A Primer on Alberta’s Royalty Review

As mentioned in a previous blog post about the review of Alberta’s climate change process/plan, the Government of Alberta is also in the midst of reviewing the energy royalty system in the province. Delphi Analyst, Shruchi Bhargava, recently attended an open house hosted by the Alberta government in Calgary, and shares what she heard and learned in this blog post.

Royalties 101

When a company with mineral rights on a piece of land, i.e. the right to explore and recover minerals, extracts a resource from that land, they are required to pay the province a fee, or royalty. The way this royalty is currently determined in Alberta is highly variable and extremely complex, but mainly depends on the mineral being extracted, the volume extracted and the current price of the mineral.

The resource being extracted and the project type also determine whether the royalty is paid over the lifetime of the project/asset or is paid up-front, as certain projects have a higher up-front cost than others. For example, an oil sands project in the start-up phase is quite expensive, so the company is charged with a low rate until they are past the start-up phase.

The royalty review process and timeline

A government-appointed panel was convened to advise the government on royalty options for the oil and gas sector and to and ensure the royalty system supports four key objectives (outlined in a discussion paper) :

  • Maximize government revenue;
  • Maximize company returns;
  • Encourage diversification; and,
  • Address the pace of developing the province’s oil and gas resources.

The panel includes representatives from business, community, former public servants, energy and financial experts.

There are two phases of consultation as part of the royalty review process: (1) public, and (2) technical. The public consultation phase has concluded, and between now and December the panel will be conducting a technical overview with input from government departments as well as industry, through working groups as well as technical consultation groups.

The focal points of the royalty review

One of the major issues pinpointed by the royalty review panel was that there are no foundational principles that guide the development of the royalty system, i.e., there is no framework in place for determining whether the system is functioning as the province and Albertans would like it to. The focus of the public consultation was on developing principles against which the royalty system could be evaluated. The top three principles that had been identified at the time of the open house were: 1) being environmentally responsible, 2) being competitive with other markets, and 3) ensuring that Albertans get their fair share of the revenues associated with their resources.

What’s next?

It is unclear whether the result of the consultation process will be a report that will be made publicly available or whether the panel will be reporting its recommendations to the government directly. However, the website is a good place to keep up-to-date with questions and responses as well as response summaries.

 

Contributors: 
Shruchi Bhargava –  Analyst (sbhargava@delphi.ca)
Jessica Butts – Consultant, Policy Lead (jbutts@delphi.ca)
Alex Carr – Senior Associate (acarr@delphi.ca)

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