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The Alberta New Royalty Regime

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History of Land System in Western Canada. Alberta Royalty Basics ( New Royalty Framework' ... Ultra heavy oil less than 21.6 API. Oil sands. Natural gas ... – PowerPoint PPT presentation

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Title: The Alberta New Royalty Regime


1
The Alberta New Royalty Regime

Robin Bertram, V.P. Engineering, AJM Petroleum
Consultants SPEE 2009 Annual Meeting, Santa Fe,
New Mexico 15th June 2009
2
Introduction
  • History of Land System in Western Canada
  • Alberta Royalty Basics (New Royalty Framework)
  • Conventional oil
  • Oil sands
  • Natural gas
  • By-products
  • Alberta Royalty Incentives
  • Transition Royalty
  • Natural Gas Deep Drilling Program
  • Drilling Royalty Credit
  • New Well Royalty Reduction
  • Comparisons and Wrap-up

3
Western Canadian Royalties
  • A Brief History
  • In 1670 the King of England granted all lands
    draining into Hudsons Bay to the precursor of
    the Hudsons Bay Company (HBC).
  • The grant, which included land that comprised
    roughly half of what is now Western Canada,
    included everything from the surface to the
    center of the earth, except for gold, silver, or
    precious stones to be found or discovered.
  • In 1869, two years after Canadian Confederation,
    the Dominion Government negotiated the surrender
    of the 1670 land grant. As part of the
    negotiation, the HBC retained close to 4.5
    million acres (approximately 5 percent of the
    lands).
  • These retained lands were subsequently
    transferred to a subsidiary of the HBC called
    Hudsons Bay Oil and Gas. Through various
    transactions these lands are now owned by
    numerous oil companies.

4
Western Canadian Royalties
  • A Brief History continued
  • In 1880 under the Canadian Pacific Railway
    Charter, the Dominion Government granted 25
    million acres (including both surface and
    underground mineral rights) to the Canadian
    Pacific Railway (CPR) in exchange for building
    a rail line from central Canada to the Pacific
    coast.
  • In order to attract settlement in Western Canada,
    the CPR offered tracts of farm land to settlers.
    The CPR retained the mineral rights to these
    tracts.
  • The retained oil and gas rights were subsequently
    transferred to a subsidiary of CP Railways, Pan
    Canadian Oil and Gas, which eventually merged
    with Alberta Energy to form EnCana Corporation.

5
Western Canadian Royalties
  • A Brief History continued
  • The Dominion also granted or sold for token
    consideration, farm sized parcels of land (160
    acres) to individuals prepared to establish
    prairie homesteads.
  • As a result, settlers who acquired homestead land
    prior to 1887 acquired the title to both the
    surface rights and the mineral rights.
  • In 1930, the Dominion Government transferred its
    residual mineral rights to the provinces.
  • These have now been classified as public lands
    and are considered Crown in royalties
    determination.
  • Each province has its own unique set of royalty
    determination formulas.
  • The mineral rights remaining in private ownership
    are termed freehold.

6
New Alberta Royalty Framework
  • Crown royalties are paid on
  • Conventional oil
  • Light oil greater than 35º API
  • Medium oil between 25.8º and 35º API
  • Heavy oil between 21.6º and 25.8º API
  • Ultra heavy oil less than 21.6º API
  • Oil sands
  • Natural gas
  • By-products (solution gas and natural gas
    liquids)

6
7
New Alberta Royalty FrameworkConventional Oil
  • Crown oil royalties are determined on a well by
    well basis and consist of two components (price
    and quantity).
  • These two components are simply added together
    royalties can range from zero to 50 percent.
  • The price component is a sliding scale value that
    is dependent upon a par price that is published
    monthly by the Alberta Government. The par price
    is based on fair market contract prices and
    includes adjustments for quality and
    transportation. Par prices are published for
    light, medium, heavy and ultra heavy oil.
  • The quantity component is also a sliding scale
    value.

7
8
New Alberta Royalty FrameworkConventional Oil
8
Data Source AJM, 2009
9
New Alberta Royalty FrameworkConventional Oil
Ultra heavy Heavy
Medium Light
9
Data Source AJM, 2009
10
New Alberta Royalty FrameworkOil Sands
  • For approved Oil Sands Projects royalties are
    determined on a project basis and are based upon
    WTI oil prices as well as a government defined
    payout status.
  • On a gross project revenue basis royalties range
    from 1 percent to 9 percent of the gross project
    revenue.
  • On a net revenue basis royalties range from 25
    percent to 40 percent.
  • Pre-payout projects are subject to the gross
    revenue royalty.
  • Post-payout projects are subject to the greater
    of the gross revenue royalty or the net revenue
    royalty.

10
11
New Alberta Royalty FrameworkOil Sands
11
Data Source AJM, 2009
12
New Alberta Royalty FrameworkNatural Gas
  • Crown natural gas royalties are determined on a
    well by well basis and consist of two components
    (price and quantity).
  • These two components are simply added together
    royalties can range from five to 50 percent.
  • The price component is a sliding scale value that
    is dependent upon a par price that is published
    monthly by the Alberta Government. The par price
    is based on the gas composition as well as fair
    market contract prices and includes adjustments
    for transportation.
  • The quantity component is a sliding scale value
    that is also influenced by the measured depth of
    the well.

12
13
New Alberta Royalty FrameworkNatural Gas
13
Data Source AJM, 2009
14
New Alberta Royalty FrameworkNatural Gas
Non-Deep (lt6,560 ftKB) Depth
Adjusted (8,200 ftKB)
14
Data Source AJM, 2009
15
New Alberta Royalty FrameworkBy-Products
  • Solution gas is handled similar to natural gas
    except that the solution gas volume used in the
    quantity component calculation includes the oil
    volume (expressed as a equivalent gas volume).
  • Liquid recoveries of propane and butane are
    burdened at 30 percent.
  • Liquid recoveries of pentanes are burdened at 40
    percent.

15
16
New Alberta Royalty FrameworkProvincial
Incentives
  • Transition Royalty Incentive Program
  • Natural Gas Deep Drilling Program
  • For wells with a true vertical depth greater than
    8,200 feet
  • New Well Royalty Reduction Program
  • Drilling Royalty Credit Program

16
17
New Alberta Royalty FrameworkProvincial
Incentives
  • Transition Royalty Incentive Program
  • Program developed to partially offset impact of
    the NRF and will be administered on a well by
    well basis.
  • Operator of the well must apply for the
    transition royalty before the end of the first
    production month.
  • Eligible wells must have total measured depths
    ranging from 3,280 ft to 11,480 ft.
  • Oil wells have spud dates between Jan 1, 2009 and
    Dec 31, 2013.
  • Gas wells have spud dates between Nov 19, 2008
    and Dec 31, 2013.
  • Transition royalties revert to NRF on January 1,
    2014.

17
18
New Alberta Royalty FrameworkProvincial
Incentives
18
Data Source AJM, 2009
19
New Alberta Royalty FrameworkProvincial
Incentives
19
Data Source AJM, 2009
20
New Alberta Royalty FrameworkProvincial
Incentives
20
Data Source AJM, 2009
21
New Alberta Royalty FrameworkProvincial
Incentives
21
Data Source AJM, 2009
22
New Alberta Royalty FrameworkProvincial
Incentives
  • Natural Gas Deep Drilling Program
  • Royalty adjustment is based on total drilled
    amount. Eligible wells must have the producing
    zone deeper than 8,200 ft.
  • Maximum royalty adjustment is 8,000,000 for
    development wells and 10,000,000 for exploration
    wells. Royalty adjustment is a declining balance.
  • Monthly royalties payable are reduced by the
    royalty adjustment to a minimum of five percent.
  • Eligible wells qualify for incentive for a total
    of five years.

22
23
New Alberta Royalty FrameworkProvincial
Incentives
  • New Well Royalty Reduction Program
  • Wells commencing production between April 1, 2009
    to March 31, 2010 are eligible.
  • Eligible wells will pay a five percent royalty
    subject to a maximum of 12 producing months and
    maximum recovered volumes of 50,000 bbl, 500
    MMcf, whichever occurs first.

23
24
New Alberta Royalty FrameworkProvincial
Incentives
  • Drilling Royalty Credit Program
  • All conventional wells drilled in the province
    from April 1, 2009 to April 1, 2010 qualify
    (including dry holes).
  • Operator of well will earn a 200 per drilled
    meter (656 per drilled ft) royalty credit that
    is applied as a company wide royalty reduction.

24
25
New Alberta Royalty FrameworkComparison of Oil
Royalties
25
26
New Alberta Royalty FrameworkComparison of Oil
Royalties
26
27
New Alberta Royalty FrameworkComparison of Gas
Royalties
27
28
New Alberta Royalty FrameworkComparison of Gas
Royalties
28
29
New Alberta Royalty FrameworkAdditional
Information
  • Alberta Energy website
  • www.energy.gov.ab.ca
  • British Columbia Ministry of Energy, Mines and
    Petroleum Resources website
  • www.empr.gov.bc.ca
  • Saskatchewan Energy and Resources website
  • www.er.gov.sk.ca

29
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Thank you
This presentation can be downloaded at
www.ajmpc.com
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