Canada: Alberta Announces Modernized Royalty Framework

On January 29, 2016, the Alberta government released the Alberta at a Crossroads - Royalty Review Advisory Panel Report and announced that it will begin drafting a modernized royalty framework (MRF) based on all of the recommendations of the Royalty Review Advisory Panel contained in the report.

Although the report was lengthy, the panel recommended that minimal changes be made to the existing royalty framework (ERF). The report included a significant volume of information and discussion regarding the process taken in developing the report and the factors that need to be considered to create a fair and efficient royalty structure in light of the current challenges facing the industry in Alberta. Set forth below are highlights of the suggested changes to the ERF, the timing of implementation, the next steps to be taken with respect to the MRF, and some comments on practical implications of the implementation of the MRF.

A Single Royalty Structure

Central to the MRF is a single royalty structure for crude oil, liquids and natural gas, involving among other things the same royalty rate. By eliminating the discriminatory treatment of different hydrocarbons, the MRF seeks to reduce exploration risk by allowing producers to assess development opportunities based on market forces instead of how a well might be classified.

The structure will involve a "revenue minus costs" approach where the average drilling cost for any new well would be estimated by using a Drilling and Completion Cost Allowance formula, based on vertical depth and horizontal leg length. The panel recommends that the Drilling and Completion Cost Allowance be determined yearly and that Alberta Energy create and maintain an Alberta Capital Cost Index that will indicate average operating costs for similar-sized wells. They also recommend that derivation and public announcement of the Index occur by March 31 of each year for application on April 1 of the same year. The Index will also appy to oil sands projects.

There will be a flat five percent royalty rate on revenue up to payout. Payout will occur when the total revenues from a well equal the Drilling and Completion Cost Allowance (not the actual costs to drill the well), regardless of the type of hydrocarbon produced. After payout, the royalty rates are to escalate on a price-sensitive scale until such time production drops below a set Maturity Threshold (yet to be determined), after which the royalty rates will be sensitive to declining productivity.


The target implementation date for the MRF is January 1, 2017. The MRF will create a distinction between "old wells" and "new wells". Old wells will be wells drilled before the implementation of the MRF and new wells will be wells drilled after the implementation of the MRF. The MRF will apply only to new wells; old wells will continue to be subject to the ERF for 10 years following the implementation of the MRF, at which time they will transition to the MRF.

All wells drilled before 2017 will qualify for and continue to benefit from the Natural Gas Deep Drilling Program and Emerging Research & Technology Initiative, which expire at the end of November 2016 and June 2018, respectively.

Oil Sands

The government will make no changes to oil sands royalty rates under the MRF. The report states that there was little room for an increase given the price levels being projected by both industry and the Alberta government. Instead, the government plans to modernize the process of calculating costs and collecting oil sands royalties and has promised to improve disclosure of cost, revenue and collection information relating to projects and royalties.

Practical Implications

One of the goals driving the standardization of the Allowance is that it will be an incentive for energy companies to innovate, reduce costs and stay competitive, because they will be rewarded if they can bring wells in under the average completed cost thereby remaining at the lower royalty rate even after they have recovered their actual costs. However, it is not clear yet whether this calculation of the Allowance will differentiate sufficiently between highly variable drilling circumstances.

The MRF will allow energy companies to include the capital cost-related portion of the new carbon levy among the costs they deduct before they pay royalties. The new carbon levy was announced in November 2015 when the Alberta government announced its Climate Leadership Plan.

Absent considerably more detail, it is likely not yet possible to model the economies of drilling under the MRF, but the announcement has hopefully brought some certainty to the environment.

Next Steps

The panel recommended that by no later than March 31, 2016 the following be accomplished:

  • the creation of a Calibration Team to finalize the Allowance formula and the post-payout royalty rates.
  • the development of details of strategic programs for enhanced hydrocarbon recovery and high-risk experimental wells concurrently with the announcement of the details of the MRF.
  • the release of complete details of the MRF, including allowances in the MRF to accommodate the sharing of the carbon levy.

The report also asks that Alberta Energy review the Otherwise Flared Solution Gas Royalty Waiver Program before the end of 2016 to ensure that it is adjusted to conform with the Climate Leadership Plan.

The panel also requested that the Alberta government develop a value-added natural gas strategy, starting with the appointment of an expert advisory group. On Monday, February 1, 2016, only three days after releasing the report, the government announced the Petrochemicals Diversification Program, a 10-year royalty credit program that will award up to a total of $500 million of royalty credits to new petrochemical facilities. Petrochemical facilities of course do not pay royalties; earned royalty credits can however be traded to an oil or natural gas producer who can in turn use the credits to reduce their royalty payments.

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.