Developing our resources requires investment and expertise.
On January 1, 2017, the Modernized Royalty Framework took effect for new activity in Alberta. It made several changes to make Alberta more competitive and strengthen investment.
The new framework removes distortions inherent in the old system and harmonizes royalty treatment across hydrocarbons.
This provides predictability to companies seeking to invest in drilling activity.
The framework also provides an incentive for companies that lower their costs below the industry average. This encourages innovation and the use of new technologies. As average costs come down, Albertans will benefit from an increase in royalty revenue over time.
How the framework is performing
Several indicators such as drilling activity, employment and investment provide an insight into the performance of Alberta's energy industry and its royalty framework. However, other variables such as commodity prices and production cost could impact these results.
We can tell if the framework is attracting investment and promoting job growth by tracking:
- employment in Alberta as a result of the mining, quarrying, and oil and gas extraction sector
- how employment in Alberta’s sector compares with other oil and gas jurisdictions
- Alberta mining, quarrying and oil and gas investment as a percentage of Canada’s energy investment
At a glance
- Despite the decline that took place after 2014, Alberta still employed the highest number of people in the mining, quarrying, and oil and gas extraction sector within Canada.
- Preliminary actual data for 2017 indicates that, investment in the upstream mining, quarrying and oil and gas development accounted for 46% of total investment in all industries/in Alberta.
Direct and indirect employment in Alberta
According to Statistics Canada, in 2017, about 272,000 people, or 12% of workers in Alberta, were estimated to be directly or indirectly employed in the mining, quarrying, and oil and gas extraction sector; that is about 9,000 more compared to 2016.
The graph shows both direct employment in the mining, quarrying, and oil and gas extraction sector, and indirect employment attributable to the activity in this sector.
Figure 1. Direct and indirect employment in the oil and gas extraction sector
Table 1. Direct and indirect employment in the mining, quarrying, and oil and gas extraction sector
|2013 (thousands)||2014 (thousands)||2015 (thousands)||2016 (thousands)||2017 (thousands)|
|Direct AB employment in mining, quarrying, oil & gas extraction (NAICS1 21)||171||175||155||136||140|
|Indirect AB employment in mining, quarrying, oil & gas extraction (NAICS 21)||160||165||146||128||132|
|Total direct and indirect AB employment in mining, quarrying, oil & gas extraction (NAICS 21)||331||340||301||264||272|
Direct employment in the mining, quarrying, and oil and gas extraction sector, after climbing to about 175,000 in 2014, declined by 11% from 2014 to 2015 to 155,000, and then declined further by 13% from 2015 to 2016 to 136,000. In 2017, the employment in the sector increased by 4,000 to 140,000, or about 3% compared to the year before, the first year-over-year increase in three years. Still, in 2017, the total direct and indirect employment in the mining, quarrying, and oil and gas extraction sector was 68,000, or 20% lower than in 2014.
In the case of employment in mining, quarrying, oil and gas extraction, an example of the direct employment is an oil rig worker; indirect employment would include workers at the power station which supplies the oil rig with electricity.
How Alberta compares
Alberta directly employed the highest number of people in the oil and gas extraction sector within Canada at about 140,000 people in 2017.
Table 2. Change in direct employment in the mining, quarrying, oil and gas extraction sector across comparator jurisdictions, 2015 - 17.
|2015 (thousands)||2016 (thousands)||2017 (thousands)||Change (percent)|
Employment trends across jurisdictions have been fairly similar. While the rates of change varied, trends generally move in the same direction. For example, from 2013 to 2014, employment in the mining, quarrying, and oil and gas sector increased in all comparable jurisdictions; and from 2014 to 2015 the trend was subsequently reversed, as the sector's employment in all comparator jurisdictions declined.
However, the magnitude and impact of employment changes on the economy was significantly different for examined jurisdictions. The 140,000 people in Alberta’s mining, quarrying, oil and gas extraction sector accounted for about 6.1% of Alberta employment in that year. By comparison, California’s 2017 employment in the sector was about 20,100 people – or 0.1% of total employment in the state in that year. Therefore, the impact of any changes in the direct employment in this sector will affect Alberta much more compared to California.
Therefore, while both jurisdictions saw a similar decline in the mining, quarrying, and oil and gas extractions sector's direct employment levels from 2015 to 2016 (13% for Alberta, and 15% for California), the impact was significantly more pronounced in Alberta, where the sector is much more prominent.
Effect of oil and natural gas prices
Oil prices significantly declined in late 2014, and remained relatively low throughout 2015 and 2016 before slightly increasing in 2017 due to increased global demand, decreasing U.S. and OECD inventories, as well as OPEC members and several non-OPEC producers voluntary supply cuts which were somewhat restrained by U.S. shale production growth. The overall growth in North American gas production has contributed to a downward push in gas prices in the last several years. In addition to higher overall gas supply in North America, in 2017 Canadian gas prices were also partially driven by the Canadian gas market developments, such as a strong production in B.C. and Alberta as well as infrastructure and maintenance issues.
The decline in oil prices had a major impact on upstream energy sector employment in Alberta: after climbing to the record high 175 thousand people in 2014, direct employment in the mining, quarrying, and oil and gas extraction sector experienced a significant decline; over the 2014 – 2016 period, employment in the sector in 2017 had a relatively small recovery, and was at about 140 thousand people -- which was still 20% lower compared to 2014. The downward trend within Alberta’s mining, quarrying, and oil and gas extraction sector was primarily driven by employment reductions in Support Activities for Mining and Oil and Gas Extraction sub-sector, which in 2017 had about 29 thousand people or 35% less employed than in 2014. From 2014 to 2016, all jurisdictions we looked at saw a decline in the mining, quarrying and oil and gas extraction employment. The only exception for that period was British Columbia, where employment in the sector increased in 2016 from the previous year due to mining and support activities for mining and oil and gas extraction. In 2017, the downward trend took place in all jurisdictions except Alberta and Texas, where employment the sector increase by 3% and 4%, respectively.
Alberta continued to be the primary destination for investment in Canada directed to the mining, quarrying and oil and gas extraction sector. For example, from 2010 to 2015, Alberta’s share of Canada’s sector investment accounted for at least 63% in every calendar year, and was at 59% in 2016. Preliminary actual data for 2017 indicated that while Alberta's share of Canada's sector investment declined to 56%, Alberta still accounted for an absolute majority of all of Canada's investment in the sector. Therefore, any significant investment swings in Alberta have major impacts on Canada’s results.
The significant oil price decline in late 2014 has not prevented the total mining, quarrying, and oil and gas extraction sector investment in Alberta in 2014 from setting an all-time Alberta record at $61 billion. However, the price decline has impacted the industry since then. In 2015, Alberta experienced a significant decline in investment in this sector, down to $40.3 billion, or a 34% year-over-year decline, followed by a further decline of 30% down to $28.3 billion in 2016. Preliminary actual results for 2017 show that investment declined by another 6% to $26.5 billion.
From 2016-2017, as indicated above, preliminary actual results for Alberta indicate a decline of 6% in the sector’s investment. The decline for Saskatchewan was estimated at about 1%. Newfoundland's investment in the sector declined by 25% from 2016 to 2017, while British Columbia's went up by about 31%.
Even though the investment decline significantly slowed down, and the 2017 results are still preliminary, the results still had implications for Alberta. The amounts invested are much greater in Alberta than in other Canadian jurisdictions that have substantial energy industries – the reported 6% decline in investment amounted to about $1.8 billion. Among the provinces we looked at the 1% decline for Saskatchewan translated into about $41 million year-over-year reduction in investment, 25% decline for Newfoundland amounted to about $1 billion, while 31% increase in B.C. was equivalent to about $1.4 billion.
Industry investment is to a large extent driven by commodity prices, which the government cannot control.
Figure 2. Upstream oil and gas extraction capital investment (Including mining and quarrying)
Table 3. Upstream oil & gas extraction capital investment (including mining and quarrying)
|Alberta (billions $)||Saskatchewan (billions $)||Newfoundland (billions $)||British Columbia (billions $)||Rest of Canada (billions $)||Alberta as a percentage of Canada|
|2017 Preliminary Actual||26.5||5.7||3.1||6.0||5.7||56|
Alberta can also be compared with British Columbia, Saskatchewan, Newfoundland, and Manitoba for mineral rights, or land sales. Unlike oil and gas industries of other comparator provinces, Newfoundland's industry is offshore and Manitoba is also included to present the complete picture of activity in Western Canada.
Figure 3. Crown land sales and leases in oil and gas development
Table 4. Crown land sales and leases in oil and gas development
Figures are in hectares.
Generally since the mid-1950s, Alberta sold the most land in hectares for oil and gas development among provinces, although there were exceptions. Alberta’s numbers also include oil sands mineral rights sales in addition to petroleum and natural gas sales.
In 2015 and 2016, Newfoundland sold more hectares than Alberta. However, in 2017 Alberta sold 1.5 million hectares and Newfoundland sold about 121 thousands hectares. The significant majority of all Alberta sales were for oil and gas development, rather than the oil sands, and was mainly driven by growing interest in newer, emerging areas, Duvernay and Montney plays.
Oil prices significantly declined in late 2014 and remained relatively low throughout 2015 and 2016 before improving slightly in 2017. The lower oil price environment affected both Alberta and its competitors.
However, while the decline in oil prices generally led to lower industry investment and employment, the effect has not been as clear for sales of mineral rights. Among the Canadian jurisdictions we looked at, Newfoundland had the largest mineral rights sales in 2015 and 2016, but Newfoundland’s mining, quarrying and oil and gas extraction sector had significantly less investment than its Alberta’s counterpart. Mining, quarrying and oil and gas extraction investment in both Alberta and Newfoundland also saw a downward trend in every year over the 2014 – 2016 period. This trend was estimated to continue for both provinces in 2017. Therefore, mineral rights sales appear to be much more influenced by factors specific to each jurisdiction at a particular time, than by general industry trends.