Alberta adds incentives to royalty reform

The government of Alberta has added incentives for enhanced recovery and “emerging resources” to its oil and gas royalty reforms (OGJ Online, Apr. 22, 2016).

The enhanced recovery program sets a flat royalty of 5% on crude oil, natural gas, and natural gas liquids produced by tertiary or secondary recovery for periods, to be set case by case, up to 90 months. After that, normal rates under the new royalty framework apply.

Determination of benefit periods and other program details will differ for tertiary and secondary-recovery projects.

Projects must receive approval from the Alberta Energy Regulator on or after Jan. 1, 2017; involve injection of materials approved by the energy minister; produce more hydrocarbons from a reservoir than could be produced via base recovery; demonstrate that costs are “significantly greater” than those of base-recovery operation; and provide a net royalty benefit to the government over the life of the project.

To qualify for the incentive, projects involving water and gas injection must be in reservoirs not previously subjected to those methods.

The emerging-resources incentive is designed to encourage producers “to open up new oil and gas resources in higher-risk and higher-cost areas that have large resource potential.”

Wells receiving benefits under the program will be subject to a royalty rate of 5% until their combined revenue equals combined cost allowances, to be set well by well.

In an approved project, no more than the first 15% of the total projected well inventory can receive benefits.

Time limits will apply.

To receive benefits, a project must be “in the public interest,” according to the energy minister, and promise large potential, be early in development, show strong likelihood of commerciality, and provide a net royalty benefit to the government.

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