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Newfoundland and Labrador
Regulation 2013


NEWFOUNDLAND AND LABRADOR REGULATION 35/13

NEWFOUNDLAND AND LABRADOR
REGULATION 35/13

Royalty Regulations, 2003 (Amendment)
under the
Petroleum and Natural Gas Act
(O.C. 2013-060)

(Filed March 21, 2013)

Under the authority of section 39 of the Petroleum and Natural Gas Act, the Lieutenant-Governor in Council makes the following regulations.

Dated at St. John’s, March 20, 2013.

Paula Burt
Deputy Clerk of the Executive Council

REGULATIONS

Analysis


        1.   S.3 Amdt.
Interpretation

        2.   S.7 Amdt.
Gross revenue

        3.   S.29 Amdt.
Obligations

        4.   S.31 Amdt.
Monthly report

        5.   S.33 Amdt.
Operator reports

        6.   S.33.1 Added
Tanker cost aggregator
report

        7.   S.36 Amdt.
Annual forecast

        8.   S.39 Amdt.
Location and retention of records

        9.   S.41 Amdt.
Audit and inspection

      10.   S.42 Amdt.
Search and seizure

      11.   S.49 Amdt.
Matters that may be arbitrated

      12.   S.68 Amdt.
Disallowed costs

      13.   S.70 Amdt.
Transportation costs

      14.   Part XI.1 Added

              PART XI.1
TRANSPORTATION COSTS RE:  APRIL 1, 1990 TO NOVEMBER 30, 2001 LEASES

              70.1   Definitions
70.2   Application
70.3   General cost criteria
70.4   Eligible transportation
          costs
70.5   Tanker classification
70.6   Eligible tanker costs
70.7   Eligible owned tanker
          costs and eligible
          capital lease tanker
          costs
70.8    Eligible operating
          lease tanker costs
70.9   Eligible replacement
          tankers and eligible
          second leg tankers
70.10 Transportation costs
          carry forward
70.11 Tanker incidental
          revenue
70.12 Allocation of eligible
          tanker costs and
          incidental revenue
70.13 Tanker cost
          administrators and tanker cost aggregator
70.14 Transportation
          allocation agreement
70.15 Eligible
          transshipment costs
70.16 ROCC reduction
70.17 Transshipment
          agreements
70.18 Eligible other
          transportation costs
70.19 Costs incurred before
          July 1, 2009
70.20 Costs incurred
          between July 1, 2009
          and the coming into
          force of this section
70.21 Costs incurred after
          the coming into force
          of this section
70.22 Transitional tanker classification

 

      15.   Part XIII Title R&S

      16.   S.77 Amdt.
Arm's length threshold

      17.   S.78 Amdt.
Capital leases

      18.   S. 81 Amdt.

              Pricing and reference price

      19.   S.85 Amdt.
Disallowed overhead and other costs

      20.   Sch. Added


 NLR 71.03 as amended

1. (1) Paragraph 3(1)(w) of the Royalty Regulations, 2003 is repealed and the following substituted:

            (w)  "tanker administrator" means, for an owned tanker, capital lease tanker, operating lease tanker or replacement tanker, a person designated to act as the administrator for the transportation activities of that tanker;

             (2)  Subsection 3(1) of the regulations is amended by adding immediately after paragraph (w) the following:

         (w.1)  "tanker cost aggregator" means a third party selected by the interest holders who aggregates eligible tanker costs and tanker incidental revenue based on reports provided by the tanker administrators and interest holders;  

 

        2. Subsection 7(1) of the regulations is repealed and the following substituted:

Gross revenue

        7. (1) The gross revenue for an interest holder in a lease for a month shall be the gross sales revenue of the interest holder in a lease less the eligible transportation costs under Part XI or Part XI.1, as applicable, for that interest holder for that lease for that month.

 

        3. Subsection 29(3) of the regulations is amended by deleting the reference "Part XI" and substituting the reference "Part XI or Part XI.1, as appropriate".  

 

        4. Section 31 of the regulations is amended by renumbering it as subsection 31(1) and by adding immediately after that subsection the following:

             (2)  For a lease to which Part XI.1 applies, an interest holder shall include in the monthly report under subsection (1) a monthly estimate of eligible tanker costs and other transportation costs based on the annual forecast of estimated eligible tanker costs per barrel and other transportation costs per barrel submitted under subsection 36(3) multiplied by the actual number of barrels sold in that month.

             (3)  The minister may require a tanker administrator, transshipment facility administrator or tanker cost aggregator to file monthly reports.

 

        5. (1) Subsection 33(2)(a) of the regulations is repealed and the following substituted:

             (a)  eligible tanker and eligible transshipment costs paid by the tanker administrator or transshipment facility administrator on behalf of the interest holders for the period;

             (2)  Subsection 33(2) of the regulations is amended by deleting the period at the end of paragraph (b) and substituting a semi-colon and the word "and" and by adding immediately after paragraph (b) the following:

             (c)  any other information required by the minister.

 

        6. The regulations are amended by adding immediately after section 33 the following:

Tanker cost aggregator report

   33.1 Where a tanker cost aggregator has been designated, it shall provide the following information in the required form to the minister, not later than 120 days after the end of each period:

             (a)  aggregated eligible transportation costs and tanker incidental revenue reported by interest holders and tanker administrators for the period;

             (b)  costs allocated to interest holders for the period; and

             (c)  any other information required by the minister.

 

        7. (1) Paragraph 36(1)(a) of the regulations is repealed and the following substituted:

             (a)  an annual forecast of estimated royalty costs, eligible transportation costs and production for the subsequent period; and

             (2)  Section 36 of the regulations is amended by adding immediately after subsection (2) the following:

             (3)  For a lease to which Part XI.1 applies, at least 30 days before the beginning of a period, an interest holder shall submit to the minister in the required form the following:

             (a)  an annual forecast of estimated eligible tanker costs and other transportation costs for the subsequent period;

             (b)  an annual forecast of the estimated number of barrels expected to be sold in the subsequent period; and

             (c)  an estimate of eligible tanker costs per barrel and other transportation costs per barrel based on the ratio of (a) to (b).

             (4)  Where subsection (3) applies to an interest holder, that interest holder is not required to submit an estimate of transportation costs under paragraph (1)(a).

             (5)  The minister may approve an estimate submitted under subsection (3) or, where the estimate is not satisfactory to the minister, the minister may impose an amount.

 

        8. (1) Subsection 39(1) of the regulations is repealed and the following substituted:

Location and retention of records

      39. (1) An interest holder or project operator shall maintain in the province records detailing eligible pre-development costs, eligible operating costs, eligible capital costs, decommissioning costs, incidental revenue, production and inventory.

          (1.1)  An interest holder or tanker administrator shall maintain in the province records detailing eligible transportation costs, tanker incidental revenue and separate accounts recording all costs and charges relating to the transportation of oil produced under a lease.

          (1.2)  An interest holder or transshipment facility administrator shall maintain in the province separate accounts recording all costs and charges relating to the transshipment and allocation of oil produced under a lease.

          (1.3)  An interest holder or a tanker cost aggregator shall maintain in the province separate accounts recording all costs, charges and allocations relating to the transportation of oil produced under a lease.

             (2)  Subsection 39(3) of the regulations is repealed and the following substituted:

             (3)  An interest holder, a project operator, a tanker administrator, a transshipment facility administrator and a tanker cost aggregator, where one has been designated, shall maintain accounting, financial and other reporting systems necessary for the purpose of these regulations.

             (3)  Subsection 39(4) of the regulations is repealed and the following substituted:

             (4)  A person required to maintain records under this section shall commence maintaining those records not more than 3 months after a lease has been issued to an interest holder.

             (4)  Subsection 39(6) of the regulations is repealed and the following substituted:

             (6)  Notwithstanding subsection (5), where the minister or another person referred to in this section is aware that an allegation of fraud, gross negligence or wilful and deliberate misconduct has been made, records required to be maintained under these regulations shall not be destroyed.

 

        9. Subsection 41(1) of the regulations is amended by deleting the words "or a transshipment facility administrator" and substituting a comma and the words "a transshipment facility administrator or a tanker cost aggregator".

 

      10. (1) Subsection 42(1) of the regulations is amended by deleting the words "or transshipment facility administrator" wherever they occur, and substituting a comma and the words "transshipment facility administrator or tanker cost aggregator".

             (2)  Subsection 42(2) of the regulations is amended by deleting the words "or transshipment facility administrator" wherever they occur and substituting a comma and the words "a transshipment facility administrator or tanker cost aggregator".

 

      11. Subsection 49(1) of the regulations is amended by adding immediately after paragraph (d) the following:

          (d.1)  a dispute with respect to the allocation of eligible transportation costs;

          (d.2)  a dispute with respect to the classification of a tanker;

 

      12. (1) Paragraph 68(1)(b) of the regulations is amended by deleting the words "or transshipment facility administrator" and substituting a comma and the words "transshipment facility administrator or tanker cost aggregator".

             (2)  Paragraph 68(1)(g) of the regulations is amended by deleting the words "or transshipment facility administrator" and substituting a comma and the words "transshipment facility administrator or tanker cost aggregator".

             (3)  Paragraph 68(1)(j) of the regulations is amended by deleting the words "transshipment facility administrator" and substituting the words and comma "transshipment facility administrator, tanker cost aggregator".

             (4)  Paragraph 68(1)(p) of the regulations is amended by deleting the words "or a decommissioning cost" and substituting a comma and the words "a decommissioning cost or an eligible transportation cost".

 

      13. Section 70 of the regulations is amended by adding immediately after subsection (7) the following:

 

             (8)  This section does not apply to leases issued after April 1, 1990 and before November 30, 2001.

 

      14. The regulations are amended by adding immediately after section 70 the following:

PART XI.1
TRANSPORTATION COSTS RE: APRIL 1, 1990 TO NOVEMBER 30, 2001 LEASES

Definitions

   70.1 In this Part and the Schedule

             (a)  "capital lease tanker" means a tanker that is normally used  to transport oil produced under a lease to which this Part applies from a loading point to a transshipment facility or point of sale, which is leased under a capital lease in which one or more interest holders is a lessee;

             (b)  "competitive tender process" means an open and competitive tender process that either

                      (i)  includes exclusively bidders who are at arm's length to all the interest holders and their affiliates, or

                     (ii)  where one or more bidders are not at arm's length to interest holders, includes bids from at least 2 parties at arm's length to the interest holders;

             (c)  "offshore area" means offshore area as defined in the Canada-Newfoundland and Labrador Atlantic Accord Implementation Newfoundland and Labrador Act;

             (d)  "operating lease tanker" means a tanker that is normally used  to transport oil produced under a lease to which this Part applies from a loading point to a transshipment facility or point of sale, which is being leased under an operating lease to which one or more of the interest holders is a lessee;

             (e)  "owned tanker" means a tanker that is normally used to transport oil produced under a lease to which this Part applies from a loading point to a transshipment facility or point of sale, in which one or more of the interest holders has an ownership interest;

              (f)  "point of sale" means the point at which oil is considered to have been sold under subsection 7(8) or, where the sales price includes transportation costs beyond where oil is considered to have been sold under subsection 7(8), the point of delivery;  

             (g)  "replacement tanker" means a tanker that

                      (i)  is used to transport oil produced under a lease to which this Part applies from a loading point to a transshipment facility or a point of sale, in substitution of a tanker normally used for that purpose,

                     (ii)  is not normally used to transport oil produced under a lease to which this Part applies, and

                    (iii)  is used for the purpose described in subparagraph (i) for less than 12 months, during which time the tanker normally used for that purpose is unavailable;

             (h)  "second leg tanker" means a tanker that transports oil produced under a lease to which this Part applies from a transshipment facility to a point of sale; and

              (i)  "transshipment facility owners" means the interest holders who are owners, or who have affiliates who are owners of an interest in a transshipment facility.

Application

   70.2 (1) This Part applies to leases issued after April 1, 1990 and before November 30, 2001.

             (2)  Sections 59, 60, 63, 64, 65, 66, 67 and 69 do not apply for the purpose of this Part.

General cost criteria

   70.3 (1) A cost qualifies as an eligible transportation cost only to the extent that

             (a)  it is a cash payment;

             (b)  it is directly attributable to the transportation of oil;

             (c)  it is reasonable in relation to the circumstances under which it is incurred;

             (d)  it is not a disallowed cost under section 68; and

             (e)  it meets all of the other requirements of the regulations, except those referred to in subsection 70.2(2).

             (2)  Eligible transportation costs shall not include

             (a)  amounts paid from one interest holder to another interest holder; or

             (b)  amounts received by one interest holder from another interest holder

where the amounts under paragraphs (a) and (b) are contemporaneous and corresponding, and adjust for the use of transportation assets for the transportation of oil produced under a lease to which this Part applies.

Eligible transportation costs

   70.4 (1) Eligible transportation costs for an interest holder for a month shall be the interest holder's share of

             (a)  eligible tanker costs;

             (b)  eligible transshipment costs;

             (c)  eligible other transportation costs; and

             (d)  eligible transportation costs brought forward from a previous month under section 70.10;

less that interest holder’s share of

             (e)  tanker incidental revenue.

             (2)  Except as otherwise provided in paragraph 70.3(1)(d),

             (a)  paragraph 68(1)(m) does not apply to the calculation of eligible tanker costs; and

             (b)  section 68 does not apply to the calculation of eligible transshipment costs.

Tanker classification

   70.5 (1) A tanker used to transport oil produced under a lease shall be classified as only one of the following 5 types and that classification shall apply to all interest holders:

             (a)  owned tanker;

             (b)  capital lease tanker;

             (c)  operating lease tanker;

             (d)  second leg tanker; or

             (e)  replacement tanker.

             (2)  The interest holders shall inform the minister of their classification of a tanker within 30 days of the latter of the purchase of the tanker or the execution of the lease and where the minister does not agree with the classification, the minister shall determine the classification of the tanker.

             (3)  An election or determination under subsection (2) applies for the life of the tanker.

             (4)  Notwithstanding another provision of this section, within 6 months of the first use of a tanker classified as a capital lease tanker to transport oil produced under a lease to which this Part applies, the minister may elect to classify that tanker as an operating lease tanker.

             (5)  Notwithstanding subsection (3), a tanker which is used as a replacement tanker for more than 12 consecutive months shall, for the purpose of calculating eligible transportation costs, be classified as

             (a)  an owned tanker;

             (b)  a capital lease tanker; or

             (c)  an operating lease tanker.

             (6)  Subsections (2) to (4) apply to tankers referred to in subsection (5).

Eligible tanker costs

   70.6 Eligible tanker costs are the interest holder's share of the following:

             (a)  eligible owned tanker costs;

             (b)  eligible capital lease tanker costs;

             (c)  eligible operating lease tanker costs;

             (d)  eligible second leg tanker costs; and

             (e)  eligible replacement tanker costs.

Eligible owned tanker costs and eligible capital lease tanker costs

   70.7 (1) Eligible owned tanker costs for a tanker and eligible capital lease tanker costs for a tanker each equal the sum of that tanker's annual

             (a)  eligible tanker operating costs;

             (b)  eligible return on capital costs; and

             (c)  eligible tanker capital depreciation.

             (2)  Eligible tanker operating costs under paragraph (1)(a) are

             (a)  costs that would be classified as an operating cost for that tanker in accordance with Canadian generally accepted accounting principles for public accountable entities and good petroleum industry practices; and

             (b)  10% of the costs described in paragraph (a).

             (3)  Eligible return on capital costs under paragraph (1)(b) are 8% of the undepreciated capital cost balance at mid-year, excluding any gross up to that cost in excess of the actual cash payment for that cost, for that tanker.

             (4)  Eligible tanker capital depreciation under paragraph (1)(c)  is

             (a)  the eligible initial capital cost of the tanker, plus

             (b)  any eligible additional capital costs for that tanker,

depreciated on a straight line basis over the remaining useful life of that tanker.

             (5)  The eligible initial capital cost under paragraph (4)(a) for owned tankers that are less than 12 months old is

             (a)  the cost of the tanker as constructed;

plus

             (b)  1% of the amount described in paragraph (a).

             (6)  The eligible initial capital cost under paragraph (4)(a) for owned tankers that are 12 or more months old is

             (a)  the fair market value of the tanker as determined by an approved appraiser,

plus

             (b)  1% of the amount described in paragraph (a).

             (7)  Notwithstanding subsection (6), where an owned tanker's capital cost has been included in the calculation of transportation costs under a lease to which this Part does not apply, the eligible initial capital cost for that tanker under paragraph (4)(a) is

             (a)  the undepreciated capital cost of the tanker, excluding any gross up to that cost in excess of the actual cash payment for that cost as reported under the other lease; and

             (b)  1% of the amount described in paragraph (a).

             (8)  Notwithstanding subsections (6) and (7), where an owned tanker was subject to a deemed disposition under a lease to which this Part does not apply and the value of that deemed disposition is included in the calculation of incidental revenue under that lease, the eligible initial capital cost for that tanker under paragraph (4)(a) is

             (a)  the value of the deemed disposition, excluding any gross up to that cost in excess of the actual cash payment for that cost as reported under the other lease; and

             (b)  1% of the amount described in paragraph (a).

             (9)  The eligible initial capital cost under paragraph (4)(a) of a capital lease tanker is

             (a)  the fair market value of the tanker at the time of lease commencement as determined by an approved appraiser or the minister,

plus

             (b)  1% of the amount described in paragraph (a).

           (10)  Eligible additional capital costs under paragraph (4)(b) are

             (a)  costs that would be classified as capital additions in accordance with Canadian generally accepted accounting principles for public accountable entities and good petroleum industry practices, plus

             (b)  1% of the costs described in paragraph (a).

           (11)  Where capital additions are made to an owned tanker or a capital lease tanker, the remaining useful life of that tanker shall be adjusted in accordance with Canadian generally accepted accounting principles for public accountable entities.

           (12)  The remaining useful life of an owned tanker or a capital lease tanker shall be determined by an approved appraiser unless otherwise determined by the minister.

           (13)  For the purpose of this section, “approved appraiser” means an independent appraiser of tankers approved by the minister.

Eligible operating lease tanker costs

   70.8 (1) Notwithstanding section 16, where an award for a contract for an operating lease tanker results from a competitive tender process, the eligible operating lease tanker costs for that tanker shall be

             (a)  the amount paid under the terms of the lease for that tanker;  

             (b)  operating costs directly related to operating that tanker; and

             (c)  costs incurred by a tanker administrator that are directly related to administering that tanker.

             (2)  Where an award of a contract results from a competitive tender process and the successful bidder is not at arm's length to the interest holders, the minister may determine that the contract was not awarded under the competitive tender process.

             (3)  Where the award of a contract for an operating lease tanker was not made under a competitive tender process, the eligible operating lease tanker costs for that tanker shall be determined as though the tanker were a capital lease tanker unless the minister approves the calculation of eligible operating lease tanker costs in accordance with subsection (1).

             (4)  Except as otherwise provided in paragraph 70.3(1)(d), paragraph 68(1)(a) shall not apply to the calculation of operating lease tanker costs in paragraph (1)(a).

Eligible replacement tankers and eligible second leg tankers

   70.9 (1) Eligible second leg tanker costs shall be the actual costs incurred by an interest holder for the transportation of oil produced under a lease to which this Part applies.

             (2)  Eligible replacement tanker costs shall be the actual costs incurred by an interest holder.

             (3)  Except as otherwise provided in paragraph 70.3(1)(d), paragraph 68(1)(a) shall not apply to the calculation of second leg tanker costs and replacement tanker costs.

Transportation costs carry forward

70.10 Where, in a month, an interest holder's gross sales revenue is exceeded by the interest holder's eligible transportation costs, the amount of that excess shall be added to eligible transportation costs in the next month.

Tanker incidental revenue

70.11 (1) Tanker incidental revenue is the sum of

             (a)  the amount eligible for inclusion as a component of transportation costs under a lease to which this Part does not apply for the use of one or more tankers as a profitable outcharter; less

             (b)  the amount that would have been included in eligible tanker costs under this Part had the tanker not been used as a profitable outcharter, plus

                      (i)  proceeds received from the sale, lease, licence or other disposal or use of lease assets or technology, but not the disposal of a tanker, where the costs were royalty costs under a lease,

                     (ii)  proceeds received under insurance policies where the applicable premium was included in the calculation of transportation costs, to the lesser amount of the actual benefit received or the cumulative costs claimed, and

                    (iii)  other revenue received on account of the lease that the minister may reasonably declare to be tanker incidental revenue.

             (2)  A tanker is used as a profitable outcharter where that tanker

             (a)  is normally used to transport oil produced under a lease to which this Part applies from a loading point to a transshipment facility or point of sale;

             (b)  is used to transport oil produced under a lease to which this Part does not apply, in substitution of a tanker normally used for that purpose; and

             (c)  is used for the purpose described in paragraph (b) for less than 12 months, during which time the tanker normally used for that purpose is unavailable.

Allocation of eligible tanker costs   and incidental revenue

70.12 (1) The maximum portion of eligible owned tanker costs, eligible capital lease tanker costs, and eligible operating lease tanker costs that may be allocated to a lease shall be calculated on an annual basis in accordance with the formula

(A/B) x C

where

           A =  days on which the tanker is carrying oil produced under that lease;

            B =  days on which a tanker is carrying oil; and

            C =  eligible owned tanker costs, eligible capital lease tanker costs, or eligible operating lease tanker costs for that tanker.

             (2)  Where a tanker is out of service for repairs or maintenance for 12 months or less, that tanker's costs shall be allocated in accordance with subsection (1) taking into account the use of that tanker in the 12 months immediately preceding the start of the month in which the tanker went out of service.

             (3)  There shall be no allocation of tanker costs where that tanker is out of service for more than 12 months.

             (4)  Notwithstanding subsections (1) and (2), there shall be no allocation of costs of a tanker while it is out of service for the purpose of modifying the tanker for the transportation of oil not produced in the offshore area.

             (5)  The maximum portion of eligible replacement tanker costs that may be allocated to a lease shall be calculated on an annual basis according to the formula

(A/B) x C

where

           A =  days on which the tanker is carrying oil produced under that lease;

            B =  days on which a tanker is carrying oil; and

            C =  replacement tanker costs.

             (6)  At the end of a period, an interest holder shall determine its monthly eligible owned tanker costs, eligible capital lease tanker costs, eligible operating lease tanker costs and eligible replacement tanker costs according to the formula

(A/B) x C

where

           A =  annual eligible owned tanker costs, eligible capital lease tanker costs, eligible operating lease tanker costs or eligible replacement tanker costs ;

            B =  number of barrels sold in that year; and

            C =  number of barrels sold in that month.

             (7)  The maximum portion of tanker incidental revenue that may be allocated to a lease shall be calculated on a monthly basis according to the following formula

(A/B) x TIR

where

           A =  days on which the tanker is carrying oil produced under that lease;

            B =  days on which the tanker is carrying oil produced in the offshore area minus days in which the tanker is used as a profitable outcharter; and

        TIR =  tanker incidental revenue.

             (8)  For the purpose of this section, “days on which a tanker is carrying oil” means days on which a tanker is traveling from a loading point to a point of sale, together with days on which

             (a)  that tanker is traveling from the point of sale to return to its point of origin; or

             (b)  that tanker is traveling in the manner described in subsection (9).

             (9)  Where the oil sold at the point of sale referred to in subsection (8) is produced in the offshore area, the following days shall be considered, in addition to subsection (8), to be “days on which a tanker is carrying oil” under paragraph (8)(b):

             (a)  days on which that tanker is traveling from the point of sale to another location in the offshore area; or

             (b)  where that tanker is traveling from the point of sale to a location outside the offshore area, the number of days equivalent to the number of days it would have taken that tanker to return from the point of sale to the Jeanne D’Arc Basin.  

Tanker cost administrators and tanker cost aggregator

70.13 (1) The interest holders shall designate a tanker administrator for each owned tanker, capital lease tanker, operating lease tanker and replacement tanker on or before the date the tanker becomes available for the transportation of oil produced under a lease to which this Part applies, or the date that this section comes into force, whichever is later.

             (2)  The interest holders and the tanker administrators shall provide reports of all eligible owned tanker costs, eligible capital lease tanker costs, eligible second leg tanker costs, eligible replacement tanker costs and tanker incidental revenue to the tanker cost aggregator.

             (3)  The interest holders shall designate a tanker cost aggregator within 60 days of the coming into force of this section.

             (4)  The tanker cost aggregator shall allocate eligible tanker costs and tanker incidental revenue to each interest holder according to the allocation formula or formulas set out in the transportation allocation agreement or prescribed by the minister under subsection 70.14(5).

Transportation allocation agreement

70.14 (1) Within 60 days of the coming into force of this section, the interest holders shall provide the minister with an executed transportation allocation agreement.

             (2)  The transportation allocation agreement and any amendment to it shall not take effect until approved by the minister.

             (3)  The transportation allocation agreement shall include

             (a)  an allocation formula for costs that is aligned with interest holders' costs, tanker ownership, contract ownership, usage and capacity in the asset; and

             (b)  an allocation formula for tanker incidental revenue that is aligned with the interest holders' costs, tanker ownership, usage and capacity in the asset, which may vary from the allocation formula in paragraph (a).

             (4)  Within 30 days of an amendment to an agreement described in subsection (1), the interest holders shall provide the minister with an executed amending document.

             (5)  Where an executed transportation allocation agreement is not provided to the minister as required under subsection (1), the minister may impose an allocation formula or formulas.

Eligible transshipment costs

70.15 (1) Eligible transshipment costs for the use of the Whiffen Head transshipment facility shall be calculated in accordance with this section.

             (2)  An eligible transshipment cost shall be for the transshipment of oil produced under a lease to which this Part applies.

             (3)  In each month, eligible transshipment costs for an interest holder who is not a transshipment facility owner shall be the actual amount paid by that interest holder to the transshipment facility for the transshipment of oil in the month.

             (4)  In each month, eligible transshipment costs for a transshipment facility owner shall be the actual amount paid by that transshipment facility owner for the transshipment of oil in the month, less that transshipment facility owner's individual ROCC reduction for the month.

ROCC reduction

70.16 (1) At the beginning of a period, the transhipment facility administrator shall provide each transhipment facility owner with an estimate of its individual ROCC reductions in a manner prescribed by the minister.

             (2)  At the end of each period, the transshipment facility administrator shall calculate the total ROCC reduction in the period according to the formula

A - (CC x 0.06)

where

           A =  the after-tax profit on the audited financial statements  for the transshipment facility; and

         CC =  the value of the share capital issued and outstanding as reported on the annual audited financial statements for the transshipment facility.

             (3)  The transshipment facility administrator shall calculate the portion of the total ROCC reduction that may be allocated to a lease according to the formula

A x (B/C)

where

           A = the total ROCC reduction under subsection (2);

            B = storage and berth costs allocated to oil produced under that lease; and

            C = total storage and berth costs.

             (4) The transshipment facility administrator shall calculate the portion of the ROCC reduction allocated to a lease under subsection (3) relating to the transshipment facility owners that are interest holders in that lease in the aggregate according to the formula

A x y%

where

           A = ROCC reduction allocated to a lease under subsection (3); and

        y% =  the aggregate percentage shareholder interest in the transshipment facility held by all the transshipment facility owners that are interest holders in that lease in the period.

             (5)  The transshipment facility administrator shall allocate the ROCC reduction relating to the transshipment facility owners in the aggregate under subsection (4) to each individual transshipment facility owner according to the allocation formula in the transshipment allocation agreement or as imposed by the minister under subsection 70.17(5).

             (6)  At the end of each period, each transshipment facility owner shall recalculate its individual ROCC reduction for each month based on the actual individual ROCC reduction for the period under subsection (5) divided by 12.

Transshipment agreements

70.17 (1) Within 60 days of the coming into force of this section, the transshipment facility owners shall provide the minister with an executed transshipment allocation agreement.

             (2)  The transhipment allocation agreement and any amendments to it shall not take effect until approved by the minister.

             (3)  The transshipment allocation agreement shall include a formula for the allocation of the aggregate ROCC reduction among the transshipment facility owners that is aligned with the transshipment facility owner's costs, contract ownership, usage or capacity in the transshipment facility.

             (4)     Within 30 days of an amendment to an agreement described in subsection (1), the transshipment facility owners shall provide the minister with an executed amending document.

             (5)  Where a transshipment allocation agreement is not provided to the minister within the time period prescribed in subsection (1), the minister may impose an allocation formula or formulas.

             (6)  Where an interest holder is a party to one of the following agreements, that interest holder shall notify the minister of an amendment or addition to that agreement which occurs after July 25, 2008:

             (a)  the Reserved Capacity Services Agreement;

             (b)  the Newfoundland Transshipment Facility Second Amended and Restated General Terms and Conditions of Service;

             (c)  the Unanimous Shareholder Agreement; or

             (d)  another arrangement to determine customer costs for a transshipment facility.

             (7)  Notwithstanding a proposed amendment to an agreement referred to in subsection (6), unless otherwise approved by the minister,

             (a)  eligible transshipment costs shall be calculated according to that agreement before the amendment; and

             (b)  a transshipment facility shall not deduct costs related to the transportation of oil.

             (8)  Transshipment facility owners shall provide the following information to the minister with respect to the transshipment facility on an annual basis:

             (a)  a certification by the transhipment facility administrator stating that there have been no amendments to the agreements referred to in subsection (6);

             (b)  a certification by the transshipment facility administrator stating that all services and billings in that year have been provided in accordance with the agreements referred to in paragraph (a);

             (c)  a copy of the transshipment facility administrator's audited financial statement and auditor's report;

             (d)  a copy of the audited final adjustment calculations and auditor's report; and

             (e)  a statement reconciling the transshipment facility administrator's total revenue to the amounts paid by each interest holder.

Eligible other transportation costs

70.18 (1) A cost shall qualify as an eligible other transportation cost where

             (a)  it is an operating cost according to Canadian generally accepted accounting principles for public accountable entities;

             (b)  it is not a component of eligible tanker costs or a component of eligible transshipment costs;

             (c)  it is a cost incurred by an interest holder; and

             (d)  it is a cost that is directly attributable to the transportation of oil produced under a lease to which this Part applies.

             (2)  At the end of a period, an interest holder shall determine its monthly eligible other transportation costs according to the following formula:

(A/B) x C

where

              A  = annual eligible other transportation costs;

               B  = number of barrels sold in that year; and

               C  = number of barrels sold in that month.

Costs incurred before July 1, 2009

70.19 (1) Where eligible transportation costs were incurred before July 1, 2009, the minister shall prescribe eligible transportation costs.

             (2)  Notwithstanding the expiration of the reassessment period, the minister shall issue a reassessment for royalty share payable resulting from changes to eligible transportation costs under subsection (1).

             (3)  Notwithstanding section 62, there shall be no interest payable as a result of the reassessment until 30 days after the interest holder receives the reassessment.

             (4)  Subsections 35(6) to (9) apply for the purpose of objecting to a calculation made as a result of a change in eligible transportation costs.

Costs incurred between July 1, 2009 and the coming into force of this section

70.20 (1) Where eligible transportation costs were incurred between July 1, 2009 and the coming into force of this section, interest holder shall resubmit eligible transportation costs within 60 days of the coming into force of this section, and those eligible transportation costs shall be calculated and submitted in accordance with this Part.

             (2)  The minister shall recalculate the royalty share payable further to subsection (1) in accordance with section 35.

             (3)  Notwithstanding section 62, there shall be no interest payable as a result of the reassessment until 60 days after the filing of eligible transportation costs.

Costs incurred after the coming into force of this section

70.21 Eligible transportation costs incurred after the coming into force of this section shall be calculated and reported in accordance with this Part and Part IV.

Transitional tanker classification provisions

70.22 (1) Notwithstanding subsection 70.5(2), where, on the coming into force of this section, a tanker is in use for the transportation of oil produced in the offshore area, an interest holder shall inform the minister of the classification of that tanker within 60 days of the coming into force of this section.

             (2)  Notwithstanding subsection (1), the tankers referred to in the Schedule shall be, at the coming into force of this section, classified in accordance with that Schedule. 

 

      15. The regulations are amended by repealing the title "PART XIII CALCULATIONS AND RATES RE: APRIL 30, 1990 TO NOVEMBER 30, 2001 LEASES" and by substituting the title "PART XIII CALCULATIONS AND RATES RE: APRIL 1, 1990 TO NOVEMBER 30, 2001 LEASES".

 

      16. Section 77 of the regulations is amended by adding immediately after subsection (2) the following:

             (3)  This section does not apply to the calculation of eligible transportation costs.

 

      17. Section 78 of the regulations is amended by adding immediately after subsection (2) the following:

             (3)  This section does not apply to the calculation of eligible transportation costs.

 

      18. (1) Paragraph 81(19)(j) of the regulations is repealed and the following substituted:

              (j)  the reference price applicable to a sale of oil from the project shall be net of the transportation costs as calculated in a manner consistent with Part XI or Part XI.1, as applicable, to deliver oil to the sales point.

 

      19. Paragraphs 85(2)(a) and (b) of the regulations are repealed and the following substituted:

             (a)  incurred with a person who is at arm's length to the interest holder or project operator;

             (b)  incurred with a person who is not at arm’s length to the interest holder or the project operator; or

 

      20. The regulations are amended by adding immediately after section 94 the following:

Schedule

Definitions

        1. In this Schedule

             (a)  "Kometik " means the tanker Kometik with Transportation Canada Official Number 819109;

             (b)  "Mattea" means the tanker Mattea with Transportation Canada Official Number 819115; and

             (c)  "Vinland" means the tanker Vinland with Transportation Canada Official Number 820794.

Classification

        2. Notwithstanding another provision of these regulations, as of July 1, 2009, the classification of the Kometik, Mattea and Vinland shall be as follows:

             (a)  the Kometik is classified as an owned tanker;

             (b)  the Mattea is classified as a capital lease tanker; and

             (c)  the Vinland is classified as an operating lease tanker.

Cost calculations

        3. (1) Notwithstanding another provision of these regulations, as of July 1, 2009

             (a)  the eligible initial capital cost of the Kometik under paragraph 70.7(4)(a) is $32, 673, 267.00; and

             (b)  the remaining useful life of the Kometik is 12 years.

             (2)  Notwithstanding another provision of these regulations, as of July 1, 2009

             (a)  the eligible initial capital cost of the Mattea under paragraph 70.7(4)(a) is $32, 673, 267.00; and

             (b)  the remaining useful life of the Mattea is 12 years.