Alberta sets out details for new oil and gas royalty framework

The province of Alberta has simplified the royalty system.
The province of Alberta has simplified the royalty system. File /GETTY IMAGES

CALGARY – The Alberta government has released details of its new royalty regime, which is says bring clarity and certainty to conventional oil and gas drilling.

The province has simplified the system with a single structure for crude oil, gas and liquids that takes into account the growth of unconventional wells that use horizontal drilling and fracking.

READ MORE: Oil and gas industry braces for Alberta royalty review 

Under the new regime, companies will pay a five per cent flat rate royalty until costs are recovered, after which royalty rates will range between five and 40 per cent depending on energy prices.

Total costs of the vertical and horizontal drilling will be tracked on a cost allowance index that rewards producers who are efficient.

READ MORE: A look at Alberta’s current royalty regime

The Canadian Association of Petroleum Producers welcomed the modernized royalty regime but said more work needs to be done to help industry, especially on pipeline access.

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The new royalty regime, which closely follows recommendations of the province’s royalty review advisory panel, will apply to wells drilled starting in 2017.

Wells drilled before then will stay under the current system until 2027.