Canada: Alberta's Modernized Royalty Framework

On January 29, 2016 Alberta's NDP Government announced a summary of a Modernized Royalty Framework (MRF) that it intends to implement.

During last spring's election campaign, the NDP had promised to review the Province's royalty system. The objective of this review was to design a royalty system that Albertans could trust. The promise was made in response to the concerns of some Albertans that the royalty systems designed by the previous Government (the energy industry-friendly Progressive Conservative Party) were not giving the Province its fair share of the value of its oil and gas resources.

The Royalty Review Advisory Panel

In August 2015, the Government appointed a Royalty Review Advisory Panel to conduct the review. The Review Panel's process included public engagement and technical reviews. The public engagement involved online and face-to-face dialogue with a broad cross-section of Albertans. The technical reviews included the use of three expert groups that examined the specific mechanics of the royalty framework. To support the technical reviews, the Review Panel retained energy analytics firms Wood Mackenzie and GLJ Petroleum Consultants.

The Review Panel's recommendations were originally to be proposed to the Government by the end of December, but were delayed by a month in order to ensure that they "got it right".

As the Review Panel was conducting its process, the prices of oil and natural gas were falling to their lowest levels in the past 10 to 15 years. The nose dive in prices resulted in:

  • Significant reductions in capital spending and mounting job losses in the Province by an industry struggling to survive through the downturn.
  • The Government's non-renewable resource revenues being cut in half.

At the same time, the U.S. - Alberta's biggest energy customer – emerged as a significant new competitor in the markets for the Province's oil and gas.

Against this backdrop, the Review Panel realized that the focus for Albertans should be less on "are the rates right", and more on what changes needed to be made to the royalty framework to put Alberta and its oil and gas industry in a position to address the challenges of a very different and competitive environment. The Review Panel rejected submissions that the current framework should be left alone or that only minor tinkering to the existing system was needed. They concluded that doing nothing or just making minor changes to the existing system would result in a flight of investment out of Alberta.

The Recommendations

Accordingly, in its Report to the Government the Review Panel presented recommendations, including the implementation of the MRF, to address the new reality that Alberta faces in securing value for its oil and gas resources in a highly competitive world where a return to higher prices is not a given.

The intent of the Review Panel's recommendations was to create a simpler, more transparent and efficient system that:

  • Encourages investment, creates jobs and enhances economic activity.
  • Rewards innovation and cost-efficiency. Under the MRF, producers will have economic incentives to drill and complete wells at less than the applicable prescribed costs.

Although the NDP had been concerned about whether Alberta was getting its fair share, the worsening economic conditions and the NDP's growing understanding of the industry resulted in changed priorities.

The Review Panel's recommendations were accordingly accepted by the Government in whole, with no added provisions (unlike the Climate Change policy announcement, where the Government added a 100MT/year cap on emissions from the oil sands on top of the environmental review panel's recommendations).

Key Conclusions

Some of the Review Panel's main findings and recommendations include:

  • Overall, Alberta's royalty rates are comparable with other jurisdictions, but changes are needed to simplify the system in order to make Alberta more attractive for future investment.
  • The oil sands royalty framework implemented in 2009 provides Albertans an appropriate share of value. This framework, combined with the last decade's substantial investments in oil sands projects, is poised to generate increased royalty revenues in the near future.
  • Regarding the royalty system for oil, natural gas and natural gas liquids:
    • Existing wells will continue to be governed by the current royalty system for the next 10 years, during which period existing royalty rates will be grandfathered.
    • The MRF will apply to wells drilled starting January 1, 2017.
    • For wells to which the MRF applies there will be three separate phases.  Companies will pay a flat 5% royalty until well payout based on a revenue minus cost structure.  A Drilling and Completion Cost Allowance formula administered by the Province that will include any applicable carbon levies will provide the capital costs of wells for payout purposes.  These costs will reflect the depth and, for horizontal wells, the length of the wells drilled and will be calibrated annually. Royalties paid based on revenues on all production streams (oil, natural gas and natural gas liquids) are harmonized under the new program.
    • Post-payout, there will be two other phases:
      • The Mid-life phase where royalties are strictly tied to commodity prices.  These post payout royalty rates will be higher than the 5% flat rate that applies before payout and will be intended on average to yield the same IRR as under the current royalty system.  The post payout royalty rates will not be announced until the end of March.
      • When a Maturity threshold is hit (20 bbl/ d for oil and 200 mcf/d for natural gas) royalty rates will move to a sliding scale (based on volume and price) with a 5% minimum acknowledging that lower rate older wells have higher unit costs. This arrangement is intended to delay premature shut-ins of wells that are no longer economic under Mid-life period royalties.
  • A "distortion" that discriminates on the basis of the type of hydrocarbon found will be eliminated. As a result, companies will not end up assuming the same risk of loss or inefficiencies when, for example, they drill for oil but instead locate dry gas.
  • Current drilling incentives that were set to expire in 2016 will be extended and built into the MRF. The effect of those drilling incentives will diminish in a high price environment.
  • The Government should look into creating incentives for EOR and high risk experimental drilling.
  • There should be "an unprecedented level of transparency", including information on an easy-to-use website. A new capital cost index will be published regarding oil and gas wells.  The Province will also give prices, production volumes and allowable costs used to determine oilsands royalties.
  • An annual detailed report will compare returns to Albertans with those of competing jurisdictions while measuring job creation, investment, production costs, value-added development and environmental performance.
  • Alberta should seize opportunities to develop a value-added natural gas strategy including fostering the establishment of more downstream industries in the Province.  The Province should provide financial support to accelerate the development and commercialization of partial upgrading technologies for bitumen, in order to better utilize a resource that is unique to Alberta.

Details of the MRF, including applicable royalty rates, are to be finalized by the Government in consultation with stakeholders by March 31, 2016. There is an opportunity during this period to identify and address any unintended negative effects or other adverse consequences arising from these proposed changes.

The Industry's Response

Industry's preliminary reaction to the Review Panel's Report has been positive. Although many important details remain to be worked out, the Government has clearly signalled a desire to assist the energy sector through a challenging time.

However, Premier Notley's recent comments that  "[it] is not the time to reach out and make a big money grab. That just is not going to help Albertans overall right now," leaves open the unsettling possibility that the NDP may revisit the royalty rates when prices do recover.

 It remains to be seen, however, whether any cash that left the Province as a result of the royalty review will find its way back in the near or long-term.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.