No big changes to royalty system in Alberta
Published Friday, January 29, 2016 5:21AM MST
Last Updated Friday, January 29, 2016 7:14PM MST
While they have changed some elements in the royalty process, the Notley government, after five months of the review process, says the rates will remain unchanged.
"We set out to optimize the returns of the industry," says review panel chair Dave Mowat, ATB Financial president. "We also believe as prices recover, this optimization will create more value, which means more jobs and more wealth for Albertans."
The royalty review, an independent panel to check over payments from the oil industry for development is fair for all Albertans, was a campaign promise by the NDP.
Notley, while very vocal about Albertans getting their fair share from the oil industry through the campaign last year, says that the current rates are acceptable.
"The panel's advice si that the current royalty rates are appropriate and we will maintain those rates and adopt a new framework, greater transparency, accountability, and certainty," Notley said.
It was also supposed to come up with a number of recommendations for the oil and gas sector, including:
- Establish guiding principles and operation of Alberta’s royalty framework be guided by a set of lasting principles
- Modernize Alberta’s royalty framework for crude oil, liquids and natural gas
- Enhance royalty processes for the oil sands
- Seize opportunities to enhance value-added processing
The NDP says they are also imposing incentives for more 'innovative and efficient' technologies on every well dug after 2017.
One of the big changes is that the structure of the royalty system will also be publicly available.
It also says the regime for conventional oil and natural gas wells should be tweaked so that royalty rates better take into account the costs of drilling, instead of just production levels and commodity prices.
A flat five percent royalty rate will be applied on wells until their revenues equal a cost allowance, after which rates will go up.
The province will determine in the coming months how those cost allowance numbers will be crunched.
While it's not a huge change to the system, the government says the system will pay off in the long run.
The review was started five months ago, and was expected to have been completed by the end of 2015, but that was delayed because of the low price of oil.
Stakeholders were nervous in the hours leading up to the announcement, saying that any changes at all could put more pressure on the industry during the economic slowdown.
Mark Salkeld, with the Petroleum Services Association of Canada, says the industry is nonetheless on pins and needles as it awaits the announcement.
"It's pretty tough out there. Our members are hurting," he said.
The industry badly needs investment, so getting the formula right is crucial, he added.
"It's not going to open the floodgates tomorrow, but it will help with the process when the industry does turn around."
This isn’t the first time changes had been proposed to the royalty structure in the province.
In 2007, the Stelmach government attempted to change royalties when the price for oil was reaching $90US per barrel.
Those changes were supposed to come in effect by 2009, but outcry from the industry forced the government to roll back the changes.
Industry groups say they've been happy with how the panel's consultations worked this time around and feel they've had a fair hearing.
The government says that royalty revenues are expected to be about $3B lower in 2016 than from 2015.
The new system comes into effect in 2017.
(With files from the Canadian Press)