Royalty Questions and Answers
What will government’s changes mean?
Will government put the additional revenues into savings?
When did the changes come into effect?
Will any of these changes impact freehold mineral rights holders?
How do these changes ensure that more upgrading and refining of bitumen occurs in the province?
What constitutes an Oil Sands “project”?
What will government’s changes mean?
Under Alberta’s New Royalty Framework, energy royalties are expected to increase by approximately $1.4 billion in 2010, an increase of 20 per cent over revenues forecast for that year under the current regime. Actual revenues will depend on future prices and production levels in the province.
Actual revenues will be driven by a number of variables including production levels, world prices for oil and natural gas, and exchange rates.
Will government put the additional revenues into savings?
One-third of any additional revenues generated by Alberta’s New Royalty Framework will be put into savings and invested for future generations of Albertans, while two-thirds will be committed to capital-spending projects that meet the needs of our growing economy.Expenditure proposals based on a sound plan for the future with clear objectives will be developed while revenues from royalty, tax and all other sources will be estimated.
The two will be brought together and a fiscally responsible budget will be tabled each year.
When did the changes come into effect?
January 1, 2009
What do these changes do to help ensure that our environment is better protected from future development?
While these changes do not specifically address environmental issues, they are part of our overall plan to ensure the environmentally responsible and sustainable development of our energy resources.
Alberta does not approve any energy development project until we are satisfied that environmental concerns are addressed.
Our initiatives to reduce greenhouse gas emissions and assessing overall impacts to land, air and water and setting regional limits are proof of our commitment to environmental protection.
Will any of these changes impact freehold mineral rights holders?
No. The province will not change the current freehold mineral rights structure at this time. However, it will be reviewed to ensure it is fulfilling its intended objectives.
How do these changes ensure that more upgrading and refining of bitumen occurs in the province?
The government will consider other ways to attract investment in the construction of additional upgraders and refineries in Alberta. This will include studying a possible upgrader credit.
The province will also exercise its right to take raw bitumen in lieu of cash royalties to supply upgraders and refineries in our province. Doing this will encourage more of our resources to be upgraded and refined by Albertans, in Alberta.
What constitutes an Oil Sands “project”?
A project must be in the oil sands areas of Alberta. The Department of Energy issues a description of the oil sands leases, project lands, project assets/facilities, and project operations. All recovery and processing operations must have ERCB approvals. The description puts a ‘ring fence’ around the costs and revenues of the project, thereby ensuring that payout and net revenue of the “project” can be calculated.
There are four different types of projects that pay oil sands royalties:
1. For wells that are not a part of a project and whose royalty is calculated on the basis of conventional oil:
- The company submits data on the wells’ production the month following production (i.e. reports in February indicate January production) and the department calculates the royalty volume and forwards that to the project operator. The operator then takes that volume and multiplies it by the average selling price for that production month and submits that payment to the department.
2. For projects that have Crown agreements:
- At the end of the month following the production month (i.e. at the end of February for the January production month) the project operator uses the royalty rate in the Crown agreement to determine the royalty due and submits that payment.
3. For projects that are in pre-payout:
- At the end of the month following the production month (i.e. at the end of February for the January production month) the project operator takes the department’s published royalty rate and multiplies it by the revenue to determine the royalty due and submits that payment.
4. For projects in post-payout:
- At the end of the month following the production month (i.e. at the end of February for the January production month) the project operator forecasts the revenue and net profit for the project. Using the royalty rates published by the department, the operator determines if the percentage of net profits or the percentage of revenue royalty is greater for the calendar year and submits payment based on whichever is greater. The operator submits a payment which brings the year to date portion of the calendar year royalty up to date (i.e. at the end of July the payment would bring the cumulative amount paid to 50 per cent of the calendar year royalty).
