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Energizing Investment
Alberta has long been Canada's "energy province." With a wealth of energy resources yet to be tapped and a growing global demand for energy, Alberta continues to maintain its position as a secure and reliable energy supplier. Our province is among a top tier of jurisdictions that have the resource base, expertise, creativity and entrepreneurial spirit to serve the world's increasing energy needs.
However, Alberta is facing a crossroads; our world is becoming increasingly interconnected, bringing greater complexity to flows of capital and trade. Patterns of energy supply and demand are shifting as countries seek to improve energy efficiency, develop alternatives, and use energy produced closer to home. In addition, Alberta's energy sector has been impacted by the economic downturn; prices have dropped and activity has slowed. These and other factors are affecting the attractiveness of our province as a destination for oil and gas investment.
In response to changes in the marketplace, the Alberta government created a team that examined Alberta's investment competitiveness, with a focus on upstream oil and natural gas development. A key element of this review was an extensive technical analysis of Alberta's position relative to other domestic and international jurisdictions.
To advance Alberta's competitiveness in the upstream oil and gas sector going forward, the Alberta government is using this review to modify conventional oil and natural gas royalty rates. This will promote more innovation, use of new technologies, and reduce unnecessary red tape while improving coordination of regulatory processes.
The government's response to this review includes the following:
Fiscal
The key recommendations for royalty adjustments will become effective on a permanent basis for the January 2011 production month.
- The current incentive program rate of five per cent on new natural gas and conventional oil wells will become a permanent feature of the royalty system, with the current time and volume limits.
- The maximum royalty rate for conventional oil will be reduced at higher price levels, from 50 per cent to 40 per cent to provide better risk-reward balance to investors.
- Recognizing the fundamental changes to the North American supply/demand balance and increased competition from other jurisdictions, the maximum royalty rate for conventional and unconventional natural gas will be reduced at higher price levels from 50 to 36 per cent.
- All royalty curves will be finalized and announced by May 31, 2010.
- The transitional royalty framework for oil and gas introduced in November 2008 will continue until its original announced expiration on December 31, 2013. Effective January 1, 2011, no new wells will be allowed to select the transitional royalty rates. Wells that have already selected the transitional royalty rates will have the option to stay with those rates or switch to the new rates effective January 1, 2011.
Innovation
Innovation will drive our future competitiveness. The government will therefore:
- explore additional ways to recognize and account for the higher costs of new and advanced technologies needed to develop mature fields; and
- ensure the development of technologies for enhanced oil and gas recovery remain a priority in the government's research strategies with industry and academic partners.
Regulatory
The government has also accepted recommendations to create a more efficient and effective regulatory system that is based on outcomes.
- Regulatory bodies will work to better coordinate compliance inspections by October 2010.
- The Energy Resources Conservation Board (ERCB) will develop new processes around well spacing and confidentiality of data.
- Parliamentary Assistant to the Minister of Energy, Drayton Valley-Calmar MLA Diana McQueen, will chair a cross-ministry task force to report within 90 days on:
- implementation of near-term regulatory enhancements;
- changes to support deployment of innovative, new technologies; and
- the process for comprehensive review of the regulatory system, with specific milestones and measurable objectives.
Accepting these recommendations will benefit literally hundreds of communities and thousands of businesses. The modifications will create jobs, sustain economic growth, and attract new investment. Every $1 in additional energy investment results in an estimated $1.44 GDP increase. Further, these adjustments are expected to create 8,000 jobs in 2011-12 and 13,000 more jobs annually thereafter across the economy.
The amount of economic activity that is expected from implementing these recommendations is huge. Over the next 25 years, the Canadian Energy Research Institute estimates that conventional oil and gas development in Alberta has the potential to add $2.5 trillion in new economic activity.
For more information on the competitiveness review and the government's response in a report, Energizing Investment, visit www.energy.alberta.ca.
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If you have questions or would like to know more, please contact me at:
Hector Goudreau
Falher
P.O. Box 1054
035- 1st Avenue SW
Falher, AB
T0H 1M0
Phone: (780) 837-3846
Toll Free: 1-866-835-4988 |
Fairview
10404 110 Street
Fairview, AB
T0H 1L0
Phone: (780) 835-7211
*provincial courier mail only please* |
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