New Alberta royalty framework set for Friday

Alberta Premier Rachel Notley takes part in a press conference at the Queens Park Legislature following her meeting with Ontario Premier Kathleen Wynne in Toronto on January 22, 2016.

After years on the opposition benches sounding the alarm about a royalty regime that she once compared to a fire sale, Alberta Premier Rachel Notley on Friday endorsed maintaining the province’s current royalties for a decade on existing wells.

Energy Minister Marg McCuaig-Boyd has said if there are any changes to the royalty system, they wouldn’t take effect until the beginning of next year so that companies have time to adjust.

The NDP government has happily embraced the 150-ish page report that applauds the former Progressive Conservative government’s royalty arrangement.

“Today’s report does not make significant changes to the overall royalty take by the province, however, it falls short of our recommendation to reduce rates in order to (incentivize) drilling activity to offset provincial taxes”, Scholz was quoted as saying in a release.

“It responds to the pain and the uncertainty that workers and families are feeling across our province”.

The review, which initially stirred concerns that costs would rise for producers, also included provisions to encourage the use of gas for a wider range of petrochemicals and more upgrading of bitumen and oil. 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).

“This is particularly prevalent in the decision to ignore the oilsands royalty process completely”, Swann said in a statement.

CAPP will continue to work with government during its 60-day calibration period to finalize details of the royalty framework. The changes retain the current commodity price-based system, but will adjust rates depending on whether a well is brought online above or below industry cost averages.

During that campaign, Ms. Notley spoke about designing royalties as a way to encourage diversification and a more equitable sharing of the province’s resource wealth, often decrying the “rip and ship” mentality of the province’s energy sector.

Today’s system – in which different rates apply to oil, natural gas and natural gas liquids – has been criticized as being too complex and making companies reluctant to explore because they don’t know what resource their drill bits will encounter. New rates are to be unveiled in coming months.

But Notley said long-term concerns about plummeting oil prices and a fragile economy were key factors in the final plan.

“At this moment in our history, with prices and markets being what they are, what Albertans need us to do is help improve their and industry’s returns by removing distortions and disincentives in the system and ‘grow the pie”‘.

While B.C. being at a competitive advantage for oil and gas drilling contracts could be a good thing for the local industry, an influx of Alberta service companies has put a strain on many Peace Region businesses struggling to stay competitive. Precision CEO Kevin Neveu said he’s “moderately hopeful” about the prospects for the business as a result.