Energy producers encouraged by new royalty rates

May 28, 2010   by PLANT STAFF

Suncor natural gas plant in Alberta.

Photo: Suncor Energy

CALGARY: Alberta’s rejigging of oil and natural gas royalty rates gets a generally positive nod from the Canada’s natural gas and crude oil producers.

Canadian Association of Petroleum Producers (CAPP) president David Collyer described the details of the new royalty structure for natural gas as “particularly positive” although he noted changes on the oil side “aren’t as significant” but the association is “encouraged by the broader application of the lower up-front royalty rate.”

The Alberta government’s new royalty incentive program, announced yesterday as a response to a competitiveness review completed in March, is intended to accelerate the investment in and development of new technologies for the harvesting of unconventional and deep energy resources.

As of May 1, energy companies that drill shale gas, coalbed methane and horizontal gas or oil wells will be looking at a maximum royalty of 5 per cent. The Alberta government said the incentives will be reviewed in 2014, but companies will get three years notice if it decides to discontinue the program.

Companies drilling for coalbed methane and shale gas get a maximum 5% royalty rate for all products for 36 months. There’s a 750-million cubic feet production limit for coalbed drilling but no limits on shale gas production.

Drillers of horizontal gas wells will get the 5% rate for 18 months with a limit of 500-million cubic feet of production volume. Horizontal oil wells get the new rate with monthly production and volume limits according to the depth of the well.

CAPP said the announcement will restore investor confidence in Alberta’s oil and gas sector, but the next step is to address regulatory competitiveness.

“An improved regulatory framework must maintain environmental standards while improving the efficiency of the system. At the same time the oil and gas industry must continue to improve environmental performance,” Collyer said.

Alberta’s oil and gas sector accounts for 25% of private sector investment in Canada; 25% of the value on Toronto Stock Exchange; and 50% of the Alberta economy.

The province produces 73% of the oil and 76% of the gas produced in Canada.
Click here for more about the royalty changes and here for background information.

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