii)    the total average monthly production rate of the well of

                                                  (A)    crude oil, and

                                                  (B)    gas

                                                  that is recovered or obtained from the well and converted into equivalent volumes of oil as determined by the Minister is less than 100 cubic metres of oil per production month.

(3)  For the purposes of subsection (2)(b)(ii), the average monthly production rate of a well must be determined by the Minister based on the following production months:

                                 (a)    if the well had 3 or more production months in the period that commenced on January 1, 2007, and ended on December 31, 2008, the last 3 production months in that period, or

                                 (b)    if the well had fewer than 3 production months in the period referred to in clause (a), those production months.

(4)  A well is not a new well if the well

                                 (a)    is part of a Project under the Oil Sands Royalty Regulation, 2009 (AR 223/2008),

                                 (b)    contains a well event in respect of which the Minister has, at any time, prescribed a quantity of conservation gas pursuant to section 7(10)(b) or (d) of the Natural Gas Royalty Regulation, 2009 (AR 221/2008) or section 6(12)(b) of the Natural Gas Royalty Regulation, 2002 (AR 220/2002), or

                                 (c)    ceases to be a new well under section 6.

(5)  Additional information must be provided to the Minister by the operator or licensee of a well if required to aid in determining whether the well meets the requirements of this section.

(6)  For the purposes of subsections (1)(b) and (2)(a) and (b)(i), if a well did not produce crude oil or gas in a month because the Regulator suspended production from the well for a contravention of or non‑compliance with the Oil and Gas Conservation Act or the Oil Sands Conservation Act, the regulations under either Act or an order of the Regulator, that month is deemed to be a month in which the well produced crude oil or gas.

AR 204/2009 s3;32/2011;89/2013

Eligible production

4   Crude oil or gas recovered or obtained from a well event is eligible production if

                                 (a)    it is not excluded production,

                                 (b)    it is recovered or obtained from a well event in a new well,

                                 (c)    the Crown interest in it is greater than 0%, and

                                 (d)    it is subject to the payment of royalty under the Petroleum Royalty Regulation, 2009 (AR 222/2008), the Natural Gas Royalty Regulation, 2009 (AR 221/2008) or section 27 of the Oil Sands Royalty Regulation, 2009 (AR 223/2008).

Royalty reduction on eligible production

5(1)  If crude oil or gas recovered or obtained from a well event is eligible production, the royalty otherwise payable to the Crown on that crude oil or gas is reduced to a maximum of 5% until

                                 (a)    the end of the 12th eligible production month of the well that contains the well event,

                                 (b)    the date that the volume cap is reached for the well that contains the well event,

                                 (c)    the date that the well becomes part of a Project under the Oil Sands Royalty Regulation, 2009 (AR 223/2008), or

                                 (d)    March 31, 2012,

whichever occurs first.

(2)  For the purposes of subsection (1)(a), if a month was not an eligible production month of a well because the Regulator suspended production from the well for a contravention of or non‑compliance with the Oil and Gas Conservation Act or the Oil Sands Conservation Act, the regulations under either Act or an order of the Regulator, that month is deemed to be an eligible production month.

AR 204/2009 s5;89/2013

Volume cap

6   A new well reaches its volume cap and ceases to be a new well when the total of the eligible production recovered or obtained from the well and converted into equivalent volumes of oil as determined by the Minister exceeds the equivalent of 7949 cubic metres of oil.

Excluded production

7(1)  The Minister may, on application, determine that any substance recovered from a well is excluded production if the Minister is of the opinion that

                                 (a)    the substance was recovered in an isolated occurrence that was a test of the well,

                                 (b)    the quantity of the substance recovered is consistent with a test of the well, and

                                 (c)    the number of hours over which the substance is recovered is consistent with a test of the well,

                          (d), (e)    repealed AR 304/2009 s2.

(2)  An application under subsection (1) must contain all the information required by the Minister and be made within the time period required by the Minister.

AR 204/2009 s7;304/2009

Factors affecting entitlement

8   If the Minister is of the opinion that

                                 (a)    production from a well that is subject to a royalty reduction has resulted in a material reduction in the production of crude oil or gas from another well, production from which is not subject to a royalty reduction,

                                 (b)    a provision of this Regulation has not been complied with in relation to a well,

                                 (c)    compliance with section 47(6) of the Act in connection with an audit or examination relating to a royalty reduction in respect of a well has been inadequate, or

                                 (d)    one or more acts, agreements, arrangements, transactions or operations were, before or after the coming into force of this Regulation, effected for the purpose of improperly, artificially or unduly obtaining a royalty reduction in respect of a well,

the Minister may determine that eligible production recovered or obtained from the well may not in whole or in part receive a royalty reduction, or may revoke a royalty reduction in whole or in part.

Effect of revocation

9   If the Minister revokes a royalty reduction under section 8 in respect of a new well, royalty on the eligible production recovered or obtained from the well is calculated as if entitlement to the reduction never arose or arose only in part, in accordance with the revocation. 

Reinstatement of royalty reduction

10(1)  If the Minister considers it appropriate to do so, the Minister may reinstate a royalty reduction that was revoked wholly or in part under section 8.

(2)  If the Minister reinstates a royalty reduction under subsection (1) in respect of a new well, royalty on the eligible production recovered or obtained from the well is calculated as if entitlement to the reduction was never revoked.

(3)  A reinstatement made by the Minister under subsection (1) may be made effective on a date earlier than the date the reinstatement is made, but may not be effective in respect of any period of time for which the Minister’s power under section 38 of the Act to recalculate or make additional calculations of the Crown’s royalty share of a mineral has expired.

Reporting circumstances affecting eligibility

11   An operator or licensee must notify the Minister in writing on learning of any circumstances that indicate that crude oil or gas was not eligible in whole or in part for a royalty reduction that was applied to the royalty payable on the crude oil or gas.

Minister’s decision final

12   Where any question arises pertaining to the interpretation or application of this Regulation, the Minister is the sole judge of the question and there is no appeal from the Minister’s decision.

New wells that are exploratory wells

13   If a new well is an exploratory well under the Deep Oil Exploratory Well Regulation (AR 225/2008), the determination of whether the cumulative value determined under section 6(2)(b) of that Regulation has been reached must be determined as if the well had not received a royalty reduction under this Regulation.

Expiry

14   This Regulation expires on June 30, 2018.

Coming into force

15   This Regulation is effective on and from April 1, 2009.