Alberta Holds Royalty Rates on Existing Wells, Oil Sands

Reuters

CALGARY, Jan 29 (Reuters) - Alberta's left-leaning government unveiled a new oil and gas royalty framework on Friday that left rates unchanged on existing oil wells and oil sands projects, alleviating fears that costs would rise to punishing levels amid the worst oil price slump in decades.

The western Canadian province, home to huge oil sands deposits, along with conventional and unconventional oil and natural gas, said the new framework would take effect in 2017, with existing royalty rates remaining in place for 10 years on wells drilled before 2017.

Royalty rates for oil sands projects will not change, but the government pledged more transparency and accountability on costs producers may deduct when paying royalties.

Alberta Premier Rachel Notley noted the province's position in the global market had changed dramatically in recent years, with its biggest customer, the United States, now also its biggest competitor.

"It's not the time to reach out and make a big money grab," she told reporters, adding the government had accepted the panel's recommendations and incremental increases in royalty rates on new wells would go into the province's savings fund.

Energy shares on the Toronto Stock Exchange edged higher after the news. Canadian Natural Resources, a major driller, was up 2.3 percent at C$29.86.

"It's a recognition that times are volatile and perhaps it's not the time to insert further uncertainty into the sector," said Benoit Gervais, a portfolio manager at Mackenzie Investments.

The review panel recommended the government harmonize the royalty structure across crude oil, liquid and natural gas wells. New rates are to be unveiled in coming months. Currently, there are different rates depending on what is produced.

Alberta's current royalty rates vary between 1 percent and 40 percent depending on factors such as type of development, oil prices, crude volumes, well depths and speed of cost recovery.

The review, an election campaign promise by the New Democrat government that swept to power in Alberta last May, had concerned oil and gas executives who warned it could lead to higher costs and job losses at a time when Canada's energy heartland is already reeling from the collapse in oil prices.

The province pledged that rates of return to producers would remain the same at the outset under the new system.

The government said the new royalty framework recognizes that future development in the province will be focused on unconventional oil and gas wells, which are quicker and cheaper to develop than major oil sand projects.

(Additional reporting and writing by Euan Rocha in Toronto; Editing by Alan Crosby)

Copyright 2016 Thomson Reuters. Click for Restrictions.

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Donald Reitsma | Feb. 1, 2016
I think royalty rates should have been cut and support to the industry should be provided by the federal government just like the bailouts they are given to companies in eastern Canada. Tens of thousands have lost their jobs with no relief in sight. It would be better to put them back to work than on the welfare roll and on the streets!


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