Crown Royalty and Incentives Regulation

Crown Royalty and Incentives Regulation, M.R. 109/94 The Oil and Gas Act , C.C.S.M. c. O34 Regulation 109/94 Registered June 6, 1994 bilingual version (HTML) Table of Contents Section 1 Definitions 2 Application 2.1 Approved solution gas capturing project 3 Royalty rate and volume 3.1 Minimum Crown royalty on oil 3.2 Captured solution gas 4 Calculation of holiday oil 5 Licensee may establish account 5.1 Expiration of holiday oil volume account 6 Sale from lease area includes royalty 7 Valuation of royalty 8 Royalty payments 9 Delivery of Crown royalty 9.1 Delivery of Crown royalty by person designated by holder 9.2 Electronic notice and designation 10 Repeal 11 Coming into force Schedule A Calculation of Crown Royalty Volume B Calculation of Holiday Oil Volume C Horizontal Well — Holiday Oil Volume D Repealed E Pressure Maintenance Project Incentive F Allocation of Horizontal Well Production to Spacing Units G Major Workover Incentive Definitions 1(1) In this regulation, "Act" means The Oil and Gas Act ; («  Loi  ») "approved solution gas capturing project" means a solution gas capturing project approved by the director under section 2.1; (« projet agréé de captage du gaz dissous ») "business day" means a day other than a Saturday, Sunday or holiday; (« jour ouvrable ») "drainage unit" means an area, determined by the director in accordance with this regulation, that (a) is allocated to a horizontal well for the purpose of producing oil and gas, and (b) consists of all spacing units located within 100 m of the completed interval of the horizontal well; (« surface de drainage ») "holder's designate" means a person designated by a holder to pay a Crown royalty on oil and gas under section 9.1; (« payeur désigné ») "holiday oil" means oil production that is exempt from any royalty payable under this regulation or any tax payable under the Oil and Gas Production Tax Regulation , Manitoba Regulation 28/97; (« pétrole exempté ») "holiday oil volume" and "HV" mean (a) the volume of holiday oil, in cubic metres, produced from a new oil well or third tier oil well, as that volume (i) was determined under The Mines Act , R.S.M. 1987, c. M160, or (ii) is determined under section 4 of this regulation, or (b) the volume of holiday oil, in cubic metres, produced from a marginal well after that well has undergone a major workover, as that volume is determined under section 4 of this regulation; (« volume de pétrole exempté » ou « VPE ») "horizontal leg" means the section of a well that meets the following criteria: (a) a wellbore in the well is drilled at an angle of at least 80° from vertical, and, for the purposes of this clause, the wellbore is deemed to be a line connecting the wellbore's initial point of penetration into a productive zone to the wellbore's end point in that productive zone, (b) the length of the wellbore referred to in clause (a) is at least 100 m, measured from the wellbore's initial point of penetration into the productive zone referred to in clause (a) to the wellbore's end point in that productive zone; (« branche horizontale ») "horizontal well" means a horizontal well as defined in the Drilling and Production Regulation ; (« puits horizontal ») "inactive well" means a well that has been designated by the director as an inactive well under section 54 of the Drilling and Production Regulation, Manitoba Regulation 111/94 and for which any applicable levy has been paid or is not yet overdue; (« puits inactif ») "licensee" means the holder of a well license issued under Part 8 of the Act; (« titulaire de permis ») "major workover" means (a) the re-entry of an abandoned well, (b) the deepening of a well into a new geological formation, (c) the recompletion of a well from one pool to another, (c.1) a horizontal leg, (d) the repair of casing in a well involving the installation of a new string of casing or by other means that are approved by the director in advance, or (e) a workover designated by the director under Schedule G; (« reconditionnement important ») "marginal oil well" means a well that (a) is abandoned, (b) has not operated in the previous 12 months, (c) over the previous 12 months, produced oil at an average rate, as determined by the director, of less than 3 m³ for each day the well was operated, or (d) had a major workover performed on it on or after January 1, 2014 (i) in which the casing of the well is repaired by the installation of a new string of casing or by other means that are approved by the director in advance, and (ii) over the previous 12 months immediately before the workover was performed, produced oil at an average rate, as determined by the director, of less than 3 cubic metres for each day the well was operated, but does not include a well drilled within 12 months of having undergone a major workover; (« puits de pétrole marginal ») "new oil" means oil that is not third tier oil and that is produced from (a) a new oil well, or (b) an old oil well that, in the opinion of the director, can reasonably be attributed to an increase in reserves as a result of a project of enhanced recovery implemented after April 1, 1974 and before April 1, 1999 under the Act or The Mines Act R.S.M. 1987, chapter M160; (« pétrole nouveau ») "new oil well" means (a) a well that was drilled and completed on or after April 1, 1974 and before April 1, 1999 in a spacing unit that, at the time the well was drilled, contained no other producing well or any well capable of producing, (b) an abandoned well that is re-entered on or after April 1, 1974 and before April 1, 1999, or (c) a horizontal well; (« puits de pétrole nouveau ») "old oil" means oil other than new oil, third tier oil or holiday oil; (« pétrole ancien ») "old oil well" means an oil well that produces old oil; (« puits de pétrole ancien ») "produced" means (a) produced from a well, (b) allocated to a unit tract under a unit order or unit agreement, or (c) allocated to a spacing unit under this regulation; (« extrait ») "producing month" means, in respect of a spacing unit or unit tract, a month in which oil and gas are produced from the spacing unit or unit tract; (« mois de production ») "solution gas " means dissolved gas in reservoir fluids or a wellbore which remains in solution until the pressure or temperature conditions of the reservoir fluids or the wellbore changes; (« gaz dissous ») "third tier oil" means oil that is produced from (a) a third tier oil well, (b) an inactive well that is activated after April 1, 1999, or (c) an old oil well or new oil well that, in the opinion of the director, can reasonably be attributed to an increase in reserves as a result of a project of enhanced recovery implemented under the Act after April 1, 1999; (« pétrole de troisième niveau ») "third tier oil well" means any of the following: (a) a well that (i) is drilled and completed on or after April 1, 1999, and (ii) is not a horizontal well, (iii) [repealed] M.R. 77/2004 , (b) an abandoned well that (i) is re-entered on or after April 1, 1999, and (ii) is not a horizontal well, (iii) [repealed] M.R. 77/2004 , (c) a marginal oil well that has undergone a major workover; (« puits de pétrole de troisième niveau ») "vertical well" means a well that is not a horizontal well. (« puits vertical ») Classification of oil 1(2) For the purpose of this regulation, oil is classified as holiday oil, third tier oil, new oil or old oil. 1(3) [Repealed] M.R. 77/2004 M.R. 52/95; 227/96; 50/99; 43/2001 ; 77/2004 ; 201/2013 ; 19/2025 ; 117/2025 Application of regulation 2 This regulation applies to oil and gas produced from a spacing unit or unit tract in which the Crown holds all or part of the oil and gas rights. M.R. 77/2004 Approved solution gas capturing project 2.1(1) The director may, by written notice, designate a system or facility that, in respect of a well, captures solution gas from the well, as an approved solution gas capturing project. Approval requirements 2.1(2) The director may make a designation under subsection (1) if (a) he or she is satisfied that the project will effectively capture solution gas; and (b) the system or facility is installed after December 31, 2013 and before January 1, 2028. M.R. 201/2013 ; 156/2018 ; 137/2020 ; 157/2022 ; 142/2024 ; 117/2025 Crown royalty on oil and gas to be paid by holder 3(1) Every holder or holder's designate shall pay a royalty to the Crown on oil and gas produced from a lease area as follows: (a) on oil, the volume calculated for each producing month in accordance with Schedule A; (b) on gas, 12.5 percent of the volume sold, calculated for each producing month to the nearest 0.001 thousand cubic metres. Allocation of production from horizontal well 3(2) Where the Crown holds oil and gas rights in any of the spacing units in a drainage unit of a horizontal well, the director must determine, in accordance with Schedule F, the proportion of the production of the horizontal well to be allocated to those spacing units. M.R. 52/95; 77/2004 ; 19/2025 Minimum Crown royalty on oil 3.1(1) Despite any other provision of this regulation, a holder or a holder's designate must pay a royalty to the Crown on the following initial volume of oil produced from the following wells: (a) for a well drilled after December 31, 2013 but before January 1, 2028, (i) 8 000 m 3 , if, in the opinion of the director, the well is (A) a horizontal well, (B) a deep development well completed for production in the Birdbear Formation or a deeper formation, or (C) a deep exploratory well drilled below the Birdbear Formation, or (ii) 4 000 m 3 , if, in the opinion of the director, the well is a non-deep exploratory well drilled more than 1.6 km from a well cased for production from the same or deeper zone, or (iii) 500 m 3 , if, in the opinion of the director, the well is a vertical oil well that is not subject to subclause (i) or (ii); (b) 500 m 3 , if, in the opinion of the director, the well was a marginal oil well that undergoes a major workover after December 31, 2013 but before January 1, 2028. Amount of Crown royalty 3.1(2) The royalty payable under this section is the lesser of (a) 3% of the volume of oil produced for each producing month; or (b) the royalty that the director determines would be payable under section 3 for each producing month, if the oil was not classified as holiday oil. Holiday oil volume reduced 3.1(3) The number of cubic metres of holiday oil volume earned by a well is reduced by the number of cubic metres of oil for which a royalty is paid under this section. Injection well excluded 3.1(4) No royalty is payable under this section in respect of oil produced from a well that is subject to the exemption provided under section 2 of Schedule E. M.R. 201/2013 ; 156/2018 ; 137/2020 ; 157/2022 ; 142/2024 ; 19/2025 ; 117/2025 Captured solution gas 3.2 Despite clause 3(1)⁠(b), during the period beginning January 1, 2014 and ending January 1, 2028, the royalty payable to the Crown on gas captured by an approved solution gas capturing project is zero. M.R. 201/2013 ; 156/2018 ; 137/2020 ; 157/2022 ; 142/2024 ; 117/2025 Determination of holiday oil volume 4(1) For the purposes of this regulation and the Oil and Gas Production Tax Regulation , Manitoba Regulation 28/97, the holiday oil volume earned by a well shall be determined under Schedule B, C or G. Holiday oil volume produced within 10 years 4(2) A holiday oil volume must be produced by a well within 10 years after the date on which the drilling of the well is completed or a major workover of the well is completed. Royalty and tax exemption for injection wells 4(3) A well that is completed for injection or converted to injection earns an exemption from the payment of any royalty under this regulation and any tax under the Oil and Gas Production Tax Regulation , Manitoba Regulation 28/97. The exemption is to be determined in accordance with Schedule E. M.R. 165/95; 43/2001 ; 77/2004 ; 36/2007 ; 201/2013 Licensee may establish account and assign under Schedule D 5 Subject to section 5.1, the licensee may, in accordance with Schedule D, assign holiday oil volumes earned under Schedule B, C or G to a holiday oil volume account established by the registrar in the name of the licensee or other person that the licensee may designate. M.R. 165/95; 201/2013 Expiration of holiday oil volume account 5.1(1) Beginning January 1, 2014, (a) the registrar may not (i) establish a new holiday oil volume account, or (ii) transfer the ownership of an existing holiday oil volume account; and (b) subject to subsection (2), a licensee may not assign or transfer any holiday oil volumes in the licensee's holiday oil volume account. One-time assignment for wells drilled in 2014 5.1(2) A licensee may, before January 1, 2015, make a single assignment of up to 2 000 m 3 of holiday oil volume from the licensee's holiday oil volume account to a well drilled after December 31, 2013 and before January 1, 2015. Holiday oil volume accounts discontinued 5.1(3) Each holiday oil volume account is hereby extinguished on January 1, 2015. M.R. 201/2013 Crown royalty to be included in sale 6 Subject to section 9, the sale of oil and gas produced from a lease area includes the Crown royalty. Valuation of royalty 7(1) The value of a Crown royalty under section 3 is the fair market value of the oil and gas at the wellhead during the producing month. Calculation of fair market value 7(2) For the purpose of subsection (1), the fair market value of oil and gas at the wellhead is an amount equal to the total of (a) any posted price of the oil and gas during the producing month less all reasonable and necessary expenses, as approved by the registrar, for transporting the oil and gas from the wellhead to the place at which the posted price is determined; and (b) any price supplement provided by the government of Manitoba or Canada. Posted price established by purchaser 7(3) For the purpose of clause (2)⁠(a), the posted price is any price established by the purchaser for the producing month. Posted price established by director 7(4) Where the director considers that a posted price determined under subsection (3) does not reflect the fair market value having regard for the quality of the production and the location of the point of sale, the director may by order establish a posted price for the purpose of this regulation. M.R. 227/96; 201/2013 Royalty payments 8 The holder or holder's designate must forward the money payable on the Crown royalty to the registrar, together with a monthly return in a form acceptable to the director, by the following date, unless otherwise specified by the director: (a) on or before the 15th day of the second month following the month of production; or (b) if the date in clause (a) is not a business day, on or before the last business day before the 15 th day of the second month following the month of production. M.R. 227/96; 19/2025 Delivery of Crown royalty to person designated by minister 9 The minister may in writing designate a person or agency to take custody of all or part of a Crown royalty in oil and gas, and the holder shall, on written notification by the minister deliver the royalty to the designated person or agency in such amounts and on such terms and conditions as the minister may specify. Delivery of Crown royalty by person designated by holder 9.1(1) Subject to any terms and conditions the minister may specify, a holder may designate a person to pay all or part of a Crown royalty on oil and gas on behalf of the holder by providing notice to the minister. Holder remains liable 9.1(2) If a holder's designate does not pay a Crown royalty on oil and gas on behalf of the holder, the holder remains liable for payment to the registrar. M.R. 19/2025 Electronic notice and designation 9.2 A notice to be given or designation to be made under this regulation must be made in an electronic form or by electronic means acceptable to the director. M.R. 19/2025 Repeal 10 The Petroleum Crown Royalty and Incentives Regulation , Manitoba Regulation 63/87, is repealed. Coming into force 11 This regulation comes into force on the day The Oil and Gas and Consequential Amendments Act , S.M. 1993, chapter 4, comes into force. SCHEDULE A (Section 3) CALCULATION OF CROWN ROYALTY VOLUME Definitions 1 In this Schedule, "K" is a multiplying factor determined in accordance with the following table: Classification of oil Multiplying factor old oil 1.00 new oil 0.55 third tier oil 0.47 holiday oil 0.00 Calculations 2 In sections 3 and 4 of this Schedule, the Crown royalty volume is calculated to the nearest 0.01 of a cubic metre, and a result that is 0.005 of a cubic metre or more is rounded up. M.R. 115/2025 MOP of 50 or less 3 Where MOP is 50 or less, the Crown royalty volume is equal to the result obtained from the following formula: K × (MOP) 2 /265 MOP of more than 50 4 Where MOP is more than 50, the Crown royalty volume is equal to the result obtained from the following formula: K(9.43 + 0.45 (MOP − 50)) SCHEDULE B (Section 4) CALCULATION OF HOLIDAY OIL VOLUME 1 [Repealed] M.R. 227/96; 50/99; 43/2001 ; 77/2004 ; 201/2013 Re-entry of abandoned well 2 An abandoned well that is re-entered is not eligible to earn a holiday oil volume under this Schedule. M.R. 227/96; 50/99; 77/2004 Injection well not eligible 2.1 A well drilled for the purpose of injecting water or another substance as part of a project of enhanced recovery approved under the Act is not eligible to earn a holiday oil volume under this Schedule. M.R. 36/2007 Calculation of holiday oil volume 3 Subject to section 4 of this Schedule, a vertical oil well drilled after December 31, 2013 and before January 1, 2028, earns a holiday volume of 500 m 3 . M.R. 50/99; 43/2001 ; 77/2004 ; 191/2008 ; 201/2013 ; 156/2018 ; 137/2020 ; 157/2022 ; 142/2024 ; 115/2025 ; 117/2025 Exploration and deep well incentive 4 A vertical well described as follows that is drilled after December 31, 2013 and before January 1, 2028, earns the holiday oil volume indicated: (a) if, in the opinion of the director, the well is a non-deep exploratory well drilled more than 1.6 km from a well cased for production from the same or deeper zone: 4 000 m 3 ; (b) if, in the opinion of the director, the well is a deep exploratory well drilled below the Birdbear Formation: 8 000 m 3 ; (c) if, in the opinion of the director, the well is a deep development well completed for production in the Birdbear Formation of a deeper formation: 8 000 m 3 . M.R. 43/2001 ; 201/2013 ; 156/2018 ; 137/2020 ; 157/2022 ; 142/2024 ; 117/2025 5 [Repealed] M.R. 77/2004 ; 201/2013 SCHEDULE C (Section 4) HORIZONTAL WELL HOLIDAY OIL VOLUME Definition 1 In this Schedule, "horizontal leg" means a hole drilled from a horizontal well that meets the length and angle standards applicable to a horizontal well that (a) has a finished drilling date more than one year after the finished drilling date of the horizontal well; and (b) will, in the opinion of the director, result in an increase in reserves. M.R. 227/96; 50/99; 43/2001 ; 77/2004 Holiday oil volume earned 2 A horizontal well drilled after December 31, 2013 and before January 1, 2028, earns a holiday oil volume of 8 000 m³. M.R. 227/96; 43/2001 ; 77/2004 ; 191/2008 ; 201/2013 ; 156/2018 ; 137/2020 ; 157/2022 ; 142/2024 ; 117/2025 3 [Repealed] M.R. 77/2004 ; 191/2008 ; 201/2013 SCHEDULE D [Repealed] M.R. 52/95; 165/95; 227/96; 50/99; 43/2001 ; 77/2004 ; 191/2008 ; 201/2013 SCHEDULE E (Subsection 4(3)) PRESSURE MAINTENANCE PROJECT INCENTIVE Definition 1 In this Schedule, "injection area" means the area within 100 metres of the completed interval of a horizontal well as determined by the director in the same manner as a producing area is determined in Schedule F. M.R. 36/2007 Exemption for injection wells 2(1) The completion or the conversion of a well for the purpose of injecting water or another substance as part of a project of enhanced recovery approved under the Act, will result in an exemption from the payment of any royalty under this regulation and any tax under the Oil and Gas Production Tax Regulation , Manitoba Regulation 28/97. 2(2) Subject to extension under section 4 of this Schedule, the exemption is for a 12-month period that begins on the first day of the month in which injection commences in the completed or converted injection well. 2(3) The exemption applies as follows: (a) for a vertical well, to the unit tract in which the well is located; (b) for a horizontal well, to the unit tracts that are included in the well's injection area, except that where more than four unit tracts are located in the injection area, the exemption applies to the four unit tracts containing the majority of the injection area, as determined by the director. M.R. 36/2007 Calculation where well not part of a unit area 3 If a completed or converted injection well is located in a spacing unit or spacing units that are not part of a unit area, the exemption applies to the spacing unit or spacing units in which the well is located, and is determined in the same manner as the exemption is calculated in section 2 of this Schedule where unit tracts are involved. M.R. 36/2007 Extending exemption period for converted well 4 For a well that is converted to injection after December 31, 2013 and before January 1, 2028, the exemption period of 12 months in subsection 2(2) of this Schedule is extended to 18 months if, on the day the conversion is completed, the well has not produced all its holiday oil volume. M.R. 36/2007 ; 191/2008 ; 201/2013 ; 156/2018 ; 137/2020 ; 157/2022 ; 142/2024 ; 115/2025 ; 117/2025 Holiday oil volume reduced 5 For certainty, the number of cubic metres of oil produced by a well during the exemption period provided under this Schedule reduces any remaining holiday oil volume allocated to the well. M.R. 201/2013 SCHEDULE F (Section 3) ALLOCATION OF HORIZONTAL WELL PRODUCTION TO SPACING UNITS Definition and determination of "producing area" 1 In this Schedule, "producing area" means the area within 100 m of the completed interval of a horizontal well as determined by the director under this Schedule and illustrated in the examples following section 4 of this Schedule. M.R. 52/95; 115/2025 Calculation where spacing units separated by road allowance 2 Where two spacing units in a drainage unit are separated by a road allowance, the road allowance is deemed to have a zero width and the boundary of the two spacing units is deemed to be the centre line of the road allowance for the purpose of determining (a) the spacing units within the drainage unit; (b) the producing area of the horizontal well; and (c) the allocation of production of a horizontal well to each spacing unit in the drainage unit. M.R. 52/95 Determination of production allocation 3(1) Subject to subsection (2), the production allocated to a spacing unit under subsection 3(2) of this regulation is to be determined in accordance with the following formula using the appropriate example in the illustrations that follow section 4: A = HWP × (PA(a)/PA) In this formula, A is the production allocated to spacing unit A; HWP is the production from the horizontal well in cubic metres per month; PA(a) is the area of the producing area within spacing unit A; PA is the producing area of the horizontal well determined in accordance with this Schedule. Allocation in a unit area 3(2) Where the producing area of a horizontal well lies (a) entirely within a unit area, production from the well is allocated to unit tracts in the unit area in accordance with the unit order or agreement; and (b) partially within a unit area and partially outside a unit area, production from the well is allocated to (i) spacing units outside the unit area in accordance with the formula in subsection (1), and (ii) to unit tracts in the unit area in accordance with the unit order or agreement. M.R. 52/95; 77/2004 Recompletion 4 Where a horizontal well is recompleted in a manner that results in a change in the completed interval of the well, the director may redetermine the allocation of production for the purpose of subsection 3(2) of this Schedule and shall set the effective date of the new allocation. M.R. 52/95; 227/96; 115/2025 Determination of Production Allocation Example: Single Leg Horizontal Wall Example: Multi Leg Horizontal Wall M.R. 52/95; 77/2004 SCHEDULE G (Section 4) MAJOR WORKOVER INCENTIVE Holiday volume earned 1 A marginal oil well that undergoes a major workover on or after January 1, 2009 and before January 1, 2028, for the purpose of producing oil from the well, earns a holiday volume of 500 cubic metres. M.R. 165/95; 227/96; 43/2001 ; 77/2004 ; 191/2008 ; 156/2018 ; 137/2020 ; 157/2022 ; 142/2024 ; 117/2025 Director may designate major workover 2 For the purpose of this Schedule, the director may designate as a major workover a workover that the director is satisfied cost more than $75,000 and that is, in his or her opinion, designed to increase recovery from a pool. M.R. 165/95; 227/96; 50/99; 43/2001 ; 201/2013