Producers welcome new oil, gas royalties

Province sets out details of system that’s modernized, ‘provides clarity’

The Alberta government has released details of its new royalty regime, which it says brings clarity and certainty to conventional oil and gas drilling.

The province has simplified the system with a single structure for crude oil, gas and liquids that takes into account the growth of unconventional wells that use horizontal drilling and fracking.

Under the new regime, companies will pay a five per cent flat rate royalty until costs are recovered, after which royalty rates will range between five and 40 per cent depending on energy prices.

Total costs of the vertical and horizontal drilling will be tracked on a cost allowance index that rewards producers who are efficient.

The Canadian Association of Petroleum Producers welcomed the modernized royalty regime but said more work needs to be done to help industry, especially on pipeline access.

“This has led to a royalty system that is true to the principles of the royalty advisory report,” CAPP president Tim McMillan said in a statement. “The new royalty system helps provide the clarity investors need to plan for the future.”

The new royalty regime, which closely follows recommendations of the province’s royalty review advisory panel, will apply to wells drilled starting in 2017.

Wells drilled before then will stay under the current system until 2027.

CAPP said the changes will not significantly alter the economic outlook for industry, which it expects will generate similar returns for comparable activity as it did under the previous royalty system.

“The work to attract more investment to Alberta does not stop,” McMillan said. “On their own, today’s changes will not be enough to restore industry activity across Alberta.”

“Industry is working hard to adjust its own cost structures, and of course an oil and natural gas price recovery is needed as well.”