Energy, Mines, and Resources

Royalties

A Summary of the Yukon Oil and Gas Royalty Regulations

Introduction
The Oil and Gas Royalty Regulations  270 KB were promulgated in February 2008. The Regulations authorize the Government of Yukon to collect royalty for oil and gas recovered pursuant to Yukon oil and gas dispositions.

The Yukon royalty system is based on an ad valorem structure with the objectives of transparency and simplicity of administration for both government and industry. Ad valorem means “according to the value”. In Yukon, payable royalty is calculated using a variable rate, factoring in market values and costs.

A royalty client is defined as a Yukon disposition holder. Royalty clients are responsible for the payment of royalty proportionate to the holder’s specified undivided interest in the disposition.

The Oil and Gas Royalty Regulations consists of 4 parts. Parts 1 to 3 describe the provisions for crude oil, gas and field condensate, respectively. Part 4 includes general provisions. 

Parts 1 to 3: Royalty provisions for crude oil, gas and field condensate
Formulas for calculating royalty for crude oil, gas and field condensate are provided in the respective parts of the Oil and Gas Royalty Regulations. There is an initial period during which the royalty rate for crude oil and gas production is reduced for each well, subject to its production threshold.

Prices and royalty allowances are prescribed by the Oil and Gas Resources Division Head. Select Prices are set from time to time while Par and Reference Prices are set for each production month. The Division Head may also prescribe a royalty allowance that may be deducted from the royalty payable. A Royalty allowance is a proxy in lieu of the transportation and processing costs.

Royalty clients are required to submit a royalty return for each month in which there is production. Royalty must be paid by the last day of the month following the production month. 

Part 2, Gas Royalty, describes exemptions for gas consumed in operations, at a power plant, flared or vented for gathering or processing in Yukon, or consumed as a fuel for testing and production. Provisions are also made for gas injection credits.

Part 4: General
Part 4 of the Oil and Gas Royalty Regulations provides general information about royalty returns, information statements, measurement standards, departmental royalty account records, the apportionment of royalty liability, the publication of prescribed prices and allowances, provisions for the recalculation of royalty payable, and penalties.

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Royalty Submissions

A royalty submission is the complete package of support documents pertaining to royalty payments that is sent to Oil and Gas Resources. A royalty submission is required from every royalty client that has production of oil, gas, or field condensate in a production month.

A submission includes a royalty return for the current production month, an amended royalty return for each production month to which amendments apply, if applicable, and a cheque.

The cheque accompanying the royalty submission must include the royalty payment for the production month, any interest or penalties that are payable and royalty amendments.

Guidelines for royalty submissions under the Yukon Oil and Gas Royalty Regulations will be available soon.

The Yukon royalty return will contain all of the formulas and inputs required to calculate payable royalties and amendments. It has two purposes: to streamline the reporting and submission process for royalty clients, and to create a consistent format for information reporting. A royalty return must be submitted by each royalty client for every production month.

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Prescribed Prices and Royalty Allowances

Select Price reflects the lowest value over which the royalty rate is sensitive to market prices. The select price is prescribed by the Division Head and reviewed periodically.

Par Price varies from month to month, and reflects current market prices. The Division Head prescribes the par price for each month in which there is oil or gas production.

Reference Price results in a uniform price being established by government for oil and gas production. The reference price allows for adjustments for product quality and well location. The reference price reflects fair market value and is based on publicly reported market prices. The Division Head prescribes the reference price for each month in which there is oil or gas production.

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Kotaneelee Gas Royalty Submission

The Kotaneelee Gas Royalty Submission Guidelines  184 KB apply to production leases in southeast Yukon.

Royalty rates for production from the Kotaneelee gas field were established in the federal production lease agreements. This royalty structure continues to govern the wells in Kotaneelee. It is not anticipated that the provisions of the Oil and Gas Royalty Regulations will be applied to the pre-existing Kotaneelee leases; however, the Division Head will review the status of the wells from time to time and may give direction to the disposition holders that the provisions of the Oil and Gas Royalty Regulations will apply.

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Disclaimer
This webpage is meant as a synopsis of the Oil and Gas Royalty Regulations. If there is any conflict or inconsistency between this web page and a provision of the Oil and Gas Act or the Oil and Gas Royalty Regulations, the Oil and Gas Act and the Oil and Gas Royalty Regulations prevail.

For additional information please contact:


Debra Wortley
Rights and Royalties Manager
Oil and Gas Resources
Phone: 867.667.3512
Fax: 867.393.6262

Email: debra.wortley@gov.yk.ca or oilandgasroyalties@gov.yk.ca