Equitable Production of Oil and Gas

On this page

• Triggering Wells adjoining Leased First Nation Reserve Lands
• Triggering Wells adjoining Unleased First Nation Reserve Lands
• Confidential Triggering Wells
• Contract Holder can Delegate to an Authorized Company
• Multiple Contract Holders
• Compensatory Royalty
• Offset Wells

Triggering Wells adjoining Leased First Nation Reserve Lands

Where the First Nation reserve lands adjoining a triggering well are subject to a subsurface contract that includes the zone from which the triggering well is producing ("offset zone"), IOGC issues an offset notice to the contract holder with a copy to the First Nation council.

IOGC will normally send an offset notice to a contract holder soon after verifying that an external producing well meets the proximity requirements to be considered a triggering well. One exception is for permits issued under the Indian Oil and Gas Regulations, 2019 that become effective after there is an existing triggering well in an adjoining spacing unit. In this situation, IOGC will only issue offset notices for pre-existing triggering wells once the first anniversary of the permit occurs.

If a contract holder is served with an offset notice, it can choose to: surrender the First Nation spacing unit adjoining the triggering well from its contract; to pay compensatory royalty; or to establish a circumstance. There are six different circumstances that can be established as follows:

1. The triggering well is not draining from the offset zone referred to in the offset notice.
2. The offset zone of the triggering well has been abandoned, as shown in the records of the provincial authority.
3. An offset well is producing from the offset zone.
4. The spacing unit in which the triggering well is located no longer adjoins the First Nation spacing unit referred to in the offset notice.
5. The offset zone in the First Nation spacing unit is subject to a unit agreement under which oil or gas is being or is deemed to be produced.
6. The triggering well is subject to a storage agreement that has been approved by the provincial authority.

Where a company’s response is to try to establish a circumstance, the response must include documentation and technical information that support the circumstance. IOGC will review the documentation and information and determine whether the circumstance has been established. After making the determination, IOGC will send a Notice of Determination of Circumstance to the contract holder.

Companies must send a completed Offset Notice Response form to IOGC by the end of the offset period specified in the offset notice and should refer to the Offset Notice Response Guidelines when completing the form. Failure by a contract holder to send a completed form to IOGC by the deadline will result in the default compensatory royalty obligation being applied. IOGC will reject any offset notice responses where the form was completed incorrectly or that did not include required documentation.

Where a company’s response is to surrender the First Nation spacing unit, the spacing unit is surrendered down to the base of the offset zone excluding any productive zones or zones subject to unit or storage agreements which are to be listed on the form. The offset notice response must be signed under corporate seal or with witness and affidavit using the Affidavit of Witness form.

When IOGC receives a valid response to an offset notice from a contract holder or when the offset period ends, IOGC will send the First Nation council an informational notice advising either that the obligation to pay compensatory royalty will commence or that the obligation to pay compensatory royalty has been relieved, as the case may be. If the compensatory royalty obligation will begin, IOGC will send a Notice of Commencement of Compensatory Royalty Obligation; if the compensatory royalty obligation has been relieved, IOGC will send a Notice of Relief of Compensatory Royalty Obligation.

Triggering Wells adjoining Unleased First Nation Reserve Lands

Where the adjoining First Nation reserve lands do not have a subsurface contract that includes the offset zone, IOGC sends an informational Triggering Well Notice to the First Nation council informing them of the triggering well. IOGC will attempt to obtain a subsurface contract for the adjoining First Nation oil and gas rights if the First Nation wishes to have those lands leased. Whether IOGC is able to obtain a subsurface contract will depend on a number of factors such as market conditions, economic context and industry interest and activity in the area among other things.

Confidential Triggering Wells

Where a triggering well has some confidential information, IOGC is unable to issue an offset notice until the confidential period ends because the producing zone cannot be confirmed until that time.

Therefore, IOGC will issue an informational Pre-Offset Notice to all holders of any subsurface contracts in the First Nation spacing unit adjoining the confidential triggering well regardless of which zone(s) are included in those contracts. The Pre-Offset Notice simply informs the contract holder of the confidential triggering well and advises that they will receive an offset notice after the confidential period ends IF their contract includes the offset zone; the contract holder is not required to take any action as a result of receiving the Pre-Offset Notice. IOGC will copy the Pre-Offset Notice to the First Nation council.

If there are no subsurface contracts in the First Nation spacing unit adjoining the confidential triggering well, IOGC will send an informational Confidential Triggering Well Notice to the First Nation council.

Contract Holder can Delegate to an Authorized Company

When a contract holder needs to respond to an offset notice and is not choosing the surrender option, it may delegate the response to an authorized company by completing the Contract Holder Authorization form. It should refer to the Contract Holder Authorization Guidelines when completing that form and must provide the completed form to the authorized company. The authorized company is responsible to send the completed Contract Holder Authorization form along with the completed Offset Notice Response form to IOGC at the same time. IOGC will reject the response where the authorization form is completed incorrectly.

If for any reason a contract holder needs to revoke the authorization of a company, it must complete the Revocation of Contract Holder Authorization form and send it to IOGC. It should refer to the Revocation of Contract Holder Authorization Guidelines when completing the form.

Multiple Contract Holders

Where a subsurface contract has multiple holders, IOGC will send the same offset notice to each holder. Each holder can respond individually or delegate to the same or different authorized companies.

However, IOGC must receive a response from all contract holders and each response must have the same choice or IOGC will reject all the responses and will apply the default compensatory royalty obligation.

Compensatory Royalty

Where an offset notice results in the commencement of the obligation to pay compensatory royalty, IOGC’s Royalty group will contact the contract holder or authorized company to set up the compensatory royalty.

The compensatory royalty is calculated based on the royalty structure applicable to the subsurface contract and the production volumes of the triggering well; no deductions from royalty are allowed and certain published prices will be applied when calculating compensatory royalty as specified in the Indian Oil and Gas Regulations, 2019 regardless of what is stated in the lease. Where the applicable royalty structure requires specific factors pertaining to the triggering well, such as leases for which the Alberta Modernized Royalty Framework applies, IOGC will estimate such factors where the actual factor for the triggering well or the data needed to determine it is not publicly available.

Payment of the compensatory royalty is due by 25th day of the third month following the month for which the obligation applies.

A contract holder that is paying compensatory royalty can apply to end compensatory royalty by completing the Application to End Compensatory Royalty form. It should refer to the Application to End Compensatory Royalty Guidelines when completing the form. Valid reasons to end the compensatory royalty are surrender of the First Nation spacing unit or the establishment of a circumstance. IOGC will reject the response where the form is completed incorrectly.

Where a company’s response is to try to establish a circumstance, the response must include documentation and technical information that support the circumstance. IOGC will review the documentation and information and determine whether the circumstance has been established. After making the determination, IOGC will send a Notice of Determination of Circumstance to the contract holder.

A contract holder can delegate the application to end compensatory royalty to an authorized company as long as it is not surrendering the First Nation spacing unit, similar to the offset notice response. The contract holder must send the completed Contract Holder Authorization form to the authorized company. The authorized company is responsible to send the completed Contract Holder Authorization form along with the completed Application to End Compensatory Royalty form to IOGC at the same time. IOGC will reject the response where the authorization form is completed incorrectly.

Where there is a successful application to end compensatory royalty, IOGC will send the First Nation council an informational Notice of Ending of Compensatory Royalty Obligation.

Offset Wells

An offset well is a well producing in a First Nation spacing unit from the offset zone i.e. the same zone as the adjoining triggering well. One of the circumstances that contract holders may establish is that there is an offset well(s) in the First Nation spacing unit.

Where this circumstance is established and no other circumstances have also been established, IOGC will monitor production of the offset well. If it ceases production for three consecutive months, the compensatory royalty obligation commences or resumes at the beginning of the following month. IOGC is not responsible to notify the contract holder that the compensatory royalty obligation has commenced or resumed as a result of the cessation of the offset well production.

IOGC will not monitor the resumption of production of the offset well and it is the responsibility of the contract holder to apply to end compensatory royalty if and when the offset well resumes production. Successful applications to end compensatory royalty are applied only on a go forward basis and not retroactively.