Alberta’s government says a new application-based royalty program will provide eligible oil projects with a guaranteed 10-year schedule to encourage production.
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Alberta has unveiled a new, application-based royalty payment program aimed at encouraging oil production, with the province saying eligible projects would receive a guaranteed 10-year royalty schedule.
Premier Danielle Smith said the program is intended to stimulate investment and increase long-term oil production, arguing Alberta must compete for new capital and that investors have choices about where they put that money.
Under the framework, companies would pay two per cent of revenues for the first five years, then see the rate rise by one percentage point each year until it reaches a maximum of six per cent.
The province said the program is expected to be in place next year, and that projects would revert to the existing royalty payment system once their 10-year period ends.
Smith said while royalty revenues from new projects would be modest initially, the province expects “tens of billions” in additional royalty revenues over time to support public programs and infrastructure.
Kendall Dilling, president of the Oil Sands Alliance, said the timing has “optics,” but companies make expansion decisions based on forward-looking factors such as predictable royalty rates rather than current oil prices.
Suncor chief executive Rich Kruger said the government should be applauded, arguing that when the industry performs well in Alberta, the benefits extend through royalties and taxes.
The province said only projects planning to produce 5,000 barrels of oil per day would be eligible.
Alberta also said oil companies currently pay royalties on a sliding scale based on the benchmark price of oil and whether the project is in the pre-payout phase, with rates ranging between one per cent and nine per cent of gross revenue depending on West Texas Intermediate, where the maximum applies at US$120 per barrel.
As of Friday afternoon in the report, West Texas Intermediate was trading at about US$88 per barrel, and government officials said they could not estimate how much companies could save because the outcome would depend on project specifics and factors outside the government’s control.
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