How are royalties calculated?
Conventional Oil
Royalties are set by a sliding rate formula containing separate elements that account for oil price and well production. Royalty rates will range up to 50 per cent, with rate caps at $120 per barrel (bbl). Royalty Formulas - Conventional Oil
Table of Conventional Oil Rates Natural Gas and Oil charts
Natural Gas
Gas royalties are set by a sliding rate formula sensitive to price and production volume. New royalty rates will range from five per cent to 50 per cent with rate caps at $17.75 Cdn/GJ (gigajoule) Cdn /MMBtu (Million British Thermal Units). Royalty Formulas - Natural Gas Chart of Natural Gas combined royalty rates
Conventional oil and natural gas transitional royalty rates
For new natural gas or conventional oil well between 1,000 to 3,500 metres in the Government of Alberta is providing industry with a one-time option of selecting a transitional rate or the conventional oil/natural gas royalty rate. (link to charts –tables)
All wells drilled between 2009 and 2013 that adopt the transitional rates will be required to shift to the conventional oil/natural gas royalty rates on January 1, 2014. No wells drilled before the effective date of the transitional rate program (November 19, 2008) or oil sands projects are eligible for the transitional rates.
The 5 year transition option is designed to provide lower royalties at some price levels in the initial years of a well’s life when production rates are the highest.
Transition Wells Charts (Natural Gas and Oil)
Oil Sands
A sliding scale is used for oil sands royalty rates ranging from one to nine per cent pre-payout and 25 to 40 per cent post-payout depending on the price of oil.
The base royalty starts at one per cent, and increases for every dollar the world oil price, as reflected by West Texas Intermediate (WTI), is priced above $55 per barrel, to a maximum of nine per cent when oil is priced at $120 or higher.
The net royalty starts at 25 per cent and increases for every dollar oil is priced above $55 per barrel to 40 per cent when oil is priced at $120 or higher.
Table of Oil Sands royalty rates
How does the Government collect royalty (in-kind,etc.)?
The province accepts crude oil in lieu of cash royalties on conventional and heavy oils. The oil is then sold by an agent of the Crown, the Alberta Petroleum Marketing Commission, into the market with the proceeds paid to the Government of Alberta.
Amendments made in November 2008 to the Mines and Minerals Act now allow the province to collect raw bitumen, or products from bitumen anywhere along the value chain, in lieu of cash royalties. These products may then be sold at market prices to encourage more value-added development within the province. As with conventional oil, proceeds would be paid to the Government of Alberta.
For natural gas and coal, the province receives royalties in the form of cash payment.
Bitumen Valuation Methodology (BVM)
BVM is a method to determine a value for bitumen produced in oil sands projects and either upgraded on site or sold or transferred to affiliates. The BVM ensures that Alberta receives full market value for its bitumen production, taken in cash or bitumen royalty in-kind, through the royalty formula.
Western Canadian Select (WCS), a grade or blend of Alberta bitumens, diluents, and conventional heavy oils, developed by Alberta producers and stored and valued at Hardisty, AB was determined to be the best reference crude price in the development of a BVM.
Coal
Under the Coal Royalty Regulation there are two royalty regimes based on the nature of the coal resource developed:
- The royalty rate for Crown-owned Sub-bituminous (Plains) coal, used mainly to generate electricity, is: $0.55/tonne.
- The royalty rate for Crown-owned Bituminous (Mountain/Foothills) coal, which is based on a revenue minus costs royalty regime, is:
- Before mine payout: 1% of mine mouth* revenue
- After mine payout: 1% of mine mouth revenue plus 13% of net revenue
*Mine mouth - royalty is calculated based on the value of the coal at the mine, so any transportation costs or port costs are deducted.
Three Year Scan of Royalty Collected
Total revenue collected
- 2006/07 $12.260 billion
- 2007/08 $11.271 billion
- 2008/09 $12.530 billion (Budget 2009)
- 2009/10 $6.103 (*Budget 2009)
Conventional Oil royalty revenue:
- 2006/07 $1.400 billion
- 2007/08 $1.655 billion
- 2008/09 $1.706 billion (Budget 2009)
- 2009/10 $1.249 billion (*Budget 2009)
Oil sands royalty revenue:
- 2006/07 $2.411 billion
- 2007/08 $2.913 billion
- 2008/09 $3.229 billion (Budget 2009)
- 2009/10 $1.008 billion (*Budget 2009)
Natural Gas and by-product royalty revenue:
- 2006/07 $5.988 billion
- 2007/08 $5.199 billion
- 2008/09 $6.009 billion (Budget 2009)
- 2009/10 $3.687 billion (*Budget 2009)
Coal royalty revenue:
- 2006/07 $13 million
- 2007/08 $14 million
- 2008/09 $34 million (Budget 2009)
- 2009/10 $27 million (*Budget 2009)
*forecast
