Overview
In January 2016, the government accepted the recommendations of the Royalty Review Advisory Panel report.
The panel recommended 2 programs that would:
- promote expanded production potential
- generate long-term returns to Albertans
Read the report at: Alberta at a Crossroads.
The Emerging Resources Program (ERP) is one of the panel-recommended programs. The ERP came into effect January 1, 2017. The ERP encourages industry to open up new oil and gas resources in higher-risk and higher-cost areas that have large resource potential. This will promote industry innovation and learning in order to generate greater royalties and other benefits to Albertans.
Objectives
The objectives of the ERP are to:
- provide appropriate royalty treatment for strategic emerging oil and gas resources that are high cost and high risk
- promote innovation and industry experience to accelerate the development of these resources
- generate incremental royalty revenue for Albertans over the long term
Program design
For the purposes of the ERP, a 'project' consists of:
- a target formation
- a set of wells
- associated infrastructure
Program benefits
Cost allowance
Under the ERP, eligible wells will be assigned a program-specific cost allowance (C*ERP). This can range from 150% to 200% of the Drilling and Completion Cost Allowance (C*).
Under the ERP, eligible wells will be assigned a program-specific cost allowance (C*ERP). This can range from 150% to 200% of the C*.
How to calculate C*ERP
A C*ERP is calculated for each eligible well in a project. The cost allowances will then be pooled.
C*ERP is determined based on:
- existing activity in the vicinity of the project at the time of application
- time elapsed from the start of the project
An assessment of existing development in the same resource in the vicinity is conducted at the time of application. For projects with little existing development, the increase to the normal drilling and completion cost allowances will be greatest.
The C*ERP will vary from well to well. Benefits available to eligible wells will decrease over time. An approved project’s earlier wells will receive a larger C* multiplier than those subsequently drilled. This acknowledges the project’s early development.
Royalty rates
Wells pay a flat royalty rate of 5% until their revenue equals their combined program-specific cost allowances, after which wells are subject to royalty rates under the Modernized Royalty Framework
Maximum benefits
Wells may be eligible to generate program benefits for:
- up to 10 years from the start of the project
- and an additional 5 years after, to draw on any C*ERP remaining in the pooled cost allowance
The length of the benefit period is determined at the time of application and is based on assessment of existing development in the same resource in the project’s vicinity.
Projects with very little existing activity nearby will receive the longest benefit period.
Program eligibility
The Minister of Energy will determine whether a proposed project is in the public interest after performing an economic and technical review of the project application. If the application is in the public interest, and meets the criteria, it will be eligible for the ERP.
Refer to the ERP guidelines for detailed information on program eligibility.
The proposed project must:
- target a resource that has a large hydrocarbon potential and can generate substantial long-term returns for Albertans
- develop a resource that is at an early and pre-commercial stage of development
- provide a line of sight as to how the project could achieve commercial viability within a reasonable timeframe with the program
- provide incremental net royalty revenues with the assistance of the program in comparison to the royalty that would have been collected without the program
- be high risk and high cost
- include a minimum of 18 to a maximum of 144 sections
Limits and exemptions
- The project cannot include freehold lands.
- A limited number of producing oil and gas wells in an approved project are eligible to receive benefits. No more than the first 15% of total projected well inventory are eligible. A well is not eligible to be included if the well:
- is spud or commences production after December 31, 2034
- is part of an oil sands project
- produces from a formation other than the target formation
- has been part of an approved scheme under the Enhanced Hydrocarbon Recovery Royalty Regulation or the Enhanced Oil Recovery Regulation
How to apply
Application process resources:
- Emerging Resource Royalty Regulation
- ERP guidelines
- Royalty Operations Emerging Resources Program Procedures Manual
- ERP Application Checklist
- ERP spreadsheets
Project amendments
A project may be amended, within certain constraints which may involve applying again.
Refer to ERP guidelines for project amendment details.
A new application will be required if:
- the project has expanded and there is a need to increase the number of wells eligible for program benefits
- the project has decreased in size by more than 20%