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AR 231/2008 OIL SANDS ALLOWED COSTS (MINISTERIAL) REGULATION

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ALBERTA REGULATION 231/2008

Mines and Minerals Act

OIL SANDS ALLOWED COSTS (MINISTERIAL) REGULATION

Table of Contents

1 Interpretation

2 Return allowance rate

Part 1
Requirements for Allowed Costs

3 Allowed costs

4 Fundamental costs

5 Discretionary allowed costs

6 Evidence of costs

7 Reduction of allowed cost

Part 2
Amount of Costs and Charges

Division 1
Allocation of Allowed Costs

8 Allocation

Division 2
Non‑arm’s Length Costs and Charges

9 Application of this Division

10 Fair market value for costs

11 Capital assets for cost of service determination

12 Cost of non‑arm’s length goods and services

13 Cost of non‑arm’s length capital assets

14 Calculated value

Part 3
Deemed Allowed Costs

15 Allowed costs on and after January 1, 2009

16 Carry‑over of allowed costs under Prior Regulation

Part 4
Expiry and Coming into Force

17 Expiry

18 Coming into force

Schedule

Interpretation

1(1) In this Regulation,

(a) “basic service”, in respect of a Project, means a service

(i) without which oil sands or oil sands products to be recovered or obtained pursuant to the Project could not physically be so recovered or obtained, or

(ii) necessary for the operation or maintenance of a core or supporting asset referred to in section 1(1)(f)(i) of the Oil Sands Royalty Regulation, 2009,

performed utilizing a core or supporting asset that is not included in the description of the Project, but does not include a service the cost of which is corporate overhead;

(b) “corporate overhead”, in respect of a Project, means costs that are not directly and solely incurred for the purposes of Project operations, including, without limitation, expenses in relation to

(i) information technology,

(ii) performance of human resource functions,

(iii) office space and office operations,

(iv) accounting services,

(v) research, and

(vi) any other corporate operation or purpose;

(c) “cost of service”, in respect of a service performed by any person, means the actual cost to the person to perform the service, except that the portion of the actual cost attributable to the use of a capital asset to perform the service is

(i) an amount determined in accordance with the Minister’s directions as depreciation in respect of the cost of the capital asset determined in accordance with section 11, and

(ii) a rate of return determined in accordance with clause (i) on the undepreciated portion of the cost of the capital asset determined in accordance with section 11;

(d) “cumulative cost” has the meaning given to it in section 25 of the Oil Sands Royalty Regulation, 2009;

(e) “cumulative revenue” has the meaning given to it in section 25 of the Oil Sands Royalty Regulation, 2009;

(f) “environmental laws” means legally enforceable obligations in respect of the environment imposed by Acts or regulations of the Government of Alberta or Canada or bylaws of a municipality in Alberta, and includes any levies or charges based on levels of production, consumption or emissions, but does not include taxes;

(g) “fair market value” means fair market value as determined by the Minister in accordance with section 10;

(h) “fundamental cost” means a cost described in section 4, but does not include a specifically included cost, a specifically excluded cost or a cost excluded from allowed costs under section 3(2);

(i) “rate of return”, unless the Minister specifies otherwise, means

(i) the return allowance rate that is applicable from time to time, in the case of a capital asset utilized to perform a basic service in relation to a Project, or

(ii) the return allowance rate referred to in subclause (i) plus an additional amount, if any, specified by the Minister from time to time by order or otherwise in respect of the capital asset or the applicable class of capital asset, in the case of a capital asset utilized to perform any other kind of service;

(j) “return allowance rate” means return allowance rate as determined under section 2;

(k) “specifically excluded costs” means costs listed in, or costs of activities listed in, column 2 of the Schedule;

(l) “specifically included costs” means costs listed in, or costs of activities listed in, column 1 of the Schedule.

(2) Sections 1, 2, 3, 5, 6, 14, 18, 19, 48 and 50 of the Oil Sands Royalty Regulation, 2009 apply with respect to this Regulation unless otherwise specified in this Regulation or otherwise required by necessary implication.

Return allowance rate

2(1) The return allowance rate for any month is the rate calculated in accordance with the following formula:

mr = (1+LTBR)^(1/12)-1

where

mr is the return allowance rate for the month;

LTBR is the simple average of the Selected Government of Canada long‑term benchmark yields, published as a percentage and for the purposes of this formula expressed in a decimal format, specified for the Wednesdays of the preceding month in the Weekly Financial Statistics next published by the Bank of Canada after the last of those Wednesdays of that preceding month.

(2) The return allowance rate for a Period is the simple average of the Selected Government of Canada long‑term benchmark yields specified for the last Wednesday of each month of the Period in Weekly Financial Statistics next published by the Bank of Canada after each of those Wednesdays.

(3) If the long‑term benchmark yields referred to in subsections (1) and (2) cease to be published by the Bank of Canada for any period of time, the Minister may prescribe a substitute benchmark yield to be used for the purposes of subsections (1) and (2) in the place of those long‑term benchmark yields.

Part 1
Requirements for Allowed Costs

Allowed costs

3(1) A cost is an allowed cost of a Project to the extent that

(a) the cost

(i) is incurred by or on behalf of the lessee or operator of the Project,

(ii) is incurred on or after the later of January 1, 2009 and the effective date of the Project,

(iii) is incurred to carry out Project operations,

(iv) is reasonable under the circumstances in which it is incurred, and

(v) is adequately evidenced in accordance with section 6 and affirmatively established to the satisfaction of the Minister,

(b) the cost is one of the following:

(i) a specifically included cost;

(ii) a fundamental cost of the Project under section 4;

(iii) a cost approved by the Minister under section 5,

and

(2) If the lessee or operator of a Project obtains a core or supporting asset that is not included in the description of the Project, the amount of the capital cost of the asset is not an allowed cost of the Project.

Fundamental costs

4(1) Fundamental costs of a Project are costs incurred directly

(a) to recover, obtain, process or transport oil sands or oil sands products, or to market oil sands products, pursuant to the Project,

(b) to reclaim or abandon Project lands, or

(c) to comply with environmental laws applicable to the Project or applicable to a lessee or operator of the Project in respect of the Project.

(2) Fundamental costs of a Project do not include costs incurred in respect of

(a) corporate overhead,

(b) lands other than Project lands, or

Discretionary allowed costs

5(1) The operator of a Project may apply to the Minister for approval of any of the following as an approved cost of the Project:

(a) a cost that has been incurred;

(b) a cost that is being incurred;

(2) The Minister may approve a cost as an approved cost of the Project if

(a) the Minister is satisfied that

(i) the requirements of section 5(2) and (3) of the Oil Sands Royalty Regulation, 2009 have been complied with in relation to the application, and

(ii) approving the cost would not expose the Crown to the risk of overstated or unverifiable costs being included in allowed costs of the Project,

and

(b) in the Minister’s opinion, incurring the cost directly and materially benefits the Project operations and is not too remote from the Project operations.

(3) An approval granted under subsection (2) may specify

(a) a term for the approval, which may include a period of time that precedes the date of the approval, and

(b) the terms and conditions to which the approval is subject.

(4) If the Minister is of the opinion that a requirement set out in subsection (2) or a term or condition specified in an approval has not been or is not being met or complied with, the Minister may by notice to the operator of the Project

(a) terminate the approval granted under subsection (2), effective from the date of termination, or

(b) revoke the approval granted under subsection (2), effective from the date of revocation or from a date that precedes the date of revocation.

(5) Termination of an approval in relation to a cost does not preclude a further application under subsection (1) in relation to the cost, and the cost ceases to be treated as an approved cost on the effective date of the termination.

(6) Revocation of an approval in relation to a cost precludes a further application under subsection (1) in relation to the cost, and the cost ceases to be treated as an approved cost on the effective date of the revocation.

Evidence of costs

6 The lessee or operator of a Project must be capable of providing contracts, invoices, receipts, time sheets and other documents or records that clearly establish

(a) that a cost has been incurred,

(b) the gross and net amounts of the cost, and

Reduction of allowed cost

7(1) An allowed cost of a Project is reduced

(a) to the extent it would not be allowed as a deduction in computing income under the Income Tax Act (Canada), if it is in respect of the human consumption of food or beverages or the enjoyment of entertainment,

(b) by the amount of any credit or discount received by the operator or lessee of the Project, or by an affiliate of either of them, that is intended to reduce or offset the cost, and

(c) by the amount of any economic assistance, other than economic assistance in the form of a reduction in income tax payable or in the form of a reduction of royalty, royalty proceeds or royalty compensation by virtue of allocable costs, that is

(i) provided by the Province of Alberta or the Government of Canada, or an agency of either, to the operator or lessee of the Project, or to an affiliate of either of them, and

(ii) intended to reduce or offset the cost.

(2) The amount of an allowed cost does not include the amount of any taxes paid or payable under Part IX of the Excise Tax Act (Canada) by or on behalf of the lessee of a Project.

Part 2
Amount of Costs and Charges

Division 1
Allocation of Allowed Costs

Allocation

8(1) Where a cost incurred by or on behalf of a lessee of a Project may only be an allowed cost in part, the operator of the Project must allocate the portion of the cost that is an allowed cost and the portion of the cost that is not an allowed cost.

(2) The Minister may, with respect to any amount reported to the Minister as an allowed cost of a Project, give the operator a notice requiring the operator to disclose to the Minister within the time specified in the notice

(a) any allocation used by the operator to determine the amount of the allowed costs reported,

(b) the basis and justification for the allocation, and

(3) If the Minister is satisfied that an allocation disclosed under subsection (2) or otherwise is not fair and reasonable or is not justified by adequate supporting documentation, the Minister may, by notice, direct the operator to supply additional information or otherwise justify the allocation within the time specified in the notice.

(4) After the expiry of the period set out in the notice given under subsection (2) or (3), or both, the Minister may determine the allocation and the amount of the portion of the cost that is an allowed cost, and must provide the determination of the allocation to the operator.

(5) The Minister may refrain from making a determination under subsection (4) if

(a) the Minister did not receive, in accordance with and within the time specified in a notice given under subsection (2), the items required to be provided pursuant to the notice,

(b) the Minister did not receive, in accordance with and within the time specified in a notice given to the operator under subsection (3), the additional information or further justification required to be provided pursuant to the notice, if a notice was given under that subsection,

(c) the operator did not comply with section 5(2) or (3) of the Oil Sands Royalty Regulation, 2009 in relation to submission of the items, information or further justification required to be provided pursuant to a notice given under subsection (2) or (3), as the case may be, or

(d) the items received by the Minister pursuant to a notice given under subsection (2), or the additional information or further justification received pursuant to a notice, if any, given under subsection (3) are not, in the Minister’s opinion, adequate for the Minister to make the determination.

(6) If the Minister has made a determination under subsection (4), the portion of the cost that is determined to be an allowed cost is the amount of the allowed cost for the purposes of the Oil Sands Royalty Regulation, 2009.

(7) If the Minister refrains from making a determination under subsection (4), then no portion of the cost that was the subject of the notice given under subsection (2) or (3), as the case may be, is an allowed cost for the purposes of the Oil Sands Royalty Regulation, 2009.

(8) The making of a determination by the Minister under subsection (4) in relation to a cost does not preclude the making of a further determination pursuant to this section in relation to the same cost.

Division 2
Non-arm’s Length Costs and Charges

Application of this Division

9(1) This Division applies, in conjunction with Part 1 and section 8, to the determination of the amount of allowed costs relating to goods, services or capital assets other than goods, services or capital assets acquired pursuant to an arm’s length transaction.

(2) This Division applies to the determination of the amount

(a) of handling charges as defined in section 32(1)(a) of the Oil Sands Royalty Regulation, 2009, other than such handling charges that arise pursuant to an arm’s length transaction, and

(b) of charges included in TRC and DRC, as those terms are defined in section 5(2) and (4) of the Bitumen Valuation Methodology (Ministerial) Regulation, other than such charges that arise pursuant to an arm’s length transaction.

(3) Despite the other sections of this Division, if the Minister is of the opinion that a fair market value, calculated value or cost of service determined under this Division duplicates, in whole or in part, a cost or charge of a kind referred to in subsection (1) or (2) that arises pursuant to an arm’s length transaction, the amount of that cost or charge is, as of the date the cost or charge is incurred, deemed to be reduced to the extent of the duplication.

(4) For the purposes of this Division,

(a) the providing of thermal energy for the purposes of a Project is a service,

(b) the transmission and distribution of electricity and the provision of ancillary services as defined in the Electric Utilities Act are services, and

Fair market value for costs

10(1) The amount of any fair market value referred to in this Division in relation to a good, service or other asset is the value determined by the Minister in accordance with this section.

(2) Subject to this section, in determining for the purposes of this Division, the fair market value of a good, service or asset, other than the service of transporting a substance by pipeline, the Minister may, without limiting any other method of determining fair market value, adopt

(a) the price of comparable goods, services or assets, if that price is published and generally adopted by buyers and sellers of such goods, services or assets,

(b) a price for comparable goods, services or assets prescribed or determined pursuant to any Act or regulation of the Government of Alberta or Canada, or

(3) The Minister may adjust a price or average of prices referred to in subsection (2) to reflect the most cost effective means of delivery from the place at which the price is determined.

(4) Subject to this section, in determining for the purposes of section 12(1)(a) the fair market value of the service of transporting a substance by pipeline, the Minister may, without limiting any other method of determining fair market value, adopt

(a) a tariff charged for the service, if the tariff is fixed or approved for such service by a regulatory authority having jurisdiction to do so,

(b) the tariff charged for the service by the owner of the pipeline, if, in the Minister’s opinion,

(i) clause (a) does not apply,

(ii) the pipeline is subject to regulation on a complaints basis,

(iii) the tariff is generally agreed to and paid by persons who obtain the service in arm’s length transactions,

(iv) the tariff is just and reasonable in the circumstances,

(v) all tariffs charged for transporting substances by means of the pipeline are published, and

(vi) no tariff or any other term for transporting substances by means of the pipeline unjustly discriminates among persons seeking to obtain or obtaining such service,

(c) the weighted average of the prices paid by persons pursuant to arm’s length transactions for comparable service, or if the Minister is satisfied no comparable service is provided, for transporting the substances by means of the pipeline, if, in the Minister’s opinion,

(i) clauses (a) and (b) do not apply,

(ii) the pipeline is subject to regulation on a complaints basis,

(iii) not less than 2/3 of the quantities of oil sands products transported by means of the pipeline during the period the weighted average is adopted are transported pursuant to arm’s length transactions, and

(iv) the weighted average of prices is just and reasonable in the circumstances.

(5) The Minister may adjust a tariff or weighted average of prices referred to in subsection (4) to reflect differences between the terms of service applicable in respect of the tariff or weighted average of prices and the terms of service applicable in respect of the transportation service actually provided.

(6) For the purposes of subsection (4)(b)(ii) and (c)(ii), “subject to regulation on a complaints basis” means subject to a process pursuant to legislation whereby a customer or potential customer for the transportation service can complain regarding the charge for or terms of such service, or both, to a regulatory authority having jurisdiction to hear such a complaint and to fix the charge and terms of service.

(7) Subject to subsection (8), a price, an average of prices or a tariff may be adopted by the Minister pursuant to subsection (2) or (4) for such period or periods as the Minister may specify from time to time.

(8) A price, an average of prices or a tariff adopted by the Minister pursuant to subsection (2) or (4) ceases to apply prior to the end of the period or periods specified under subsection (7) if any requirement specified in subsection (2) or (4) with respect to the adoption of the price, average of prices or tariff ceases to be met.

Capital assets for cost of service determination

11(1) Subject to subsection (3), the cost of a capital asset for the purposes of determining a cost of service for a service provided using the capital asset is the lesser of

(a) the fair market value of the asset, where the Minister is satisfied that a fair market value can reasonably be determined, and

(b) the net book value of the asset to the person providing the service using the capital asset,

when the use of the capital asset to provide the service for which the cost of service is being determined commences.

(2) The net book value of an asset for the purposes of subsection (1)(b) is the undepreciated portion of the cost to the person referred to in that subsection, according to

(a) the records of the Department, or

(b) if the Department has no records, the records of the person.

(3) If the Minister is of the opinion that a capital asset used to provide a service is also used to provide other kinds of services, the Minister may from time to time give the operator of the Project a notice requiring the operator to propose, within the time specified in the notice, an allocation of the cost of the capital asset determined under subsection (1) between

(a) the portion that fairly and reasonably represents the proportionate use of the asset to provide the service, and

(b) the portion that represents the proportionate use of the asset to provide other kinds of services.

(4) If the Minister is satisfied that a proposed allocation under subsection (3) is not fair and reasonable or is not justified by adequate supporting documentation, the Minister may, by notice, direct the operator to supply additional information or otherwise justify the proposed allocation within a time specified by the Minister.

(5) The Minister may, by notice to the operator, determine the portion of the cost of the capital asset that the Minister considers to fairly and reasonably represent the proportionate use of the asset to provide a service, except that the Minister shall not do so until after the time specified under subsection (4) has expired if the Minister gave a notice under that subsection.

(6) The Minister may refrain from making a determination under subsection (5) if

(a) the Minister did not receive a proposed allocation in accordance with, and within the time specified in, a notice given under subsection (3),

(b) the Minister did not receive additional information or further justification for the operator’s proposed allocation in accordance with, and within the time specified in, a notice given to the operator under subsection (4),

(c) the operator did not comply with section 5(2) or (3) of the Oil Sands Royalty Regulation, 2009 in relation to the submission of the proposed allocation or the submission of the additional information or further justification, or

(d) the Minister received additional information or further justification in accordance with the notice given under subsection (4), but the information or justification was not, in the Minister’s opinion, adequate for the Minister to make the determination.

(7) If the Minister has made a determination under subsection (5), the portion of the cost of the capital asset identified in the determination shall be used for the purposes of determining the cost of service for the service provided using the capital asset, rather than the cost of the capital asset determined under subsection (1), until that portion is changed by a further determination, if any, by the Minister in accordance with subsections (3), (4) and (5).

Cost of non‑arm’s length goods and services

12(1) Subject to subsection (3) and section 14, the amount of a cost or charge referred to in section 9(1) or (2) incurred for a good or service, other than a basic service, is

(a) where the Minister is satisfied that a fair market value can reasonably be determined for the good or service, the lesser of

(i) the amount charged for the good or service, and

(ii) the fair market value of the good or service,

(b) where the Minister is satisfied that a fair market value cannot reasonably be determined for the good or service, and that the service is performed without utilizing a capital asset, the lesser of

(i) the amount charged for the good or service, and

(ii) the actual cost to produce the good or perform the service, incurred by the person who produced the good or performed the service.

(2) Subject to subsection (4) and sections 11 and 14, the amount of

(a) an allowed cost of a Project incurred for a basic service, or

(b) a cost or charge referred to in section 9(1) or (2) for any other service for which the Minister is satisfied that a fair market value cannot reasonably be determined and that is performed utilizing a capital asset

is the lesser of the amount charged for the service and the cost of service of the person who performs the service.

(3) If a service is performed in order to produce a good referred to in subsection (1)(b) and that service is performed utilizing a capital asset, the portion of the actual cost incurred to produce the good that is attributable to the service is, subject to subsection (4),

(a) the fair market value of the service, if the Minister is satisfied that a fair market value can reasonably be determined for the service, or

(b) the cost of service of the person who performs the service, in any other case.

(4) If the Minister is of the opinion that a cost of service cannot be determined for the purposes of subsection (2) or (3) because

(a) the Minister has refrained from making a determination under section 11(5) in relation to a capital asset where that determination is required to determine the cost of service, or

(b) the Minister has not given a notice under section 11(3) because, in the Minister’s opinion, the circumstances do not reasonably permit the determination of a cost of service,

the Minister shall, by notice to the operator of the Project in respect of which the determination is otherwise required, provide an estimate of the value of the service, and that estimate shall apply for the purposes of subsections (2) and (3) in place of the cost of service.

Cost of non‑arm’s length capital assets

13(1) The amount of an allowed cost of the Project incurred for a capital asset that is included in the description of the Project is the least of

(a) the amount charged to the Project for the capital asset,

(b) the fair market value of the asset, where the Minister is satisfied that a fair market value can reasonably be determined, and

(i) to the lessee or operator of the Project, as the case may be, if the asset is not obtained by either from another person, or

(ii) to any other person from whom the asset is obtained by the lessee or operator of the Project

when the asset is delivered to the Project site.

(2) The net book value of an asset for the purposes of this section is the undepreciated portion of the cost to the lessee, operator or other person for whom net book value is being determined, according to

(a) the records of the Department, or

(b) if the Department has no records, the records of the lessee, operator or other person, respectively.

Calculated value

14(1) If the Minister is of the opinion that a fair market value or a cost of service, that is required by a provision of this Division to be used in determining the amount of an allowed cost, cannot reasonably be determined pursuant to this Division, the Minister may, employing engineering, economic or financial principles, determine a calculated value for the fair market value or cost of service, as the case may be.

(2) If the Minister has determined a calculated value pursuant to subsection (1), the calculated value is to be used in the relevant provision of this Division in place of the required fair market value or cost of service, as the case may be.

Part 3
Deemed Allowed Costs

Allowed costs on and after January 1, 2009

15(1) The net loss of a Project for a post‑payout Period commencing on or after January 1, 2009 is an allowed cost of the Project for the next post‑payout Period.

(2) Any royalty compensation paid in respect of royalty calculated under section 29(2)(a) of the Oil Sands Royalty Regulation, 2009 in respect of a Project for a post‑payout Period commencing on or after January 1, 2009 is, to the extent it exceeds the royalty compensation that would otherwise have been paid in respect of royalty calculated under section 29(2)(b) of that Regulation in respect of the Project for the same Period, an allowed cost of the Project for the next post‑payout Period.

(3) The product calculated by multiplying

(a) the excess, if any, of

(i) the cumulative cost of a Project as of the last day of a month of a pre‑payout Period of the Project commencing on or after January 1, 2009,

over

(ii) the cumulative revenue of the Project as of the same day,

(b) the return allowance rate for the month

is an allowed cost of the Project for the following month, unless subsection (6) applies.

(4) The product calculated by multiplying the return allowance rate of a Project for a post‑payout Period commencing on or after January 1, 2009

(a) by the product of 183/365 and the net loss, if any, of the Project for the Period, if

(i) the preceding post‑payout Period also commenced on or after January 1, 2009 and a net loss did not also arise in respect of the Project for that preceding post‑payout Period, or

(ii) the preceding post‑payout Period ended on December 31, 2008 and a net loss, as defined in the Prior Regulation, did not also arise in respect of the Project for that preceding post‑payout Period,

(b) by the net loss, if any, of the Project for the Period, if

(i) the preceding post‑payout Period also commenced on or after January 1, 2009 and a net loss also arose in respect of the Project for that preceding post‑payout Period, or

(ii) the preceding post‑payout Period ended on December 31, 2008 and a net loss, as defined in the Prior Regulation, also arose in respect of the Project for that preceding post‑payout Period,

is an allowed cost of the Project for the next post‑payout Period, unless subsection (6) applies.

(5) The prior net cumulative balance of a Project expansion is, to the extent it is a positive amount, an allowed cost of the Project to which the expansion relates, for the Period in which the effective date of the Project expansion occurs, if that Period is a post‑payout Period.

(6) The products referred to in subsection (3) in respect of any month of a pre‑payout Period of a Project and in subsection (4) in respect of a post‑payout Period of the Project, as the case may be, are not allowed costs of the Project for the next month or next post‑payout Period, respectively, if the Minister has notified the operator of the Project that the Minister is of the opinion that operations in respect of the Project have been or are substantially suspended or abandoned for a period of time and the month or post‑payout Period, respectively, falls within that period.

(7) The excess, if any, of

(a) the cumulative cost of a Project as of the day preceding the Project payout date, where the Project payout date is on or after January 1, 2009,

over

(b) the cumulative revenue of the Project as of the same day

is an allowed cost of the Project for the Period starting on the Project payout date.

(8) If the unit price applicable to the quantity of blended bitumen containing the Crown’s royalty share of cleaned crude bitumen obtained pursuant to a Project and delivered at a royalty calculation point for the cleaned crude bitumen in a month of a pre‑payout Period or in a post‑payout Period

(a) is zero or a negative amount, the cost of diluent included in the blended bitumen is an allowed cost of the Project for the next month or Period, respectively, or

(b) is a positive amount, the excess, if any, of

(i) the cost of diluent included in the blended bitumen,

over

(ii) the product of the unit price and the quantity of the blended bitumen

is an allowed cost of the Project for the next month or Period, respectively.

(9) If an amendment of a Project is approved under section 11(2) of the Oil Sands Royalty Regulation, 2009 that provides for the amalgamation of

(a) a Project for which the Project payout date has not occurred as of the day preceding the effective date of the amendment, and

(b) one or more other Projects for at least one of which the Project payout date has occurred as of the day preceding the effective date of the amendment,

the excess, if any, of

(c) the cumulative cost of the Project referred to in clause (a) as of the last day preceding the amendment Period of the Project,

over

(d) the cumulative revenue of the Project as of that last day

is an allowed cost of the amalgamated Project for the first amalgamated Period of the amalgamated Project.

(10) In subsection (9), “amendment Period”, “amalgamated Project” and “first amalgamated Period” have the meaning given to those terms in section 24 of the Oil Sands Royalty Regulation, 2009.

Carry‑over of allowed costs under Prior Regulation

16(1) If an amount is, pursuant to section 4(a), (b) or (d) of Schedule 1 or 2 of the Prior Regulation, as the case may be, an allowed cost of a Project for a next post‑payout Period of the Project and that next Period commences on January 1, 2009, that amount is, for the purposes of this Regulation and without duplication, an allowed cost of the Project for that next Period, unless subsection (3) applies.

(2) If an amount is, pursuant to section 4(c) of Schedule 1 or 2 of the Prior Regulation, as the case may be, an allowed cost of a Project for a following month and that following month is January 2009, that amount is, for the purposes of this Regulation and without duplication, an allowed cost of the Project for January 2009, unless subsection (3) applies.

(3) The products referred to in section 4(c) and (d) of Schedules 1 and 2 of the Prior Regulation that are otherwise deemed by subsection (1) or (2) of this section, respectively, to be allowed costs of a Project in respect of the post‑payout Period of the Project commencing January 1, 2009, or in respect of January 2009, as the case may be, are not allowed costs of the Project if the Minister has notified the operator of the Project that the Minister is of the opinion that operations in respect of the Project have been or are substantially suspended or abandoned for a period of time and the post‑payout Period of the Project ending December 31, 2008, or December of 2008, respectively, falls within that period.

Part 4
Expiry and Coming into Force

Expiry

17 For the purpose of ensuring that this Regulation is reviewed for ongoing relevancy and necessity, with the option that it may be repassed in its present or an amended form following a review, this Regulation expires on November 30, 2018.

Coming into force

18 This Regulation comes into force on January 1, 2009.

Schedule

Item	Column 1 Specifically Included Costs	Column 2 Specifically Excluded Costs
1	Obtaining Board approvals required for the Project as follows: ‑ preparing and presenting the application to the Board (“Board application”) for approval of Project operations, or facilities, to be included in the Project ‑ acquiring baseline environmental data required for the Board application
	‑ preparing and supporting environmental impact assessments for those areas required by the Board ‑ holding community or stakeholder meetings to obtain feedback and concerns regarding the Board application
2	Preparation of the Project lands for oil sands mining, including: ‑ tree clearing and removing and stockpiling overburden on Project lands, and drilling geotechnical wells on Project lands for siting Project mines and facilities Construction of facilities or assets on Project lands, including well pads, access roads and containment berms, including:
	‑ the quarrying on Project lands of construction materials required for these activities Construction of those facilities or assets located off Project lands provided they are specifically listed within the description of the Project as being a Project facility or asset
3	In relation to oil sands mining Projects, the acquisition and operation of: ‑ shovels, dozers, trucks, mining and construction equipment and similar earth moving equipment In relation to oil sands mining Projects, the construction, acquisition and operation on Project lands of:
	‑ haulage roads ‑ power lines and service facilities ‑ mine pits and site drainage ‑ mine utilities, including those required for power and steam generation
4	In relation to recovering in-situ oil sands products, the following activities on Project lands: ‑ drilling, re-drilling, completing, recompleting, plugging and abandoning and deepening wells for the recovery of oil sands products
	‑ constructing well pads and surface facilities ‑ pumping systems for the recovery of oil sands products ‑ gathering and processing solution gas, unless the assets required are removed from the description of the Project
	‑ installing lift gas systems, casing gas and solution gas separation and conservation equipment ‑ removing basic sediment and water, gas and solvents using crude bitumen separators ‑ heating bitumen in tank heaters ‑ treating raw water, de-oiling produced water and bitumen and recycling produced water
	‑ installing fuel gas compression and distribution systems and flare stacks ‑ blending diluent and operating diluent blending facilities ‑ constructing and operating steam generation facilities for in-situ operations
	‑ drilling or converting existing wells to observation wells, water source wells, water disposal wells or injection wells for water, steam or emulsion ‑ enhancing primary production with water, polymer and solvent floods ‑ constructing and operating water, effluent, bitumen, steam, gas and solvent pipelines ‑ constructing and operating surface disposal pits
5		Drilling and completing gas wells, or converting bitumen or other wells to a crude oil or natural gas well Any work on any portion of a crude oil or natural gas well
6	In relation to recovering oil sands from mining Projects, the construction, acquisition and operation of the following equipment or facilities on Project lands: ‑ truck dump hoppers ‑ crushers and sizers ‑ surge bins, conveyors, feeders ‑ separation cell feed sumps, conditioning drums, feed conveyors, rotary breakers, vibrating screens
	‑ reject conveyors, oversize rejects bin ‑ pump boxes, hot and fresh water pipelines ‑ power transmission lines to ore preparation and conditioning facilities ‑ hot process water exchangers, hydro transport units, including pumps, surge cells and pipelines
7	In relation to primary extraction of oil sands products from oil sands in mining Projects, the construction, acquisition and operation of the following equipment or facilities on Project lands:
	‑ separation cells, secondary flotation systems, hydro cyclone banks and tertiary flotation systems ‑ tailings pump stations and separation bottoms density control systems ‑ feed pumps, pipelines and electrical systems
8	In relation to secondary extraction of oil sands products from oil sands in mining Projects, the construction, acquisition and operation of the following equipment or facilities on Project lands: ‑ raw bitumen pipelines ‑ froth launderers, settlers, de-aerators, froth recycle system and feed pumps
	‑ centrifuge feed systems, flotation banks or scavenger banks and interstage storage tanks ‑ froth pumps, froth settler bottoms pumps, inclined plate separation units, cyclone banks, sumps and pumping systems ‑ diluent storage and handling systems and diluent pipelines
	‑ froth treatment filters and centrifuges ‑ diluted bitumen tanks (tank farm) and vapour recovery units ‑ condenser and cooling water pumps ‑ diluent recovery units, if specifically included in the description of a Prior Project
9	In relation to tailings management in oil sands mining Projects, the construction, acquisition and operation of the following equipment or facilities on Project lands: ‑ consolidated tailings plant, tailings lines, final tailings pump house, all pump trains and support equipment, including hydro cyclones for minerals separation
	‑ tailings ponds (including extraction tailings, upgrading process waters and mine pit drainage waters) ‑ dikes ‑ tailings pump house ‑ piezometers ‑ wildlife deterrent systems
10	In relation to transportation of oil sands products on Project lands, the construction, acquisition and operation of ‑ on-Project pipelines	Pipelines that do not begin and terminate on Project lands
	‑ intra-Project transport of oil sands and oil sands products ‑ oil sands product pumping stations ‑ trucking crude bitumen from Project wells to a central storage facility or to an on-Project pipeline terminal
11	Natural gas, diesel, gasoline or other fuels not produced from Project leases purchased for consumption in undertaking Project operations	Any fuel arising from Project substances or solution gas exempted from royalty under the Natural Gas Royalty Regulation, 2009
12	Transporting Project operations personnel or materials to or from Project lands and on Project lands
13	In relation to storage of oil sands products on Project lands, the construction, acquisition and operation of: ‑ tank farms In relation to storage facilities of oil sands products on Project lands, the labour and materials for the construction, acquisition and operation of the following: ‑ pumping facilities
	‑ dikes ‑ fire foam injection systems and inert gas blanket systems ‑ dewatering facilities ‑ vapour recovery units ‑ slop oil tanks
14	Processing of crude bitumen recovered from the Project leases in one or more non-Project processing plants to produce cleaned crude bitumen before the cleaned crude bitumen so produced is delivered to a royalty calculation point
15	Transporting crude bitumen recovered from the development area of the Project from the Project to a non-Project processing plant where cleaned crude bitumen is obtained from the crude bitumen before the cleaned crude bitumen is delivered at a royalty calculation point for the cleaned crude bitumen
16	Purchasing, transporting and handling of non-Project oil sands products, for processing or reprocessing in one or more processing plants that are part of the Project
17	Diluent used by a Project, provided the diluent does not form part of handling charges in determining unit price
18	In relation to utilities required for Projects, the construction, acquisition and operation of the following equipment and facilities on Project lands: ‑ water treatment conditioning and filtering units ‑ raw water supply system, river water pump houses, cooling water pump houses and recycled water pumps
	‑ main boilers and once through steam generators ‑ backup steam units used as standby steam production units ‑ gas turbine generator or heat recovery steam generator system cogeneration units ‑ primary electrical distribution system and power substations
	‑ electrostatic precipitator units ‑ utilities plant flue gas desulphurization units ‑ hot water pipelines ‑ natural gas pipelines ‑ diesel pipelines ‑ (gypsum) tailings pipelines ‑ recycled water pipelines ‑ steam, water and compressed air distribution systems
	In relation to utilities required for mining Projects, the construction, acquisition and operation of the following equipment and facilities on Project lands: ‑ (gypsum) tailings pipelines
	In relation to utilities required for in-situ Projects, the construction, acquisition and operation of the following equipment and facilities on Project lands: ‑ water treatment plants, settling ponds, filters, softeners and de-aerators ‑ boiler water feed pumps ‑ water storage and distribution systems, fire-water systems and potable water systems
	‑ pumping stations and pump houses ‑ gas-fired package boiler facilities ‑ compressor building ‑ steam distribution systems ‑ air systems ‑ wastewater systems ‑ waste heat recovery systems, cooling towers and ponds ‑ oil spill preparedness systems ‑ natural gas import pipeline and distribution pipelines
19	The construction, acquisition and operation of the following equipment and facilities used on Project lands: ‑ ecology pits, land fill sites, waste management, wastewater treatment, sewage systems and hazardous waste storage buildings ‑ closed sewer system, separators for oil-contaminated water, slop oil tanks, settling tanks, sewage treatment system and sour water treatment system to treat waste water
	‑ fire hall, fire prevention and suppression systems ‑ emergency health and safety systems and buildings ‑ maintenance shops and fueling stations ‑ truck loading and offloading facilities ‑ air and heating utilities ‑ cogeneration plants ‑ non-cogeneration electricity generation equipment, including backup and emergency generation equipment
	‑ power transmission lines and substations ‑ control rooms and buildings ‑ instrumentation, monitoring and control systems ‑ camps, including food services facilities ‑ equipment trailer ‑ road use charges paid to third parties to access Project lands ‑ buildings, equipment and service complexes, used for maintaining heavy equipment ‑ roads and bridges included in the description of the Project, connecting Project facilities ‑ airstrips and associated facilities included in the Project description
20	Complying with Board or Alberta Environment requirements regarding Project air and water quality, soil and wildlife monitoring
21	Acquiring, modifying or installing, operating and maintaining equipment on Project lands to reduce, or capture and dispose of, greenhouse gas emissions
22	Abandonment, reclamation and decommissioning as a result of Project operations as follows: ‑ deposits paid to the Crown to ensure the proper reclamation of Project lands ‑ payments required by the Crown to secure reclamation of Project lands ‑ performing reclamation work on the Project lands ‑ abandoning and decommissioning surface and subsurface facilities	Cost of abandonment of non-Project wells (PNG, etc.), regardless of whether such activities promote bitumen recovery and regardless of whether required by the Board The cost of orphan well levies imposed by the Board
23	Communications infrastructure located on Project lands Equipment used for remote control of Project facilities
24	Repair and maintenance of Project assets, including direct labour, benefits, materials and supplies, and work performed by other companies or individuals expended in performing such repair and maintenance
25	Safety equipment and safety manuals, and costs of preparing and implementing emergency and disaster recovery procedures for the Project
26	Insurance premiums under a contract of insurance, as defined in the Insurance Act, providing for property insurance in relation to profits, earnings, pecuniary interests and indirect losses of the lessees or operator of the Project
27	Acquiring surface lands included in Project lands Annual rental required as part of Crown oil sands agreements within Project lands Rent or lease payments for use of surface areas included in Project lands	Purchasing oil sands agreements from prior lessees Bonus bids paid to the Crown for an oil sands agreement Escalating rental payments made under the Oil Sands Tenure Regulation
	Work performed on or in respect of the mineral rights in the development area of the Project or to create wells, facilities, roads, pipelines or other assets or infrastructure that is part of the Project in order to earn the interest or estate (i.e., farm-ins)
28	Municipal taxes and improvement fees of the type common to all individuals or industries
29	Compensation paid to registered individual trappers whose trap lines are impacted directly by Project operations
30	Purchasing a licence or the right to use intellectual property that is used directly for the recovery, production, or processing activities within Project operations
31	Any training facility or area exclusively dedicated toward providing training services to one or more approved Projects Any warehouse exclusively dedicated toward providing inventory services to one or more approved Projects	Any training facility or area not exclusively dedicated toward providing training services to one or more approved Projects Any warehouse not exclusively dedicated toward providing inventory services to one or more approved Projects
32	Exploration and delineation drilling, geophysical surveys on Project lands Evaluating data acquired with respect to Project lands	Costs of exploration or delineation drilling, geophysical surveys outside Project lands or evaluating the data acquired
33	Planning, designing and engineering Project facilities
34	Penalties or other compensation paid to an arm’s length party, not including any government, that are required to be paid under a written contractual obligation when the operator is unable to complete the terms of a contract	Penalties for late or deficient payment on any borrowing charge
35	Legal services in relation to a claimed breach of private law matters arising as a result of undertaking Project operations	Legal services required in relation to a claimed breach of applicable laws, rules or regulations of any government or government agency Legal services required in relation to the shutting in of natural gas in oil sands areas, where the Crown is one of the parties
36	Recruitment advertising solely to attract potential employees to undertake Project operations Travel and accommodation costs of the potential candidate attending an interview for a position to perform Project operations
	The travel and accommodation costs of non-Project staff that attend recruitment fairs or specific recruitment initiatives in search solely of employees to undertake Project operations
37	Employee gifts, rewards and similar products arising from Project specific recognition and awards programs	Gifts, rewards and similar products or promotional items for non-Project employees Employee gifts, rewards and products arising from corporate initiatives or corporate recognition and reward programs Promotional items not associated with a recognition and reward program
38	Bonuses given to Project employees based on those employees or the Project achieving or exceeding specific, pre-defined performance criteria for the individual or the Project, as the case may be Signing bonus or retention bonus payments	Bonuses given based on achieving or exceeding non-Project based performance criteria
39	Hosting and entertainment costs limited to employees conducting Project operations and their immediate family, to the extent allowed as a deduction in computing income under the Income Tax Act (Canada)	Any hosting and entertainment costs which are not exclusive to Project operations, Project employees and their immediate family
40	Information technology hardware on Project lands and dedicated to Project operations Project specific software licenses for personnel conducting Project operations
41	Supplies and labour for administration in field offices located on Project lands Parking areas and security gates on Project lands Administration buildings for general administration, office support and engineering on Project lands
42	Subscriptions to periodicals and journals where any individual subscription is $500.00 or less per year
43		Sponsorship, donations or gifts to cultural, charitable, sporting or community initiatives Matching employee contributions to any of the above Purchase of naming rights for buildings or other facilities
44		Funding provided for scholarships
45	Business and economic feasibility studies exclusively prepared to address problems of immediate applicability for the recovery, production or processing activities within Project operation	Contracts that hedge price risk specifically in relation to allowed costs of a Project or currency required to pay such costs Any activity related to debt or equity financing Foregone opportunity costs resulting from the non‑arms length supply of goods and services to Project operations even though potentially more profitable third party transactions are available with respect to those goods and services Any business or economic feasibility studies not included in Column 1
46		Production of promotional or informational material for investors or potential investors Arranging and hosting tours of the Project
47	Consultation in respect of the proposed or current Project operations, limited to: ‑ notifying stakeholders ‑ meeting facilities ‑ conducting meetings of stakeholders, including hosting	Consultation initiatives or studies concerning regional matters Any amount paid or the costs of items given to stakeholders not arising from: ‑ terms of a commercial arrangement ‑ participation in regulatory proceedings or consultation in respect of the proposed or current Project operations as limited to Column 1 ‑ trapper compensation under Column 1
		The following costs of consultation or of membership or participation in associations:
		‑ membership and participation in, or contributions to, business or industry associations or organizations, including but not limited to: Canadian Association Petroleum Producers (CAPP), Small Explorers and Producers Association of Canada (SEPAC), The Oil Sands Developers Group, Canadian Oil Sands Network for Research and Development (CONRAD), Petroleum Technology Alliance of Canada (PTAC), Alberta Chamber of Resources (ACR), the In-Situ Oil Sands Alliance or the Conference Board of Canada
		‑ membership and participation in, or contributions to, local or community organizations, regional organizations or interest groups, including but not limited to: the Cumulative Effects Management Association (CEMA), the Lakeland Industry and Community Association (LICA) and the Athabasca Tribal Council (ATC)
48		Any loss arising as a result of a disposition of accounts receivable Uncollected portions of any account receivable
49		Any amount deducted in the determination of unit price
50		Interest or any other borrowing or financing charges, including the financing component of capital leases Charges for late payment or payment shortfalls Any fines, penalties or payments made for non-compliance with any legally enforceable obligation imposed by any government
51	External audits required for the purposes of reporting called for by the Oil Sands Royalty Regulation, 2009, in relation to the Project	Audits other than those required under the Oil Sands Royalty Regulation, 2009
52		Amounts assessed by the Board as part of industry’s share of the Board’s funding (Board levies)
53		Depreciation, except as specifically permitted in this Regulation
54		Dispute resolution processes, including a referral under section 35 of the Oil Sands Royalty Regulation, 1997 or under section 48 of the Oil Sands Royalty Regulation, 2009, of arbitration or of litigation, of any dispute with the Crown in connection with any matter relating to royalty, royalty compensation, interest or any penalty payable or paid to the Crown in relation to the Project
55	Amounts paid as Overriding Royalty as specified in Schedule 3, section 101(n) of the Metis Settlements Act	Overriding royalty interests, carried interests, net profit interests or any similar interest
56	Research personnel and their consumed supplies toward the development of technology to solve a problem of immediate applicability for the recovery, production or processing activities within Project operations Any research facility, laboratory or area exclusively dedicated toward the development of technology to solve problems of immediate applicability for the recovery, production or processing activities within Project operations	Research that provides the foundation for further research, or research conducted without any defined practical end pointing to practical applications Any research facility, laboratory or area not exclusively dedicated toward the development of technology to solve problems of immediate applicability for the recovery, production, or processing activities within Project operations Management fees or membership fees in research organizations Research grants, research chairs and research fellowships to educational and research institutions
57	Salaries, wages, benefits, training, travel and accommodations for employees solely dedicated to carrying out Project operations Salaries, wages, benefits, training, travel and accommodations for employees or personnel performing information technology, administration or office support work and solely dedicated to Project operations Salaries, wages, benefits, training, travel and accommodations, for employees to the extent those employees carry out Project operations in the following circumstances: ‑ legal counsel for matters integral to furthering Project operations ‑ providing production accounting and royalty accounting for oil sands products	Salaries, wages, benefits, bonuses, stock options, training, travel and accommodations, relocation and severance (including associated relocation and training expenses in respect of that severance) for executive or management employees not solely dedicated to Project operations Salaries, wages, benefits, training, travel and accommodations for employees or personnel performing information technology, administration, or office support work and not solely dedicated to Project operations Relocation and severance (including associated relocation and training expenses in respect of that severance) for employees not solely dedicated to Project operations
	‑ purchasing assets, materials or supplies delivered for use in, or disposing from, Project operations ‑ conducting recruitment, classification, employee relations activities for employees carrying out Project operations ‑ carrying out engineering activities for Project operations ‑ carrying out marketing activities for oil sands products Relocation and severance (including associated relocation and training expenses in respect of that severance) for employees solely dedicated to Project operations
58	Office assets and equipment (and their maintenance) exclusively used for the Project regardless of location.	The following items not exclusively used for the Project, regardless of whether a portion of the labour cost of the user may be an allowed cost: ‑ office assets and equipment (and their maintenance) not located on Project lands ‑ telecommunications and information technology support, where the items supported are not located on Project lands
		‑ all line charges associated with telephones or other telecommunications equipment, not used for remote control of facilities or operations, where those telephones or other telecommunications equipment are not located on Project lands
59	Third party office space leases, including operating costs associated therewith, for office space located off Project lands, exclusively accommodating Project personnel carrying out Project operations	Office space leases, including operating costs associated therewith, for office space located off Project lands which accommodates Project and non-Project personnel
60		Allowed costs of another project or another Project

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