Alberta outlines new royalty programs

OREANDA-NEWS. July 12, 2016. Alberta's government detailed its new royalty framework, which aims to weigh drilling and other upstream costs to encourage development.

The changes, which take effect 1 January, do not apply to existing wells, which will operate under the old framework for up to 10 years or until the leases expire.

"We can get more rigs out there drilling, create jobs and help generate greater long-term returns for Albertans by promoting production in underdeveloped or yet-to-be-developed areas," said Alberta energy minister Margaret McCuaig-Boyd.

Alberta's new Enhanced Hydrocarbon Recovery plan requires producers to pay a 5pc royalty rate until revenue from the well equals drilling and completion costs as calculated by a government formula that takes into account the depth, lateral and proppant used. Revenue is determined by volume in cases of crude wells and by allocated pipeline volumes for natural gas and NGLs.

The flat 5pc rate may last up to 90 months, after which wells will be subject to regular royalty rates.

Alberta's new Emerging Resources program is aimed at bolstering development of more costly and high-risk resources plays deemed to be in the public interest. Producers must define the targeted geographic area, infrastructure required, and the target formation. The program assigns eligible wells a cost allowance anywhere from 150-200pc of normal completion costs. Wells in the program will pay a flat 5pc royalty rate until their combined revenue equals the total project cost allowance.

The move is Alberta's latest effort to ramp up investments in the region, which was hard hit by the downturn in prices in late 2014.