CALGARY – Alberta’s current oil and gas royalty system, which has been in place since 2011, is complex. There are different formulas for oilsands, natural gas and conventional oil that take into account production rates and commodity prices.
Here is a breakdown of how the province’s royalty regime works today:
Oilsands:
— In a project’s early stages, the rate is between one and nine per cent of gross revenue, depending on oil prices. Once a project reaches “payout” — covered upfront costs and earned a certain rate of return — companies pay whichever is higher: one to nine per cent of a project’s gross revenue or 25 to 40 per cent of net revenue (gross revenue minus certain costs).
Oil outside the oilsands, also known as “conventional” oil:
— The rates range from zero to 40 per cent of a well’s gross revenue, depending on production rates and the price of oil.
Natural gas:
— The rates range from five to 36 per cent of a well’s gross revenue, depending on production rates and the price of natural gas.
Incentives:
— Programs designed to spur more drilling further complicate matters. New oil and gas wells are eligible for a rate that’s capped at five per cent until whichever comes first: the first year of production, or a certain production threshold is passed. That rate can be extended if those wells are more technically challenging to drill.