Alberta Launches Review of Oil, Gas Royalty Regime

CALGARY Feb.16, 2007 (Dow Jones Newswires)

The province of Alberta on Friday launched a wide-ranging review of its energy royalty regime, which could result in changes in the tax structure for Canadian oil and gas producers.

The review is necessary to ensure that Albertans are receiving a fair share from the energy development occurring in the region, said Alberta Minister of Finance Lyle Oberg.

"We need to be certain that the royalty regime is providing Albertans with a fair return on the province's natural resources while maintaining an internationally competitive system that allows the Alberta economy to continue to prosper," he said in a conference call.

An independent panel will review all aspects of the province's current royalty arrangements with regard to oil and gas production, and will report by Aug. 31. The government will then consider its recommendations and decide whether to change the province's tax structure, Oberg said.

Alberta's oil and gas royalty regime has been criticized in some quarters as not realizing enough tax revenues from the province's production. Alberta Governor Ed Stelmach, who took office in December 2006, pledged during his election campaign to investigate whether the region is getting a fair deal from companies.

Currently, operators in the oil sands pay 1% of gross revenues until capital costs and a return allowance are recovered, after which the rate jumps to 25%. Oilsands companies were expected to pay out about C$2.5 billion (US$2.1 billion) in 2006 in royalties.

The government will consider the review panel's recommendations "carefully," and will consider wide-ranging changes if necessary, Oberg said. However, he emphasized that any new royalty regime must "strike the right balance" between attaining a return for Alberta and providing a stable and continuous royalty regime to developers.

"This is not a witch hunt," he said. "The royalty structure must be fair to Alberta's industry and allow it to prosper."

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