The Royalty and Related Information Review (RRIR) contains a number of preliminary recommendations and updates for changes to Allowable Cost determination and methods to improve the administration of the natural gas royalty regime, volumetric reporting and related information that could be accepted by all interested parties (Industry, Department of Energy and Alberta Energy and Utilities Board*).

Task Force Report

Impact Analysis

Overview

On February 1, 1998, a joint Industry/Government task force released its initial report; Royalty and Related Information Review. This report contains a number of preliminary recommendations for changes to Allowable Cost determination. The report has been issued for review and response from industry and other interested parties until April 30, 1998. The task force will then consider the feedback and prepare final recommendations for the Project Steering Committee and the Minister of Energy. Specifically, the initial recommendations are as follows:

1. Introduce a "13th month" UOCR adjustment to correct the difference between the forecast and actual operating cost allowance;

2. Introduce capital rates at each AEUB facility to allocate capital cost allowance (CCA). Under this proposal, a facility capital rate is estimated prior to each production year and applied to price weighted Crown royalty volumes on a monthly basis. A "13 month" adjustment will be made twice during the year (May and October production month invoices) to allow for additional filings and reconcile estimated CCA to CCA actually incurred;

3. Custom Processing Allowances will be based on deemed custom processing rates for 5 gas types. These rates are determined using the average unit capital/operating cost for the 5 AEUB plant type classifications.

The Department has prepared the following instruction sheet and rate schedules to assist royalty payers in determining the impact of these proposals. The CCA and Custom Processing rates quoted are based on costs and volumes for the 1995 production year filed as of September 25, 1997. Significant volumetric discrepancies for production year 1996 precluded using 1996 data for the analysis. In order to assess the normalized impact of the recommendations, the following adjustments were made to the base data:

1. The UOCR rates reflect "actual" 1995 operating costs and volumes. That is, the 1994 roll-forward (rate adjustment) has been eliminated from the published rates to arrive at the UOCR rates used in the analysis;

2. Recaptures for Enhanced Oil Recovery and Royalty Paid Banks were added back to CCA and custom processing costs to establish base royalty under the current regime.

3. Gross royalties and Allowable Costs were calculated assuming no royalty exemptions for volumes under the Deep Gas Royalty Holiday Program or Exploratory Gas Well Incentive Program.

This package is available on the Department's website. To streamline your calculation process, the rates provided can be down loaded directly onto Excel and Lotus spreadsheets.The instruction sheet provides sufficient information to calculate the potential impact of these initial recommendations on your company. On Wednesday March 18, a town hall session will be held at the Metropolitan Centre (533-4th Avenue S.W., Calgary, Alberta) in the Strand-Tivoli Room. Start times are 9:00 a.m. and 1:30 p.m. In addition to a presentation and question-answer session, the impact assessment tool will be further explained using examples. We encourage you to attend one of these sessions.

Instruction Sheet

Instruction Summary

Schematic

Schedule 1

Schedule 2

Schedule 3

Schedule 4

Schedule 5

Updates

Comments regarding content or presentation should be forwarded to the RRIR Committee

*Note: On January 1, 2008, the Alberta Utilities Commission Act split the EUB into two new regulatory bodies, the Energy Resources Conservation Board (ERCB) and the Alberta Utilities Commission (AUC). The ERCB is responsible for the development of Alberta’s oil and gas resources and the AUC is responsible for the distribution and sale of electricity and natural gas to Alberta consumers.

Last Reviewed March 31, 2008