Photo of Cameron MacCarthyBy Cameron MacCarthyJanuary 29 2016
Business Law

Alberta's New Royalty Regime Presents Opportunities for Efficient and Precise Oilfield Service Operators

Today, Premier Notley publicly announced Alberta's new royalty regime. Among other things, this regime incentivizes the energy sector to reduce costs by introducing a 5% royalty rate until the producer's revenue surpasses the industry average drilling and completion costs. 

This enables producers whose costs are less than the industry average to capture the benefits of reduced royalties for an extended period of time while their peers are continuing to cover their drilling and completion costs.

It is anticipated that such changes will help fortify incentives for the development of technologies which result in production efficiencies and demand for oilfield service providers who can articulate these benefits to producers in a clear and quantifiable manner.  Moreover, the use of benchmarked drilling and completion costs are likely to favour those producers capable of identifying and completing projects with a high degree of precision and minimizing the risks of cost overruns which are subject to punitively higher royalty rates.

Significant work remains for Alberta's royalty regime.  As the royalty review report does not establish post payout royalty rates nor clarify the definition of net revenue for the purposes of computing drilling and completion costs, the government's share of returns generated on these wells will continue to be subject to the whims of political decision-making.

Invitation for Discussion:

If you would like to discuss this blog in greater detail, or any other business law matter, please do not hesitate to contact one of the lawyers in the Business Law group at Shea Nerland LLP.

Disclaimer:

Note that the foregoing is for general discussion purposes only and should not be construed as legal advice to any one person or company. If the issues discussed herein affect you or your company, you are encouraged to seek proper legal advice.

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