Frontier Lands Petroleum Royalty

Act: Canada Petroleum Resources Act, R.S.C. 1985, c.36, 2nd Supp.
Regulation: Frontier Lands Petroleum Royalty Regulations, SOR/92-26

 

To Whom Does This Apply?

Any business involved in the exploration and development of petroleum in frontier lands.

"frontier lands" means lands that belong to Her Majesty in right of Canada, or in respect of which Her Majesty in right of Canada has the right to dispose of or exploit the natural resources, and that are situated in:

(a) the Northwest Territories, Nunavut or Sable Island, or

(b) submarine areas, not within a province, in the internal waters of Canada, the territorial sea of Canada or the continental shelf of Canada,

but does not include the adjoining area, as defined in section 2 of the Yukon Act.

Summary

The Canada Petroleum Resources Act governs interests in petroleum in relation to frontier lands.

The Frontier Lands Petroleum Royalty Regulations provide for limiting the royalty burden during early production and on marginal projects, but to ensure an equitable sharing of revenues between government and industry after the initial investment has been recovered. A royalty is defined as any payment required by government in respect of production of resources by reason of government's title to the resource.

A 1/5/30% royalty regime is prescribed in the Regulations. This means that prior to "payout", the basic royalty commences at a rate of 1% of gross revenues, rising to 5% in increments of 1% every 18 production months. Following "payout" of the initial investment, the royalty is the greater of 30% of net revenues and 5% of gross revenues. Payout is deemed to have occurred when cumulative gross revenues first equal the sum of total eligible capital costs, operating costs, overhead allowances, royalties paid and the cumulative return allowance. Payout will be calculated on a working interest basis and, where many participants are involved in a project, several payout points will be likely for a single project.

DISCLAIMER
Information contained in this section is of a general nature only and is not intended to constitute advice for any specific fact situation. For particular questions, the users are invited to contact their lawyer. For additional information, see contact(s) listed below.

Manitoba Contact(s):
See National Contact.

National Contact(s):
Ms. Mimi Fortier
Director General
Northern Oil and Gas Branch
Indian and Northern Affairs Canada
10th floor
15/25 Eddy Street
Gatineau, Quebec  K1A 0H4
Telephone: 819-953-9393
Fax: 819-953-5828
Web site: http://www.ainc-inac.gc.ca/index-eng.asp