CALGARY – Alberta Premier Rachel Notley will unveil the province’s new oil and gas royalty framework on Friday.
The announcement will take place in Calgary, a city that’s seen scores of job losses as a result of the crude oil price collapse.
Alberta’s current oil and gas royalty system, which has been in place since 2011, is complex. There are different formulas for oilsands, natural gas and conventional oil that take into account production rates and commodity prices.
Here is a breakdown of how the province’s royalty regime works today:
Projects that have not yet recovered their capital costs pay the province between one and nine per cent of their gross revenue, depending on oil prices. Once the projects have recovered their capital costs, companies pay whichever is higher: one to nine per cent of a project’s gross revenue or 25 to 40 per cent of net revenue (gross revenue minus certain costs).
Oil outside the oilsands, also known as “conventional” oil:
The rates range from zero to 40 per cent of a project’s gross revenue, depending on production rates and the price of oil.
The rates range from five to 36 per cent of a project’s gross revenue, depending on production rates and the price of natural gas.
Programs designed to spur more drilling further complicate matters. New oil and gas wells are eligible for a rate that’s capped at five per cent until whichever comes first: the first year of production, or a certain production threshold is passed. That rate can be extended if those wells are more technically challenging to drill.