Heritage monitors target royalties versus royalty payments by activity period. Variances are identified, flagged and communicated to Lessees.

Each lease agreement specifies the royalties owed to Heritage based on the following elements: royalty determination point, products, royalty rate, deductions, and price. Please see this page for discussion of the types of royalties Heritage uses.

Royalty determination point – The point at which the royalty is calculated and is a specific point of measurement (e.g., the sales point).

Example from “HRRC 2017” Lease form:

“Royalty Determination Point” means:

(a) PETROLEUM and FIELD CONDENSATE,

where the Royalty is not taken in kind, the point where product enters a feeder pipeline at the inlet to the Lease Automated Custody Transfer (LACT) meter or, in the case where the product is sold directly at a terminal, the inlet meter of the terminal, or

where the Royalty is taken in kind, the point after which removal of basic water and sediment has occurred and the first point of measurement beyond any production tank, battery, satellite or other handling or enrichment facilities;

NATURAL GAS and SOLUTION GAS, the inlet to the meter station of the initial transmission pipeline carrying the Natural Gas or Solution Gas to the end user market or, in the case where the Natural Gas or Solution Gas is sold directly to an end user, the inlet meter at the end user’s facility;

NATURAL GAS LIQUIDS, the Natural Gas Liquids outlet meter of the facility at which the Natural Gas Liquids are extracted from Natural Gas or Solution Gas;

OTHER SUBSTANCES, the inlet to the meter station of the initial transmission pipeline carrying the Other Substances to the end user market or, in the case where the Other Substances are sold directly to an end user, the inlet meter at the end user’s facility; and

SULPHUR, the outlet of the Sulphur processing and loading facility.

Products – Products are substances of value that are produced from wells. Products from a particular well depend on the nature of the producing reservoir and can comprise crude oil, natural gas liquids (ethane, propane, butane, and condensate), natural gas and other substances such as sulphur.

Royalty rates – The percentage of gross product volumes that shall be attributable to Heritage, in kind or in cash, measured at the royalty determination point. Royalty rates can be calculated as a fixed percentage, sliding scale or step scale that varies with benchmark commodity prices or the particular well’s productivity.

Deductions – Allowable operating costs, specified in each lease, for oil and natural gas processing, transportation and trucking. Certain leases do not allow deductions, while others allow for specific deductions (e.g., clean oil trucking).

Pricing – The greater of the actual price received and the current market value of products.

Example from “HRRC 2017” Lease form:

“Current Market Value” means, at the Royalty Determination Point, the greater of the value:

(a) actually received by the Lessee; and

the market price which the Lessee would have received for the sale of like substances in the area in which the Leased Lands are located as and when the Leased Substances were produced, provided that such value is reasonable in the circumstances having regard to the current market conditions that would have otherwise been applicable in a bona fide arm’s-length sale or transaction;

provided that, under no circumstances whatsoever, shall such value be less than zero for purposes of calculating the Royalty payable and in no event is the Current Market Value of any product to be netted against, averaged or otherwise combined with the Current Market Value of any other product in calculating the Royalty payable.