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Manitoba Petroleum Fiscal Regime


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oil production that is exempt from any royalty payable under the Crown Royalty and Incentives Regulation, or any tax payable under the Oil and Gas Production Tax Regulation. Note that wells drilled or receiving a marginal well major workover incentive after December 31, 2013 and prior to January 1, 2019, have a requirement to pay a minimum royalty on Crown production and a minimum tax on freehold production.

Provincial Crown

Oil Royalties

The royalty on production from Provincial Crown oil and gas rights is determined under the Crown Royalty and Incentives Regulation of The Oil and Gas Act.


Crown royalty is a function of the monthly oil production from a spacing unit, or oil production allocated to a unit tract under a unit agreement or order.
The formulae used for the determination of Crown Royalty are shown in Table 1.
Figure 1 and Table 2 show Crown oil royalty rates as a function of production.
Crown oil royalty rates are not price sensitive.
For horizontal wells, Crown royalty is calculated per spacing unit based on oil production allocated to the spacing units within the drainage unit of the well, as determined under the Crown Royalty and Incentives Regulation (Figure 2).

Table 1: Manitoba Crown Oil Royalty Determination



Monthly Production (m3)
(calculated to nearest 0.1 m3)



Crown Royalty Volume (m3)
(calculated to nearest 0.01 m3)

0 to 50
over 50

K x P2/265


K x (9.43+ 0.45 (P-50))



K is equal to one of the following multiplying factors:
0.00 Holiday Oil

0.47 Third Tier Oil

0.55 New Oil

1.00 Old Oil
P is the monthly oil production in cubic metres (m3)
Crown Royalty Rate (%) = Crown Royalty Volume X 100

Monthly Production




Table 2: Manitoba Crown Oil Royalty Rates (%) – Example




 

 

 

 

 

 

 

Production

Third Tier Oil

Third Tier Holiday

New Oil

New Oil Holiday

Old Oil

Pre MDIP 2014 Holiday

(m3/month)

 

 

 

 

 

 

 

 

 

 

 

 

 

0

0.0

0.0

0.0

0.0

0.0

0.0

20

3.5

3.0

4.2

3.0

7.5

0.0

30

5.3

3.0

6.2

3.0

11.3

0.0

40

7.1

3.0

8.3

3.0

15.1

0.0

50

8.9

3.0

10.4

3.0

18.9

0.0

60

10.9

3.0

12.8

3.0

23.2

0.0

70

12.4

3.0

14.5

3.0

26.3

0.0

80

13.5

3.0

15.8

3.0

28.7

0.0

90

14.3

3.0

16.8

3.0

30.5

0.0

100

15.0

3.0

17.6

3.0

31.9

0.0

150

17.1

3.0

20.0

3.0

36.3

0.0

200

18.1

3.0

21.2

3.0

38.5

0.0

250

18.7

3.0

21.9

3.0

39.8

0.0

300

19.1

3.0

22.4

3.0

40.6

0.0

350

19.4

3.0

22.7

3.0

41.3

0.0

400

19.6

3.0

23.0

3.0

41.7

0.0

450

19.8

3.0

23.2

3.0

42.1

0.0

500

19.9

3.0

23.3

3.0

42.4

0.0

550

20.0

3.0

23.4

3.0

42.6

0.0

600

20.0

3.0

23.6

3.0

42.8

0.0


Minimum Crown Royalty (MCR)
For a well drilled after December 31, 2013 and before January 1, 2019 (MDIP 2014 Holiday Volume), there is a requirement to pay a minimum Crown royalty. The royalty payment will be required on the following volumes:
1.(a)8,000 m3 if the well is
(i)a horizontal well,
(ii)a deep development well completed for production in the Birdbear Formation or a deeper formation, or
(iii)a deep exploratory well drilled below the Birdbear Formation; or
(b)4,000 m3 if the well is a non-deep exploratory well drilled more than 1.6 kilometres from a well cased for production from the same or deeper zone; or
(c)500 m3 if the well is a vertical oil well that is not subject to subclauses (a) or (b);

2. 500 m3 if the well was a marginal oil well that undergoes a major workover after December 31, 2013 but before January 1, 2019.


The royalty payable is the lesser of


  1. 3% of the volume of the oil produced for each producing month; or




  1. the royalty that would be payable for each producing month if the well production was not classified as holiday oil.

For an MDIP 2014 holiday volume, royalty calculations will be based on the production of the well and exclude production from other wells that may share spacing units.


Minimum Crown Royalty Rate Vertical Well Example 1 (MCR 1)
A vertical well finished drilling on January 31, 2014 and because it was drilled on or after April 1, 1999, oil produced from the well is classified as third tier oil. The well received 500 m3 of holiday oil volume and started producing on February 2, 2014. Oil produced from the first month was 300 m3.
Step 1: The Crown royalty volume for February is calculated using a 3% royalty rate:

300 x .03 = 9.00 m3


Step 2: The Crown royalty volume is calculated as if the well was not on holiday:
K x (9.43 + .45(P-50))

The third tier K factor is .47

.47 x (9.43 + .45(300-50))

Crown royalty volume is 57.31 m3


Step 3: The Crown royalty payable would be 9.00 m3 because it is the lesser volume.
Royalties due = 9 m3 X Price
This well produces for two months and in April 2014 produced 50 m3. The well had a remaining holiday volume of 20 m3.
Step 1: The Crown royalty volume for April on the monthly production will be calculated using a royalty rate of 3%. The well is treated as if on holiday for the whole month.
50 x .03 = 1.5 m3
Step 2: The Crown royalty volume is calculated as if the well was not on holiday
K x P2/265

The third tier K factor is .47

.47 x 502 /265

Calculated Crown royalty volume is 4.43 m3


Step 3: The Crown royalty payable on the holiday production would be 1.5 m3 because it is the lesser volume.
Royalties Due = 1.5 m3 X Price

Crown Royalty Rate Horizontal Well Examples
Minimum Crown Royalty Example 1a (MCR 1a)
In this example we have an MDIP 2014 horizontal well situated on Crown owned minerals and the well traverses three spacing units. In spacing unit 1 there is a previously existing vertical well that was drilled in 2013. That vertical well is a third tier well and its holiday volume has been utilized. The horizontal well has MDIP 2014 holiday volume and has an oil classification of New Oil. Production from the vertical well is not considered in the horizontal well royalty calculations.

The horizontal well production is allocated to each spacing unit:

Location 1 - 33%

Location 2 - 38%

Location 3 - 29%
For this month the horizontal well has produced 200 m3 of oil.


Spacing Unit

Horizontal Allocation %

Production x Hz Allocation

3% Royalty

Regular non-holiday calculation

Royalty Volume Payable

1 Crown

33

200 x 33% = 66

66 x 3% = 1.98 m3

K x (9.43+ 0.45 (P-50))

=.55 x (9.43 + 0.45(66-50))

= 9.15 m3


1.98 m3

2 Crown

38

200 x 38% = 76

76 x 3% = 2.28 m3

K x (9.43 + 0.45 (P-50))

= 0.55 x (9.43 + 0.45(76-50))

= 11.62 m3


2.28 m3

3 Crown

29

200 x 29% = 58

58 x 3% = 1.74 m3

K x (9.43 + 0.45 (P-50))

= 0.55 x (9.43 + 0.45(58-50)

= 7.17 m3


1.74 m3

Royalty payable = royalty volume x oil price.


Crown Royalty Example 1b (MCR 1b) (no minimum in this example)
After the horizontal well has produced all of the MDIP 2014 holiday volume, regular royalty calculations will resume. The horizontal well produced 200 m3 of new oil and the vertical well produced 45 m3 of third tier oil. In this case the 45 m3 of production from the vertical well must be included in the calculation of royalties for spacing unit 1.

From the above table example the allocated production from the horizontal well for spacing unit 1 would be 66 m3. So the production from spacing unit 1 is 66 (new oil) + 45 (third tier oil) = 111 m3.


Step 1: Calculate new oil royalty

K x (9.43 + .45(P-50))

.55 x (9.43 + .45(111-50)) = 20.28 m3

New oil portion = 20.28 x (66/111) = 12.06 m3


Step 2: Calculate third tier royalty

.47 x (9.43 + .45(111-50) = 17.33 m3

Third Tier portion = 17.33 x (45/111) = 7.02 m3
Step 3: Total royalty volume for spacing unit 1 is 12.06 + 7.03 = 19.09 m3.

Royalty Payable = 19.09 m3 X Price


The other spacing units are calculated normally.

Figure 2: Determination of Production Allocation for Horizontal Wells





A = HWP x PA (a)

PA

Where:

A is the production allocated to spacing unit A;
HWP is the production from the horizontal well in cubic metres (m3)/month;
PA (a) is the area of the producing area within spacing unit A, and;
PA is the producing area of the horizontal well determined in accordance with the Crown Royalty and Incentives Regulation.

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