Alberta plans royalty regime modifications

The government of Alberta recently announced that it will modify its oil and gas royalty scheme.

Guntis Moritis
OGJ Production Editor

HOUSTON, Mar. 15 -- The government of Alberta recently announced that it will modify its oil and natural gas royalty scheme.

Since enacting its previous scheme, announced in October 2007, Alberta's recent Energizing Investment report says Alberta will modify the current royalty framework for gas and conventional oil production effective Jan. 1, 2011. The report says the government will review new royalty curves and make any changes prior to May 31 so as to facilitate investment decisions for the upcoming capital budget cycle.

The report notes that the drilling royalty credit will continue until it expires on Mar. 31, 2011, and all other programs will continue as designed. Other modifications include:

• The current maximum 5% front-end rate on gas and conventional oil will become permanent effective Jan. 1, 2011, with the current time and volume limits for the first 12 months of production of 50,000 boe or 500 MMcf of gas equivalent, whichever comes first.

• Reduction of royalty curves at higher price levels with the maximum royalty rate reduced to 40% from the current 50% for conventional oil and to 36% for gas, effective Jan. 1, 2011.

• Continuation of the transitional royalty framework for oil and gas introduced in November 2008 until Dec. 31, 2013. Effective Jan. 1, 2011, the government will not allow any new wells to select the transitional royalty rates. But it will allow wells already with selected transitional royalty rates an option to switch to the new rates effective Jan. 1, 2011.

• Alberta will also examine the broader fiscal regime, including taxes so as to position Alberta as one of the most competitive investment locations for upstream oil and gas.

The report notes that the need for these modifications is that “Alberta’s share of oil and gas capital investment has declined. Our province faces growing and increasingly stiff competition for energy investment. Alberta has begun to feel the effects of this competition, and the government of Alberta recognizes the need to adapt.”

Contact Guntis Moritis at guntism@ogjonline.com.

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