Recent changes to the royalty structure for natural gas may help the industry.
On Thursday, May 27, the government unveiled the Emerging Resources and Technologies Initiative. This includes new royalty rates to encourage exploration development and production from deeper, higher cost natural gas wells, coal bed methane projects, shale gas and horizontal oil and gas wells.
“This initiative to unlock Alberta’s unconventional resources offers the potential for decades of employment and community benefits” said Energy Minister Ron Liepert. “The final adjustments to royalty formulas will help industry make important investment decisions for the fall and winter drilling season and maintain Alberta as a competitive jurisdiction for investment.”
Carol Howes, media relations advisor for Encana said overall it appears to be a positive step.
“This initiatives will go a long way in helping offset a number of factors that impact Alberta and a lot of the plays in Canada that are a little more expensive to operate here in Canada,” she said. “Obviously we are competing against a number of plays in North America. We don’t have as much infrastructure and we have further to go transportation wise, and all kinds of things. This will make plays in Alberta and Canada generally, more competitive.”
A substantial amount of Encana’s developments in and around Drumheller are extracting coal bed methane. However, because much of the development in the Horseshoe Canyon Formation is on fee lands, wholly owned by Encana, the changes in royalty rates do not apply. Encana pays mineral tax on those lands.
“In terms of specifics around Drumheller it is a little early to determine specifically on how it is going to impact various areas,” said Howes. “That will come through over the next months and the coming year or two in terms of its affects specifically.”
She says these changes may stimulate a company to begin exploration in the Shale gas industry.
“Alberta doesn’t really have a shale gas development yet,” she said. “This may spawn development in this area. It is pretty new area for a lot of companies… but I think the opportunity to create a shale as an industry is something companies may start to look at.”
The Canadian Association of Petroleum Producers (CAPP )are also positive about the changes.
“The new fiscal details are particularly positive for the competitiveness of Alberta’s natural gas and will enhance the industry’s ability to strengthen the economy and create jobs for Albertans,” said CAPP president David Collyer. “On the oil side, changes are not as significant. We are encouraged by the broader application of the lower up-front royalty rate, which will stimulate new oil drilling activity.”