Frontier Lands Petroleum Royalty Regulations

2 (1) In these Regulations,

Act

Act means the Canada Petroleum Resources Act; (Loi)

adjusted cumulative cost base

adjusted cumulative cost base of an interest holder of a production licence in relation to a project in respect of any month means the amount determined in accordance with sections 6 to 8; (coût de base cumulatif rajusté)

adjusted gross revenues

adjusted gross revenues of an interest holder of a production licence from petroleum produced from project lands in a month means the aggregate of

• (a) the gross revenues of the interest holder from that petroleum,

• (b) insurance proceeds payable to the interest holder in that month under a policy of insurance for loss of revenue from that project, and

• (c) the absolute amount equal to the adjusted cumulative cost base of the interest holder in relation to the project in respect of that month, where the adjusted cumulative cost base has a negative value; (revenus bruts rajustés)

allocated

allocated means allocated in accordance with an agreement referred to in subsection 13(1); (attribué)

allowed capital costs

allowed capital costs of an interest holder of a production licence in relation to a project in respect of any month means, where there is only one interest holder, the allowed capital costs of the project or, where there is more than one interest holder, the allowed capital costs of the project allocated to that interest holder, that are

• (a) described in and calculated in accordance with Schedule I, and

• (b) incurred in that month; (coûts en capital déductibles)

allowed operating costs

allowed operating costs of an interest holder of a production licence in relation to a project in respect of any month means, where there is only one interest holder, the allowed operating costs of the project or, where there is more than one interest holder, the allowed operating costs of the project allocated to that interest holder, that are

• (a) described in and calculated in accordance with Schedule I, and

• (b) incurred or payable in that month; (frais d’exploitation déductibles)

capital cost adjustment

capital cost adjustment of an interest holder of a production licence in relation to a project means

• (a) in respect of a month preceding the month in which the project commencement date falls, an amount equal to five per cent of the allowed capital costs of the interest holder in relation to the project in respect of that month, and

• (b) in respect of the month in which the development plan for the project is approved by the Minister pursuant to section 5.1 of the Oil and Gas Production and Conservation Act and any month following the month in which the project commencement date falls, an amount equal to one per cent of the allowed capital costs of the interest holder in relation to the project in respect of that month, other than any amounts considered pursuant to subsection (2) to be an allowed capital cost of the interest holder in relation to the project in respect of the following month; (rajustement du coût en capital)

cumulative adjusted gross revenues

cumulative adjusted gross revenues of an interest holder of a production licence in relation to a project in respect of any month means the aggregate of the adjusted gross revenues of the interest holder from petroleum in respect of that month and the preceding months; (montant cumulatif des revenus bruts rajustés)

cumulative capital cost adjustments

cumulative capital cost adjustments of an interest holder of a production licence in relation to a project in respect of any month means the aggregate of the capital cost adjustments of the interest holder for that month and the preceding months; (montant cumulatif des rajustements des coûts en capital)

cumulative cost base

cumulative cost base of an interest holder of a production licence in relation to a project in respect of any month means the aggregate of

• (a) the allowed capital costs of the interest holder in relation to the project in respect of that month and the preceding months,

• (b) the allowed operating costs of the interest holder in relation to the project in respect of that month and the preceding months,

• (c) the prescribed royalty payable by the interest holder in that month and the preceding months in respect of petroleum produced from the project lands,

• (d) the cumulative capital cost adjustments in respect of the costs referred to in paragraph (a),

• (e) the cumulative operating cost adjustments in respect of the costs referred to in paragraph (b), and

• (f) the cumulative return allowance of the interest holder in relation to the project in respect of that month; (coût de base cumulatif)

cumulative operating cost adjustments

cumulative operating cost adjustments of an interest holder of a production licence in relation to a project in respect of any month means the aggregate of the operating cost adjustments of the interest holder for that month and the preceding months; (montant cumulatif des rajustements des frais d’exploitation)

cumulative return allowance

cumulative return allowance of an interest holder of a production licence in relation to a project in respect of any month means the aggregate of the return allowances for the months preceding that month; (montant cumulatif de l’allocation de rendement)

delineation well

delineation well means a well that is so located in relation to another well penetrating an accumulation of petroleum that there is a reasonable expectation that another portion of the accumulation will be penetrated by the first-mentioned well and that the drilling of the first-mentioned well is necessary in order to determine the commercial value of the accumulation; (puits de délimitation)

development well

development well means a well that is so located in relation to another well penetrating an accumulation of petroleum that it is considered to be a well or part of a well drilled for the purpose of production or observation or for the injection or disposal of fluid into or from the accumulation; (puits d’exploitation)

discovery well

discovery well means the well drilled on a geological feature that indicates that a significant discovery has been made; (puits de découverte)

exploratory well

exploratory well means a well drilled on a geological feature on which a significant discovery has not been made; (puits d’exploration)

gross revenues

gross revenues of an interest holder of a production licence from petroleum produced from project lands means the gross revenues of the interest holder as determined in accordance with Schedule II; (revenus bruts)

Her Majesty

Her Majesty means Her Majesty in right of Canada; (Sa Majesté)

inflation index

inflation index means the monthly Consumer Price Index as published by Statistics Canada under the authority of the Statistics Act; (indice d’inflation)

investment royalty credit

investment royalty credit of an interest holder means twenty-five per cent of that portion of the qualified frontier exploration expenses claimed by the interest holder as Canadian exploration expenses under the Income Tax Act, as amended from time to time, and certified by the Minister pursuant to subsection 10(3); (crédit de redevance à l’investissement)

investment royalty credit balance

investment royalty credit balance of an interest holder in respect of any month means the amount, if any, by which the aggregate of all investment royalty credits of that interest holder exceeds the aggregate of all amounts deducted under paragraph 3(1)(c) in respect of the months preceding that month; (solde du crédit de redevance à l’investissement)

long-term government bond rate

long-term government bond rate in respect of any month means the average percentage yield, during the calendar year immediately preceding the calendar year in which that month falls, of securities issued by the Government of Canada maturing in over ten years, as published by the Bank of Canada in the Bank of Canada Review; (taux des obligations à long terme du gouvernement)

marketable condition

marketable condition means petroleum that is sufficiently free from impurities and is otherwise in such a condition that it will be accepted for transportation through a transportation facility; (hydrocarbures commercialisables)

month of payout

month of payout of an interest holder of a production licence in relation to a project means the first month in respect of which the cumulative adjusted gross revenues of the interest holder in relation to the project are equal to or greater than the adjusted cumulative cost base of the interest holder in relation to the project; (mois de recouvrement de l’investissement initial)

net revenues

net revenues of an interest holder of a production licence in relation to a project in respect of any month means the amount by which the gross revenues of the interest holder from petroleum produced from the project lands in that month exceed the aggregate of

• (a) the allowed capital costs of the interest holder in relation to the project in respect of that month,

• (b) the allowed operating costs of the interest holder in relation to the project in respect of that month, excluding any premiums payable for insurance for loss of revenue,

• (c) the capital cost adjustment of the interest holder in relation to the project in respect of that month, and

• (d) the operating cost adjustment of the interest holder in relation to the project in respect of that month, calculated on the allowed operating costs excluding any premiums payable for insurance for loss of revenue; (revenus nets)

non-qualifying expense

non-qualifying expense means an expense

• (a) that is a Canadian exploration and development overhead expense within the meaning of section 1206 of the Income Tax Regulations, as amended from time to time,

• (b) that is an eligible expense in respect of which, or in respect of part of which, an incentive has been paid or is payable under the Petroleum Incentives Program Act, the Canadian Exploration and Development Incentive Program Act or the Canadian Exploration Incentive Program Act, or

• (c) in respect of which a reimbursement, compensation or other payment is made, including any amount of assistance or benefit from a government, municipality or other public authority, whether as a grant, subsidy, forgivable loan, deduction from royalty or tax, investment allowance or any other form of assistance or benefit; (dépense non admissible)

operating cost adjustment

operating cost adjustment of an interest holder of a production licence in relation to a project in respect of any month means an amount equal to ten per cent of the allowed operating costs of the interest holder in relation to the project in respect of that month; (rajustement des frais d’exploitation)

point of production

point of production in respect of petroleum means the point at which the petroleum is in marketable condition; (point de production)

production facility

production facility means equipment, located on project lands, that is for the production of petroleum from those project lands, and includes separating, treating and processing facilities, equipment and facilities used in support of production operations and landing areas, heliports, storage areas, tanks and gathering lines and personnel accommodations, but does not include equipment or facilities in respect of which a gas processing allowance or transportation allowance is deducted in accordance with Schedule II for the purpose of determining gross revenues; (installation de production)

production month

production month means a calendar month in which petroleum is produced from project lands on one or more days in that month; (mois de production)

project

project means a project described in a development plan or a revised development plan approved pursuant to section 5.1 of the Oil and Gas Production and Conservation Act; (projet)

project commencement date

project commencement date means the date on which a development plan in respect of a project is approved by the Minister pursuant to section 5.1 of the Oil and Gas Production and Conservation Act; (date de démarrage du projet)

project lands

project lands means the frontier lands, described in the production licence or licences issued for the purpose of producing petroleum from those lands in accordance with a project; (terres domaniales du projet)

qualified frontier exploration expenses

qualified frontier exploration expenses means the aggregate of all expenses incurred in the drilling or completing of an exploratory well, an exploratory probe or a delineation well located on frontier lands in respect of which the Act applies, or in preparing the site in respect of such a well or in the building of a temporary access road to the site, that

• (a) are incurred after November, 1985,

• (b) do not exceed $5,000,000 in respect of any one well,

• (c) are not non-qualifying expenses, and

• (d) are reasonable in the circumstances; (frais d’exploration admissibles sur des terres domaniales)

return allowance

return allowance of an interest holder of a production licence in relation to a project in respect of any month means the return allowance for that month calculated in accordance with section 9; (allocation de rendement)

transportation facility

transportation facility means a pipeline, tanker or other facility used to transport petroleum from project lands to the point at which the petroleum is delivered to the first purchaser thereof, but does not include facilities, including gathering lines, that are used to transport petroleum solely within project lands. (réseau de transport)

(2) Where, in determining the net revenues of an interest holder in relation to a project in respect of the month of payout or any month thereafter, the aggregate of the costs and adjustments, referred to in paragraphs (a) to (d) of the definition “net revenues”, of the interest holder in relation to the project in respect of that month exceeds the gross revenues of the interest holder in relation to the project in respect of that month, the excess shall, for the purposes of these Regulations, be considered to be an allowed capital cost of the interest holder in relation to the project in respect of the following month.

(3) Subject to subsection (4), for the purposes of these Regulations, the provisions of the Income Tax Act, as amended from time to time, apply, with such modifications as the circumstances require, in respect of the determination of whether or not a person is dealing at arm’s length with another person.

(4) For the purpose of the determination referred to in subsection (3),

• (a) a partnership or trust shall be considered to be a corporation; and

• (b) where a trust is determined to be related to a person, the trustee of the trust shall be considered to be related to that person.

(5) Where a percentage is required to be determined by these Regulations, the percentage shall be calculated to eight decimal points and rounded off to seven decimal points.