Modernize the royalty system to increase net returns to Albertans and industry over time by encouraging producers to reduce costs.
Make changes for oil and gas wells effective 2017, preserving existing royalties for pre-2017 wells.
Preserve existing royalty structures for oil sands projects and provide transparency by reporting royalties paid, costs, revenues, production, percentage of product upgraded and more for each project.
Seize opportunities to enhance value-added processing in natural gas and partial upgrading in the oil sands.
Measure the performance of the system on an annual basis against key criteria including returns to Albertans, levels of investment, development of value-added industry, and environmental performance.
The Royalty Review Advisory Panel made several findings during its examination of the existing framework, including:
- The global energy landscape has fundamentally changed during the past seven years. Alberta faces new competitors, especially the United States. Rising production in the U.S. threatens Alberta’s market share, and has put downward pressure on prices.
- Alberta’s royalty rates are comparable to other jurisdictions.
- Alberta has tens of thousands of conventional oil and gas wells that, altogether, are still producing significant amounts of oil and gas and supporting jobs and income for Alberta families.
- Alberta also has vast amounts of unconventional oil and gas (such as shale gas) that are largely undeveloped. Developing these resources could help grow the economy and create jobs and opportunities for Albertans. However, distortions in the current framework skew investment decisions, create unnecessary risk, and encourage on-the-ground practices that are not as environmentally responsible as they should be.
- There is a lack of transparency about the costs of oil sands projects which are used in the calculation of royalties.
- Our province’s abundant oil and gas supplies provide attractive conditions for encouraging value-added industry, such as the conversion of bitumen to lighter products and petrochemical processing associated with natural gas.
Alberta has exceptional energy expertise and can compete over the long term. However, this will require Alberta and its energy industry to be innovative and work hard to lower costs.
Benefit to Albertans
Albertans will benefit from the new royalty framework in several ways:
- As more of Alberta’s unconventional oil and gas resources are developed, the overall base of royalties will expand.
- As oil and gas prices recover, programs designed for low price environments will be suspended as appropriate.
- The modernized framework will more accurately calculate the value of Alberta’s oil and gas resources, enabling Albertans to collect optimal value from them.
- Energy companies will be encouraged to innovate and reduce costs, which will create more value in our oil, gas and oil sands resources collectible through royalties.
- Existing conventional wells will be encouraged to keep producing and paying royalties, rather than being shut-in prematurely (and paying no royalties at all).
The modernized framework will help preserve jobs in conventional oil and gas and set the stage for the creation of many more jobs and opportunities for Alberta families in unconventional oil and gas, and value-added industries.