Optimism, more activity mark royalty review anniversary
Rig counts across Alberta have risen substantially compared with this time last year as economic activity and jobs return in the energy sector.
The increased activity is taking place one year after the Alberta government announced its modernized royalty framework, which encourages industry to innovate and reduce costs, making Alberta companies more competitive and encouraging more investment in Alberta.
Government adopted the Royalty Review Advisory Panel’s recommendations in January 2016 and the modernized royalty framework for oil and gas took effect at the start of this year. According to industry figures, there were 247 active rigs in Alberta in mid-January. That is a 50 per cent increase compared to 165 in Alberta at the same point in 2016. It’s estimated that each active drilling rig creates 135 direct and indirect jobs.
“We reviewed our royalty system when prices were low so we’d be able to hit the ground running when prices went back up. We’re now seeing better prices, new pipeline approvals, and a royalty system that’s more competitive than before. The result is companies are putting rigs back to work and that means getting Albertans back to work.”
Oil and gas producers had the opportunity to opt in to the modernized royalty framework before Jan. 1, 2017. This allowed industry to make new investments or keep existing investments in Alberta, creating jobs for Albertans. Government approved 158 new wells as part of the early adoption. More than 40 companies applied.
“When we started this process we committed to listening to Albertans and industry. Seeing our recommendations brought to life means Albertans can know their views are reflected in the Modernized Royalty Framework. This is a system that is built to last and I’m pleased to see the positive reaction to it, one year after delivering our report.”
“The Modernized Royalty Framework was a much needed policy in Alberta to match the pace of innovation and competition in the energy industry. One year later, we have a system that meets the needs of the people of Alberta and the industries that support our resource economy. Increased drilling and capital expenditures early in the year are positive trends that are being driven by commodity price recovery, industry innovation and effective policy.”
Applications for two new strategic royalty programs also opened in 2017 as part of the new framework. The Enhanced Hydrocarbon Recovery Program and Emerging Resources Program will help projects get more oil and gas from existing pools before they are abandoned. The initiatives will also encourage development of higher-cost and higher-risk areas with large resource potential.
Government is moving forward with the panel’s recommendation to explore more value-added developments in Alberta. The Energy Diversification Advisory Committee, appointed last fall, is engaging with stakeholders to examine opportunities in partial upgrading, refining, petrochemicals and chemical manufacturing. The committee will provide its recommendations in the fall.
These activities are among the many decisive actions government has taken recently to strengthen and diversify Alberta’s economy, including two new tax credits to encourage capital investments, the targeted Petrochemicals Diversification Program that is bringing nearly $6 billion in new investment into Alberta, cutting small business tax by one-third, and increasing ATB Financial’s borrowing limits by $1.5 billion to support small- and medium-sized business entrepreneurs.