Group suggests principles for Alberta royalty review

The Canadian Association of Petroleum Producers (CAPP) has suggested that four principles guide Alberta in an oil and gas royalty review planned by a new center-left government in conjunction with a toughened approach to climate change.

The Canadian Association of Petroleum Producers (CAPP) has suggested that four principles guide Alberta in an oil and gas royalty review planned by a new center-left government in conjunction with a toughened approach to climate change.

The trade group said it seeks:

• A commitment from the provincial government to “a vibrant and competitive oil and gas industry.”

• Confirmation that royalty changes “will be forward-looking.”

• Stability and predictability “to minimize uncertainty and maximize investment in Alberta.”

• Consideration of royalty changes in the context of all new costs from policies such as those related to climate change and corporate taxation.

Royalty review

The New Democratic Party, which defeated the long-ruling Progressive Conservatives in an election May 5, has named Dave Mowat, president and chief executive officer of ATB Financial, Edmonton, chair of the province’s royalty-review advisory panel.

According to a government statement, the panel “will be responsible for listening to Albertans and stakeholders on what type of royalty structure the province should have.”

The advisory panel, to which Mowat will recruit members, is to finish its work by yearend.

The current royalty regime, last adjusted in 2011, has separate provisions for natural gas, conventional oil, and oil sands.

The gas royalty varies according to price and well productivity within a range of 5-36% of the energy content of the well stream. Propane and butane have different rates. Adjustments are available for wells spudded after March 2009 and for deep wells.

For conventional oil production, Alberta takes crude in kind at rates between 0-40%, depending on price and output and subject to adjustments such as for deep and horizontal wells and enhanced recovery.

The royalty scheme for oil-sands production applies project by project. Before a project has recovered allowed costs, including a return allowance, the rate is 1-9% of gross revenue, depending on the Canadian dollar price of West Texas Intermediate crude oil between $55/bbl and $120/bbl.

After payout, the rate is the greater of the prepayout rate or 25-40% of revenue net of allowed costs, varying according to the crude price.

Climate-change strategy

The government said its decisions on royalty structure will consider advice not only of the advisory panel headed by Mowat but also of a group formed to advise it on climate-change strategy.

Headed by Andrew Leach, associate professor and academic director of energy programs at the University of Alberta School of Business, the panel “will comprehensively review the province of Alberta’s climate change policy, consult stakeholders, and provide advice on a permanent set of measures,” the government said in a June 25 statement.

In a related step, the government said it will “renew and update our province’s current, expiring regulations governing carbon emissions.”

Minister of Environment and Parks Shannon Phillips said, “For years, the previous government failed to develop a meaningful strategy to deal with the important issue of climate change, and we are going to do things differently.”

Emission of greenhouse gases is a special concern for oil sands production and upgrading, which require energy inputs greater than those of conventional resources. CAPP recently said per-barrel greenhouse-gas emissions from oil sands have declined by 30% since 1990 (OGJ Online, June 26, 2015).

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