Alberta royalty report eases industry worry

Alberta’s Royalty Review Advisory Panel has eased concerns of the oil and gas industry by recommending new attention to cost rather than aggressive rate increases.

The Canadian Association of Petroleum Producers welcomed “a balanced report that sets the stage for more work between industry and government to ensure Alberta’s oil and gas sector is competitive in North America.”

The royalty review report fulfilled a campaign promise by the liberal-leaning New Democratic party, which won control of the provincial government last year. It was one of three concerns cited in a Fraser Institute survey published in December that found a decline in investors’ confidence in Alberta (OGJ Online, Dec. 2, 2015).

The panel recommended maintaining the current royalty regime on oil sands and changing royalty only from new wells on other production, beginning in 2017. For pre-2017 wells, the existing royalty structure is to remain in place 10 years.

Among other changes, the panel recommended a framework for setting a drilling-cost allowance for wells according to an industry-wide average.

Tim McMillan, CAPP president and chief executive officer, said his group still has questions about the recommendations, especially regarding the implementation phase and proposed value-added programs.

“But I can say today that the grandfathering of existing projects, the fact that the new rules will only apply to projects starting in 2017, and maintaining the oil sands royalty regime are signals that the government is serious about encouraging investment in Alberta at this difficult time,” McMillan said.

Last November, Alberta Premier Rachel Notley proposed a climate-change policy capping emissions of greenhouse gases on oil sands operations while allowing production of bitumen to increase.

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