Report on Alberta’s oil and gas royalty regime

Source: Exec Digital Canada

Date :6/14/2007 8:45:38 AM

The report, “Alberta’s Oil and Gas: Benefits to Alberta and Canada, Today and Tomorrow” provides information on the royalty system in regards to conventional oil and gas and unconventional gas.

The Canadian Association of Petroleum Producers (CAPP) and the Small Explorers and Producers Association of Canada (SEPAC) are pleased to contribute this information to the current public review on Alberta’s oil and gas royalties, taxes and fees. It is important that Albertans have confidence in the system – a system that provides fair benefits from the development of natural resources while maintaining an internationally competitive fiscal regime. This is critical to future growth and prosperity. Through the royalty review process, CAPP welcomes the opportunity to share its perspective and listen to those of others.

The report details the current state of resource potential and development in Alberta; the benefits to Alberta and Canada; the costs of operation; and the importance of investment certainty.

• Resource Potential- The historical success of Alberta’s oil and gas industry has been based on the development of conventional oil and gas. Enhanced recovery technology is being used to extend the life of maturing conventional oil and gas fields. As these resources mature, investment and interest is moving to less conventional resources such as deep gas, coalbed methane, and tight sands and shale gas. These vast unconventional sources are more challenging and costly to produce and require innovative approaches for development.

• Benefits to Alberta and Canada- The benefits are more than just royalties, lease sales and taxes. There are new jobs in technical, trades and professional fields, and new business opportunities to provide goods and services from pipelines and equipment to research, trucking, restaurants, environmental and accounting services. All of these contribute to Alberta’s economic growth. The challenge for the province of Alberta, as the owner of the resource, is to ensure that this growth continues into the future and that the full scope of benefits continues to be shared fairly.

• Prices and Costs- While prices have risen over the past few years so have costs; this trend seems unlikely to change in the short-term. Similar to most commodities, oil and gas prices are unpredictable and rise and fall frequently. Alberta’s conventional royalty structure automatically adjusts for price and productivity but it does not adjust for escalating costs. It is important to look at both costs and prices together as it is revenues less costs that drive economic development.

• Investment – The existing fiscal regime – with its combination of upfront lease bonuses, production royalties and corporate income taxes – has produced growth, jobs and continuing benefits for the province. These factors, combined with Canada’s political stability and sound fiscal policies, are what make Alberta an attractive place to invest.

The Alberta Royalty Review is examining all of these factors to determine fairness. The current royalty regime needs to be robust enough to accommodate both the maturity and shifting nature of the resource in Alberta. CAPP and SEPAC are providing this information to Albertans to assist in understanding the details and benefits of the conventional fiscal regime.