Alberta releases details of new royalty program for oil and gas

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FORT ST. JOHN, B.C. — All 16 drilling licences offered this week were purchased in the April sale of the Ministry of Natural Gas Development crown petroleum and natural gas land rights.

However, the encouraging news stops there — as the price per hectare was only $71.76, with just over 5,200 hectares purchased of the just over 6,000 offered.

That left the bonus bid total at just over $400,000 dollars. While that was nearly double the April sale of last year, it still left the 2016 year-to-date total at only about $2.5 million — and still on pace to make this the worst calendar year in terms of government revenue since the first year of Ministry records in 1978.

The low end year was 1982 when the total tender bonus was only $16.7 million, and the province barely exceeded it last year at 18.3 million.

Meantime, there is also some more encouraging oil and gas industry news this week from Alberta. The NDP government has surprised many people and released details of a new royalty regime it says brings clarity and certainty to conventional oil and gas drilling.

It has simplified the system with a single structure for crude oil, gas, and liquids, which takes into account the growth of unconventional wells that use horizontal drilling and fracking.

Under this new regime, companies will pay a five per cent flat rate royalty until costs are recovered, after which royalty rates will range between 5 – 40 per cent — depending on energy prices.

Total costs of the vertical and horizontal drilling will be tracked on a cost allowance index, which rewards producers who are efficient.

The new regime closely follows recommendations of the province’s royalty review advisory panel and will apply to wells drilled starting next year.

Those drilled before then will stay under the current system until 2027.