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Manitoba Petroleum Fiscal Regime


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Provincial Gas Royalties and Taxes

The provincial Crown royalty payable on gas is equal to 12.5% of the volume sold, calculated for each production month.


The Provincial freehold tax on gas is equal to 1.2% of the volume sold, calculated for each production month.
There is no Crown royalty or freehold tax payable on gas consumed as lease fuel.



MANITOBA DRILLING INCENTIVE PROGRAM

The Manitoba Drilling Incentive Program provides the licensee of newly drilled wells, or qualifying wells where a major workover has been completed, with a "holiday oil volume".


Holiday oil volumes" must be produced within 10 years of the finished drilling date of a newly drilled well, or the completion date of a major workover on a marginal well.
A new well drilled or receiving a marginal/major workover incentive after December 31, 2013 and before January 1, 2019 will be required to pay a minimum Crown royalty, or if the well is producing from freehold oil and gas rights, a minimum production tax during the production of holiday oil. Examples for the calculation of taxes and royalties for holiday oil are detailed in previous sections.
Wells drilled or converted for purposes of injection in an approved enhanced recovery project earn a one year exemption from the payment of Crown royalty or freehold production tax on production allocated to the unit tract in which an injection well is located.
The program consists of 7 components:


  1. Vertical Well Incentive

  2. Exploration and Deep Well Incentive

  3. Horizontal Well Incentive

  4. Marginal Well Major Workover Incentive

  5. Pressure Maintenance Project Incentive

  6. Solution Gas Conservation Incentive

  7. Holiday Oil Volume Account




  1. Vertical Well Incentive

The program provides the licensee of a vertical development or exploratory well drilled after December 31, 2013 and prior to January 1, 2019 with 500 m3 of holiday oil volume. To qualify the well must be drilled less than 1.6 kilometres from the nearest well cased for production from the same or a deeper zone.




  1. Exploration and Deep Well Incentive

Under the Exploration and Deep Well Incentive an exploratory well or deep development well drilled after December 31, 2013 or prior to January 1, 2019 earns a HOV as follows:




  1. Non-deep exploratory well drilled more than 1.6 kilometres from a well cased for production from the same or a deeper zone earns a HOV of 4,000 m3;

  2. Deep exploratory well drilled below the Birdbear Formation earns a HOV of 8,000 m3; and

  3. Deep development well completed for production in the Birdbear or deeper formation earns a HOV of 8,000 m3.




  1. Horizontal Well Incentive

Any horizontal well (defined as a well that achieves an angle of at least 80 degrees from the vertical for a minimum distance of 100 m) that is drilled after December 31, 2013 or prior to January 1, 2019, earns a holiday oil volume of 8,000 m3.




  1. Marginal Well Major Workover Incentive

Any marginal well where a major workover is completed prior to January 1, 2019 earns a holiday oil volume of 500 m3.


A marginal oil well is defined as an abandoned well, or well that,


  • was not operated over the previous 12 months, or




  • produced oil at an average rate of less than 3 m3 per operating day, as determined by the Director of Petroleum.

A major workover includes:




  • the re-entry of an abandoned well;

  • the deepening of a well into a new formation;

  • the recompletion of a well from one pool to another;

  • the drilling of a horizontal leg

  • the repair of the casing in a well by installation of a new string of casing or by other means as approved by the Director in advance; and,

  • any other workover that, in the opinion of the Director will cost more than $75,000 and is designed to increase recovery from a pool.

Upon completion of a major workover on a marginal well, any production from a vertical well is classified as third tier oil. Horizontal well production retains the new oil classification.




  1. Pressure Maintenance Project Incentive

The Pressure Maintenance Project Incentive (PMPI) provides for a one year exemption from the payment of Crown royalty or freehold production tax on production allocated to a unit tract in which an injection well is drilled or a well is converted to water injection.


Wells eligible for the PMPI include those drilled for the purpose of injection in an approved enhanced recovery project, as well as vertical or horizontal wells that are converted to injection.
The PMPI exemption is for one year beginning in the month in which injection commenced and applies for a vertical well, to the unit tract in which the well is located; and for a horizontal well, to the four unit tracts containing the majority of the injection area, as determined by the Director of Petroleum (defined as the area within 100 m of the completed interval of the horizontal well; Figure 2).
Under the PMPI, for a well that is converted to injection after December 31, 2013 and before January 1, 2019, the exemption period will be extended to 18 months beginning in the month in which injection commenced, if the well has remaining holiday oil volume.


  1. Solution Gas Conservation Incentive

The province has introduced a new Solution Gas Conservation Incentive, the purpose of which is to encourage the implementation of new projects that capture solution gas. To obtain the incentive, the proponent must make application to the Director of Petroleum. Approved projects implemented after December 31, 2013 will be exempt from the payment of Crown royalty and production tax on gas produced from the project until December 31, 2018.




  1. Minimum Crown Royalty and Production Tax

A well drilled or receiving a marginal/major workover incentive after December 31, 2013 and before January 1, 2019 will be required to pay a minimum Crown royalty, or if the well is producing from freehold oil and gas rights, a minimum production tax. Examples for the calculation of taxes and royalties for holiday oil are detailed in previous sections.




  1. Holiday Oil Volume Account

Previous iterations of the Manitoba Drilling and Incentive Program provided a Holiday Oil Volume Account which was established for each company earning holiday oil. The Account allowed for the movement of holiday oil volume to and from wells under specific conditions.


As of January 1, 2015, Holiday Oil Volume Accounts will be eliminated. Until December 31, 2014, a holder of an Account will be able to make a one-time transfer of 2,000 m3 of holiday oil to a well drilled during the period January 1, 2014 to December 31, 2014. To implement the transfer, the holder of the holiday account must contact the Petroleum Registrar for approval.
For the period January 1, 2014 to January 1, 2015, holiday oil volume may not be transferred from individual wells to the account.


QUESTIONS AND ANSWERS

Q1 What is a "Holiday Oil Volume Account" and when will they be extinguished?

A1 A Holiday Oil Volume Account is administered by the Branch. The account is established for each company (licensee) for all wells that qualify under previous iterations of Manitoba Drilling Incentive Program. The account reflected all well activity and holiday oil volume assignments under the program. As of January 1, 2015 all holiday oil volume accounts will be extinguished. As of January 1, 2014, no holiday oil may be transferred from a well to a holiday oil volume account.

Q2 Can earned holiday volumes be transferred from one company account to another?

A2 No. As of January 1, 2014, no transfers of existing holiday accounts is allowed.

Q3 Can holiday oil be transferred from the holiday oil volume account to a new well?

A3 Yes. For well drilled after December 31, 2013 and prior to January 1, 2015, a one-time assignment of 2,000 m3 made be made from the holiday oil volume account to the well. The transfer request must be made to the registrar prior to January 1, 2015.

Q4 Can a horizontal well earn more than 8,000 m3 if an additional leg is drilled?

A4 Yes. Under the provision of the marginal/major workover incentive, additional legs may receive 500 m3 of holiday oil. Application must be made to the Director of Petroleum.
Q4 How is the Marginal Well Incentive eligibility determined?

A4 Make an application to the Director outlining the work that has been performed on the well, the production history of the well, the average production for the 12 month period prior to the workover, the last date of production, proof off the cost of the work performed, recompletion reports, and the expected impact on oil recovery.

Q5 How are the spacing units selected for the Pressure Maintenance Project?

A5 The company will send a letter to the Petroleum Registrar selecting the spacing units. For a horizontal well converted to injection, the 4 spacing units select must comprise over 50% of the horizontal well allocation.
Q6 How is approval received for the Solution Gas Conservation Incentive?

A6 By application to the Director outlining details of the project.
Q7 How is MCR or MPT calculated when the holiday volume for an MDIP 2014 is less than the well’s monthly production.

A7 The well is treated as if it is on holiday for the full month and will be off holiday in the following month.


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