In a joint address, Premier Rachel Notley and Dave Mowat, President of Alberta Treasury Branches, outlined four key recommendations regarding changes in the royalty review process in Alberta.
The key recommendations addressed the need for Albertans to be informed, to give them a better understanding of the royalty process and encourage public engagement.
Optimizing returns to Albertans, attracting investments and promoting job creation, supporting downstream value-added industries and encouraging environmental responsibility were said to be the guiding principles of the review.
Further recommendations included keeping existing royalties in effect on all previous wells for ten years, with a flat 5% royalty rate applied to new wells drilled in 2017 and beyond until revenues equal the drilling and completion cost allowances.
Once equal revenues are realized, royalty rates will increase and a permanent formula will be developed to easily calculate drilling and completion cost allowances based on vertical depth and horizontal length.
The new structure will also harmonize royalties on oil, liquids and natural gas using a "revenue minus costs" approach.
Under the recommendations, the current royalty structure will remain the same for oilsands, but cost allowances will be subject to increased transparency.
The development of a new strategy has also been recommended for natural gas, for commercialization of partial uprgrading and alternative technologies.
Although there are no big changes, the review has created uncertainty within the oil and gas industry at a time when oil prices are low and capital is evacuating the province.
Previous reviews were completed in 2007 and 2008, but changes were reversed in early 2010 due to the impact of the world recession on the oil and gas industry in Alberta.
When asked whether the review would attract investments in the oil and gas industry, Mowat insisted that the stability of the framework would increase interest in drilling from clear and predictable structuring. The panelist also mentioned that oil prices were not a focus of the review and the recommendations were based only on the future.
Since no real major changes were addressed in the review, it’s unclear as to why it was undertaken at all. Was it all worth the shockwave of instability sent across the province?
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