ALBERTA TO SUSPEND ROYALTY ON NEW WELLS
The Alberta government will suspend royalty requirements on newly completed oil wells for as long as 2 years in response to industry pleas for aid.
Energy Minister Rick Orman announced the royalty holiday and said the government is still studying industry requests for changes in Alberta's royalty structure (OGJ, Nov. 11, p. 22).
Alberta, which accounts for about 80% of Canadian oil production, will suspend its royalties of as much as 25% because of a slump in activity. Alberta oil production has fallen by about 60,000 b/d since the first of 1991, and utilization rate of the 450 unit rig fleet in the province has declined to an average 34%.
Orman said the royalty holiday may eventually increase royalty revenues by increasing oil production.
HOLIDAY PROGRAM
The royalty incentives apply to oil wells only and vary according to well type.
Suspended wells will qualify for a 5 year royalty holiday if reactivated by Apr. 1, 1993.
New wells drilled by the same date in remote or costly operating areas of northern Alberta and the Rocky Mountain Foothills will qualify for 2 year royalty holidays.
New wells in other areas have a Mar. 31, 1992, deadline to qualify for a 2 year holiday and will get a 1 year holiday if drilled after that date. They must be at least 1.5 miles from existing wells but can be in the same field. Development wells drilled by Mar. 31, 1993, will get a 1 year royalty holidays with a ceiling of $400,000.
INDUSTRY RESPONSE
The program will be administered by the Alberta Energy Resources Conservation Board. It drew a welcome response from industry.
The Independent Petroleum Association of Canada said it will have a positive effect on exploration economics and increase winter drilling activity.
The Canadian Association of Oilwell Drilling Contractors said the change will provide immediate work for at least 30-40 idle rigs.
The Canadian Petroleum Association said it is pleased the government recognizes there is a problem, but said the royalty holidays are only a short term solution.
"These temporary Band-Aid programs cause a spike in activity without addressing the fundamentals," said CPA spokesman Hans Maciej.
"We are advocating a basic restructuring of a permanent nature."
Maciej said CPA wants, among other things, royalty relief for enhanced oil recovery, oil sands, and natural gas.
Orman did not say when the government might make a decision on industry requests for a broad overhaul and reduction of the royalty structure.
Copyright 1991 Oil & Gas Journal. All Rights Reserved.