Royalty Program for Marginal Gas Wells
To encourage drilling and to keep wells operating, the following programs are offered to lower the rate used to calculate your royalties:
Shallow gas Stream IDs that have an average daily production of less than 23 cubic metres of natural gas per metre of well depth and meet additional requirements qualify for the marginal well royalty reduction.
Offered by Ministry of Finance
Amount
No fixed amount
Quick eligibility check
Who can apply
Effective September 1, 2022, new gas wells with a spud date on or after September 1, 2022, do not qualify for the low productivity, marginal or ultramarginal royalty reduction programs.
Shallow gas Stream IDs that have an average daily production of less than 23 cubic metres of natural gas per metre of well depth and meet additional requirements qualify for the marginal well royalty reduction.
Only one production based royalty reduction can be applied to the same Stream ID.
Stream IDs must produce for 12 months before they qualify for this reduction.
The Ministry of Finance reviews the marginal well eligibility criteria for every new and reactivated gas Stream ID with marketable gas production after July 1, 2003, and prior to September 1, 2022.
Note:
This program is only available to wells with a spud date before September 1, 2022.
Eligibility for the marginal well royalty reduction
A well event is eligible for the marginal well royalty reduction if it meets the following criteria:
- The primary product is natural gas, but it is not part of a coalbed methane project
- The well event is in a well with a spud date between May 31, 1998, and August 31, 2022 (wells that are subject to base 9 or base 12 royalty rates)
- The first month in which marketable gas is produced from the well event is after June 2003 and before August 2008. Well events that were suspended as of June 30, 2003, are eligible if they are reactivated after June 30, 2003
- The average daily rate of production per metre of depth in the 12‑month period that begins with the first month in which it produces marketable gas is less than 23
The average daily rate of production per metre of depth is calculated using the following formula:
((Total production from the well event ÷ total number of hours during which the well event produced natural gas over the 12-month test period) × 24) ÷ Marginal well depth for a marginal well event
The total production from the well event means:
- The 12 consecutive calendar months starting with the calendar month in which marketable gas is first produced from the well event, or
- In the case of a reactivated well event, the 12 consecutive calendar months after the calendar month in which marketable gas is first produced following reactivation
The marginal well depth means:
- For a well event in a vertical well, the true vertical depth to the top of pay. This is the distance between the wellbore’s intersection with the pay of the marginal well event to the point, directly above that intersection point, that is the same elevation as the kelly bushing used in drilling that well, or
- For a well event in a horizontal well, the total measured depth of the well event, which is the length of all of the vertically and horizontally-oriented wellbores from the surface to the well event
About the funding
The marginal well royalty reduction provides a greater reduction than the low productivity well royalty reduction at any rate of production that averages under 25,000 cubic metres per day in a calendar month.
At the end of the 12-month period, we calculate the marginal well royalty reduction based on the volume produced and allocated as reported in Petrinex.
Once we determine that a Stream ID qualifies for this reduction, we recalculate the royalty for the previous 12 months accordingly.
If the Stream ID qualifies for the reduction, a lower royalty rate is automatically used to calculate your royalties when the average daily rate of production in a calendar month is less than 25,000 cubic metres.
Show all funding details
Step 1:
When average daily production over the calendar month is less than 25,000 cubic metres, the royalty rate for the well event is reduced by the base royalty rate multiplied by the production-based reduction factor (PBRF).
The PBRF is calculated by:
(25,000 - Average daily natural gas production volume in the producing month) ÷ 25,0002
If average daily production in a month is 25,000 cubic metres or more, the PBRF is zero.
Step 2:
The royalty rate payable for marginal wells is then calculated as:
Base royalty rate - (PBRF × base royalty rate)
Similar programs
| Program | Type | Amount | Status |
|---|---|---|---|
| Deep-Well Royalty Program | Royalty | Royalty credits covering a portion of drilling and completion costs: Tier 1 deep wells from a minimum of $440,000 (for a well with a deep-well depth of 2,500 metres) to a maximum of $2.81 million (for wells 5,500 metres or deeper) | Open |
| Low Productivity Well Royalty Reduction | Royalty | No fixed amount | Open |
| Ultra-marginal Well Royalty Reduction | Royalty | No fixed amount | Open |
