New Well Royalty Reduction Frequently Asked Questions

The following questions and answers reflect high level business rules for the new well royalty reduction incentive program. Regulations supporting the program are being prepared. 
This information will be updated as detailed business rules are developed.
Which wells will qualify for this royalty reduction? 
Do wells brought back on production qualify for the royalty reduction, re-entry, suspended or inactive wells for example? 
Why limit qualification for re-entry, suspended and inactive wells to historical production less than 100 m3 per month? 
Is there a drilling date requirement to receive the NWRR?
Do new unique well events completed within existing well bores that have production qualify?  
Are there any wells that do not qualify for this program?
What royalty reductions does this program provide? 
If a new well comes on production late in the program, March of 2011 for example, how long does it have to reach 12 production months?
Why was April 1, 2009 to March 31, 2011 chosen as the timeframe for this royalty reduction?
Is the cap based on a well or a unique well event? 
What about wells that had test production prior to April 1, 2009? 
Is the test production month counted as a production month?
If the test production month is counted in the department of Alberta computer system as a production month, what should the client do?
Does this New Well Royalty Reduction apply to Alberta Royalty Framework and Transition programs? 
If I receive drilling credits am I still able to receive the new well royalty reduction? 
Who receives the royalty reduction? 
What happens when a well reaches its volume cap during a month? 
What happens when a well qualifies for the New Well Royalty Reduction program and the Deep Oil Exploratory Well program? 
What impact will this program have on Enhanced Recovery of Oil Royalty Reduction wells? 
What impact will this program have on credits received under the Innovative Energy Technologies Program (IETP)? 
What impact will this program have on the Natural Gas Deep Drilling Program (NGDDP)? 
Is an application necessary to receive the reduced royalty rate? 
Is the 5% maximum royalty benefit applied at the gross or net royalty level?

• Must come on production between April 1, 2009 and March 31, 2011, inclusive of those dates,
• Must be subject to the payment of royalty under the Petroleum Royalty Regulation, 2009, the Natural Gas Royalty Regulation, 2009 or non-project oil sands wells subject to payment of royalty under the Oil Sands Royalty Regulation, 2009, and
• Must pay Alberta Crown royalties.

Do wells brought back on production qualify for the royalty reduction, re-entry, suspended or inactive wells for example? 
Re-entry, suspended and inactive wells bought back on production will be eligible to receive this royalty reduction if they meet one of the two following criteria:
Criteria 1

• The well has not produced any product between January 1, 2009 and March 31, 2009 inclusive of those dates, and
• Average monthly total production (Crown and freehold) over the last 3 months of non-zero production between January 1, 2007 and December 31, 2008 is less than 100 m3 of oil including equivalents for all products produced by the well. Where a well has less than 3 months of non-zero production then an average of those months where production occurred will be used.

Or Criteria 2

• The well has not produced between January 1, 2007 and March 31, 2009 inclusive of those dates.

Why limit qualification for re-entry, suspended and inactive wells to historical production less than 100 m3 per month? 
The policy intent of the New Well Royalty Reduction was to bring on production that would not otherwise happen if the program was not put in place. Re-entry, suspended or inactive wells that were shut-in or not producing because they were uneconomic, or would require some additional investment in the well to be brought on line, qualify as this production would not have occurred without the program. The program was not intended to apply to wells that were already producing and connected to infrastructure that may have been offline for various reasons.

Is there a drilling date requirement to receive the NWRR? 
For the NWRR, qualification for the program does not depend on when the well was drilled.

Do new unique well events completed within existing well bores that have production qualify?  
No, the program supports production from new well bores and production from well bores that had no production at any time after December 31, 2008 and before April 1, 2009.

Are there any wells that do not qualify for this program? 
The following wells do not qualify for this program:

• Oil Sands wells (subject to the calculation of royalty under the Oil Sands Royalty Regulation, 2009), other than non-project wells subject to payment of royalty under s. 27 of that regulation, and
• Gas over bitumen wells.

What royalty reductions does this program provide? 
For oil wells, oil and solution gas receive a 5%  gross maximum royalty rate. For gas wells, the gas (C1, C2), field condensate, natural gas liquids (C3, C4, and C5) and sulphur receive a 5% maximum gross royalty rate. Well classification will be defined according to the records of the ERCB. This royalty rate will be subject to a cap based on either 12 production months, 50,000 barrels of oil production including equivalents for oil wells, or 500 million cubic feet (MMcfe) of gas production including equivalents for gas wells, whichever is reached first. 

If a new well comes on production late in the program, March of 2011 for example, how long does it have to reach 12 production months?
The program expires on March 31, 2012, any unused production months at that point are lost.

Why was April 1, 2009 to March 31, 2011 chosen as the timeframe for this royalty reduction? 
The timeframe for the programs coincides with the Alberta Government’s 2009/2010 and 2010/2011 fiscal years.

Is the cap based on a well or a unique well event? 
The cap is based on all Crown production (total production multiplied by Crown interest) from a well, with all well events contributing to a single cap.

What about wells that had test production prior to April 1, 2009? 
Wells that have production for the sole purpose of testing the well prior to April 1, 2009 will not be excluded from receiving this reduction.  Test production must be an isolated occurrence, with production volumes and times consistent with the testing of a well.  To determine if the well will be eligible companies should prepare to apply to the Department of Energy.  The process for this application will be shared on this website as soon as it is available.

Is the test production month counted as a production month?
No,  if the duration of production in the month is less than 120 hours it is considered as test production and would not be counted as a production month.

If the test production month is counted in the department of Alberta computer system as a production month, what should the client do?
If the well meets eligibility criteria, the Department of Energy (DOE) would count the test production as a production month. The client would be required to make an application and the department would remove that production month from the allowed 12 production months if the data is found to support the test criteria (120 hours).
Application (letter) has to be sent to Director Gas Royalty Calculation.

Does this New Well Royalty Reduction (NWRR) apply to Alberta Royalty Framework (ARF) and Transition programs? 
Yes, the NWRR applies for wells subject to payment of royalty under the Petroleum Royalty Regulation, 2009 or the Natural Gas Royalty Regulation, 2009, whether Alberta Royalty Framework or Transition rates are selected. The rules for ARF or Transition formulas still apply.

If I receive drilling credits am I still able to receive the New Well Royalty Reduction (NWRR)? 
Yes, receipt of drilling credits and the NWRR can be obtained for a single well as long as the criteria for each are met.

Who receives the royalty reduction? 
The operator will receive the reduction for oil wells, and the royalty client will receive the reduction for gas wells.

What happens when a well reaches its volume cap during a month? 
When the volume cap is reached during a month, any production exceeding that cap would be subject to the applicable royalties calculated for that production.

What happens when a well qualifies for the New Well Royalty Reduction program (NWRR) and the Deep Oil Exploratory Well program? 
For well events applicable to both the NWRR program and the Deep Oil Exploratory Well program, date constraints and volume limits for each will run concurrently.

What impact will this program have on Enhanced Recovery of Oil Royalty Reduction wells? 
The reduced royalty rate benefit from the NWRR program will reduce the amount of royalty from which reductions under the Enhanced Oil Royalty Relief program can be made.

What impact will this program have on credits received under the Innovative Energy Technologies Program (IETP)? 
The reduced royalty rate benefit from the New Well Royalty Reduction program will reduce the amount of royalty from which reductions under the Innovative Energy Technologies Program can be made. IETP royalty reductions must still be made by October 31, 2013 or be forfeited.

What impact will this program have on the Natural Gas Deep Drilling Program (NGDDP)? 
For well events applicable to both the New Well Royalty Reduction (NWRR) program and the NGDDP program, date constraints will run concurrently. Benefits under the NWRR will be deducted from gross royalty first and once a well event has reached the benefits limit under this program it will be eligible to start using NGDDP benefits. Where NWRR benefits are limited by reaching the volume cap, NGDDP benefits would begin in the month following the month the NWRR cap is reached.

Is an application necessary to receive the reduced royalty rate? 
No, the royalty reduction will be applied automatically based on meeting requirements for the NWRR  program.

Is the 5% maximum royalty benefit applied at the gross or net royalty level? 
The reduced royalty rate is applied at the gross royalty level.