Royalty Overview

Alberta Capital Cost
Index (ACCI)

The ACCI tracks year-over-year inflationary or deflationary changes in the industry. The ACCI will initially be set to 1.00 in 2017, and allowed to “float” on an annual basis as a function of changes in industry costs. For example, if the ACCI is estimated at 0.97 for subsequent years, it will mean that capital costs are 3% lower than they were in 2017.

C*, also known as the Drilling and Completion Cost Allowance, represents completed well costs. It is a calculated value based on vertical depth, lateral length and the amount of proppant placed. The same C* is used regardless of hydrocarbon target, vertical depth or lateral length. C* is expressed as a dollar amount. The royalty rate is a flat 5% until the cumulative revenue generated by a well equals its C*, after that royalty rates will be based on a sliding scale based on commodity prices and well production.

Total lateral length (TLL) is the combined length of all laterals in the well. TLL is calculated by using the Total Measured Depth (TMD) of the first well event, adding the length of each additional leg from the last unique kickoff point for that leg, and subtracting the deepest TVD from this amount. This can be expressed in the following formula.

TLL = TMD_event0 + [(TMD_event1 - Kickoff point_event1) + (TMD_event2 - Kickoff point_event2) + …] - TVD_MAX

Total Proppant Placed (TPP) is the total amount of proppant used to stimulate a well. A proppant is a solid material, typically sand, used to stimulate a well during its completion. It holds the fractures that have been opened (see the chart below for proppant equivalency factors).

True Vertical Depth (TVD) is the vertical depth of a well. It is measured as vertical distance in a perpendicular line from the kelly bushing of a well (top) to the base of the bore of the well.

Maturity threshold recognizes that as a well matures its production level declines. After the maturity threshold, royalty rates decrease to avoid early shut-in.

The maturity threshold applies when monthly production from the well is below the equivalent of 194 cubic metres (approximately 40 barrels of oil equivalent per day). The 194 cubic meters (m³) equivalent value is the sum of all products from a well, and not individual streams. The maturity threshold in gas equivalent volumes is 345.5 thousand cubic metres (e³m³) per month (approximately 400 Mcf of gas equivalent per day). The conversion ratio between m³ liquids to e³m³ of gas is 1.7811. If cumulative production is below this point, the quantity adjustment specified in the formulas reduces the royalty rate charged to a well, down to a minimum rate of 5%.

The maturity threshold is determined at the wellhead based on the natural gas and oil equivalent volumes for the oil, condensate and raw gas.

Maturity Thresholds recognize the difference in well economics for oil and gas wells based on different prices, costs and royalty rates.  The maturity threshold is calculated at the well level; once a well reaches the maturity threshold royalty rates for all hydrocarbons are reduced.

Sand (tonnes)

1

Naturally occurring unconsolidated sedimentary mineral material

Coated Sand (tonnes)

1.5

Sand that is treated with a permanent coating that improves its baseline conductivity by at least 50%, compared to the baseline conductivity of the same uncoated sand, under the same stress conditions.
This conductivity enhancement must be in accordance with ISO 135503-5 or its equivalent. The department may request independent laboratory tests as evidence of eligibility.

Engineered, manufactured
proppants (tonnes)

2.5

A manufactured product

Acid (cubic metres)

10 x (acid concentration)
0.75
1.5
2.8

Examples of acid completions
7.5% concentration
15% concentration
28% concentration