Member Article

On October 25, 2007 the Alberta Government announced a new royalty regime that will see a 20% increase in royalties for the development of the province’s non-renewable energy resources. Starting in 2009, oil and gas companies are expected to be paying roughly $1.4 billion more a year in royalties. The controversial announcement was in response to a September, 2007 report by a government-appointed expert panel that concluded that Albertans were not receiving their fair share of the province’s non-renewable resources, and recommended a $2 billion annual increase in royalties. Components of the new royalty regime include the following:

·          New, simplified royalty formulas for conventional oil and natural gas that will operate on sliding scales determined based on commodity prices and well productivity. Conventional oil royalty rates will range up to 50%, with rate caps at $120 per barrel, and all specialty royalty programs and tiers are to be eliminated. Gas royalties, set by a sliding rate formula sensitive to price and production volume, will range from 5 to 50%, with rate caps at $17.50 Cdn/MMBtu. Royalties for natural gas liquids will be set at 40% for pentanes and 30% for butanes and propane.

·          The government will increase its royalty share from oil sands development by  implementing a sliding scale for oil sands royalty rates ranging from 1 to 9% pre payout and 25 to 40% postpayout, depending on the price of oil. Specifically, the base royalty will start at 1%, and increase for every dollar the world oil price is priced above $55 per barrel, to a maximum of 9% when oil is priced at $120 or higher. The net royalty will start at 25%, and will similarly increase for every dollar oil is priced above $55 per barrel to a maximum of 40% when oil is priced at $120 or higher.

·          In lieu of cash royalties, where feasible, the province plans to exercise its existing right to receive “royalty-in-kind” on oil sands projects. By taking raw bitumen delivered to the Crown operated Alberta Petroleum Marketing Commission in lieu of royalties, the province seeks to support value-added, Alberta based upgrading projects.

·          Existing oil sands projects will not be grandfathered - both Suncor and Syncrude, with existing royalty agreements not set to expire until 2016, are expected to be transitioned to the new royalty framework.