Alberta lowers royalty on oilsands

Dec. 11, 1995
The Alberta government has unveiled royalty breaks for oilsands operations. The aim is to spur development. Companies will now pay only 1% royalty on all oilsands production until companies pay off capital costs and are earning a return that matches interest rates for long-term Canadian bonds. They would then pay a 25% royalty to the province on every profitable barrel. The change also drops a system under which each new project had to negotiate its own royalty terms.

The Alberta government has unveiled royalty breaks for oilsands operations.

The aim is to spur development.

Companies will now pay only 1% royalty on all oilsands production until companies pay off capital costs and are earning a return that matches interest rates for long-term Canadian bonds. They would then pay a 25% royalty to the province on every profitable barrel. The change also drops a system under which each new project had to negotiate its own royalty terms.

Eric Newell, president of Syncrude Canada Ltd., Albertas largest oilsands operator, said the changes are close to those recommended by a national task force on oilsands development. He said there are a number of new projects on the shelf worth about $3.1 billion (Canadian) awaiting changes in the royalty structure.

The national task force said as much as $25 billion in outlays would triple current oilsands production to 1.2 million b/d and create 44,000 jobs during the next 3 decades.

Newell said industry is waiting for the federal government to make tax changes for oilsands operations on resource allowance deductions that are expected in a spring budget. He said under current rules, government collects 68 of every incremental dollar earned. Under new royalties, that would drop to 58, with investors earning 42 instead of 32.

Alberta officials could not say how the new royalty will work out on a per-barrel basis from the current regime.

Suncor Inc., Calgary, the other major oilsands producer in Alberta, welcomed the new royalty structure. It has about $800 million in spending on the drawing board for its operation in the Fort McMurray area. n

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