Alberta changing royalty system to encourage oilsands production, new investment

Detailed summary

Alberta is rolling out a new resource royalty program it says is aimed at incentivizing new investment and development in the oilsands by offering guaranteed, predictable rates.

The Alberta government is introducing a new royalty payment program it says will encourage new oilsands investment and increase production as the province pushes for a new pipeline to the West Coast.

The Oilsands Growth Program would offer companies a guaranteed 10-year royalty schedule for eligible new projects and expansions, beginning with a two per cent royalty rate for the first five years.

The rate would then increase by one percentage point annually until reaching six per cent. After the 10-year period, projects would return to Alberta’s existing royalty framework.

“It’s likely to grow more investment,” said Richard Masson, a former chief executive of the Alberta Petroleum Marketing Commission who was also director of oilsands policy at Alberta Energy in the mid-1990s.

“What they’ve done is make it less onerous for companies in the early years of a new project. When companies have invested hundreds of millions — or billions — of dollars, they’re really keen to start to get their cash back early.”

Premier Danielle Smith said the program is intended to encourage new operations, spur growth in the oilsands and eventually increase production to help supply the proposed Pacific Link pipeline.

“If this allows for more projects, more new investment and incremental projects to happen, then overall the pie gets bigger,” Masson said.

“For Alberta and for the economy in Canada generally, it can be a good thing.”

The existing system has, for decades, resulted in a provincial budget tied to what many have dubbed the “resource revenue rollercoaster.”

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