The government of Alberta has adopted the recommendations of the Royalty Review Advisory Panel.
The Government of Alberta will begin work this spring in order to put the Panel’s recommendations into effect beginning in 2017.
The Panel determined that Alberta’s royalties are comparable to similar jurisdictions, but the industry’s costs are substantially higher. As a result, the panel recommends a modernized framework that sets a drilling cost allowance for wells according to an industry-wide average.
The new royalty system will reward producers who reduce drilling costs below the industry average through innovation. Over time, the effect of the change will be to grow net revenues industry-wide, which in turn will increase total royalties to the province.
“This improved royalty framework will make Alberta’s energy industry more competitive and create more good jobs,” said Marg McCuaig-Boyd, Minister of Energy. “We heard the system was complex, unpredictable and too rigid to keep pace with the rapidly changing technology of our energy sector. Albertans and industry will benefit from a modernized framework that is simple, predictable, and adaptable.”
The Panel, led by ATB Financial CEO Dave Mowat, listened to industry, labour, environmental groups, academics, business leaders, community leaders and thousands of other Albertans who participated in-person or online.
“Our history of innovation has made Alberta into one of the world’s top energy producers,” said Mowat. “With the changing world we face today, it’s even more important to encourage innovation and ensure Alberta can compete. That way, everyone benefits. Our panel is proud to deliver these recommendations to improve our energy industry’s future.”
The new royalty framework will:
• provide certainty to the energy industry – royalty changes take effect in 2017 and only apply to new wells;
• maintain the existing royalty structures for 10 years on wells prior to 2017;
• set out a structure to encourage the reduction of costs in the industry, which will increase net revenues shared by Albertans and industry in all price environments;
• establish new royalty rates on oil and gas wells that preserve existing rates of return at the outset;
• harmonize allowable drilling costs on oil and gas wells to remove barriers to investment;
• maintain the current oil sands royalty regime, which was examined by the panel and determined to be competitive;
• provide unprecedented transparency by annually publishing a capital cost index for oil and gas wells, and a wide range of data for each oil sands project, including costs, royalties paid, percentage of product upgraded, and more;
• lay the groundwork for strategic development of value-added industry in the natural gas and oil sands sectors with the establishment of a working group on energy diversification;
• incorporate existing incentive programs and ensure they operate appropriately in both low and high price environments;
• measure annual performance against comparable jurisdictions using principles Albertans’ identified as important during the review, including returns to the province, industry costs, investment levels, job creation and environmental performance.
The Royalty Review Advisory Panel was named on August 28, 2015, including Calgary-based energy economist Peter Tertzakian, Beaverlodge Mayor Leona Hanson, and President and Vice Chancellor of the University of Winnipeg, Annette Trimbee, in addition to Panel Chair Dave Mowat.
The Panel’s consultations with Albertans included more than 7,000 online responses to questions posted through its website LetsTalkRoyalties.ca, received and analyzed 132 documents submitted by stakeholders, held 65 stakeholder meetings across the province, and reached 22,710 Albertans through a telephone town hall meeting.