The Alberta government last Thursday unveiled incentives to support technologies that would accelerate development of the province’s vast unconventional and deep resource pools. During the review the government also finalized royalty curves for conventional oil and gas.

The government released the Emerging Resources and Technologies Initiative (ERTI), which built on the Energizing Investment report released in March (see NGI, March 15). The ERTI modifies the royalty rate for wells that require use of high-cost technologies, which the government says strengthens a producer’s ability to invest in additional wells, as well as research and development. Stimulating application of new technologies in resources that have not been tapped is expected to increase overall production, resulting in increased economic activity and secure long-term royalty revenue from new resource discoveries, the government said Thursday.

In addition to an estimated 39 Tcf of remaining reserves of conventional gas, the Alberta government said the province has potential natural gas resources to be unlocked that include approximately 500 Tcf from coalbed methane and approximately 850 Tcf from shale.

“This initiative to unlock Alberta’s unconventional resources offers the potential for decades of employment and community benefits” said Ron Liepert, Alberta’s energy minister. “The final adjustments to royalty formulas will help industry make important investment decisions for the fall and winter drilling season and maintain Alberta as a competitive jurisdiction for investment.”

The new shale gas well royalty rate will allow new wells to receive a maximum royalty rate of 5% for all products for 36 producing months. There will be no limitation on production volume and benefits will run concurrent with the Natural Gas Deep Drilling Program (NGDDP) and the rates for new wells.

For coalbed methane wells, the new royalty rate will allow new wells to receive a maximum royalty rate of 5% for all products for 36 producing months. Volume will be limited to 750 MMcf of gas equivalent production and benefits will run concurrent with the NGDDP and the rates for new wells.

The new horizontal gas well royalty rate allows for a new lower upfront royalty rate at the start of production to account for the high cost of horizontal drilling. Wells will receive a maximum royalty rate of 5% for all products for 18 producing months. The volume will be limited to 500 MMcf of gas equivalent production and benefits will run concurrent with the rates for new wells and the NGDDP. These three new royalty rates are all retroactive to May 1.

The ERTI will be reviewed in 2014 and the Alberta government has committed to providing three years notice to industry at that time if it decides to discontinue the initiative.

“These rate modifications are a long-term investment in Alberta’s future,” added Liepert. In all, energy development in Alberta represents almost 30% of the province’s total gross domestic product and directly or indirectly supports almost one in every seven jobs, he added. Over the next 25 years the Canadian Energy Research Institute forecasts that oil and gas development in Alberta has the potential to add C$2.5 trillion in new economic activity. More economic activity means more opportunity and more jobs for Albertans.

The Canadian Association of Petroleum Producers (CAPP) said the royalty announcement “largely delivers” on the positive direction established with the release of the competitiveness review report in March.

“The new fiscal details are particularly positive for the competitiveness of Alberta’s natural gas and will enhance the industry’s ability to strengthen the economy and create jobs for Albertans,” said CAPP President David Collyer.

The organization said it believes the government’s announcement of fiscal details will help restore investor confidence in Alberta’s oil and gas industry. CAPP noted that the oil and gas industry makes up about 50% of the Alberta economy and employs one in six Albertans.

Moving forward, CAPP said the next important step is to address the regulatory competitiveness of the province and take steps to improve the regulatory system. “An improved regulatory framework must maintain environmental standards while improving the efficiency of the system. At the same time the oil and gas industry must continue to improve environmental performance,” Collyer said. “We are encouraged by the process the government has established and the ambitious timeline adopted for addressing regulatory reform.”

On the conventional gas front, the Alberta government said the maximum and minimum rates for natural gas are 36% and 5%, respectively, as per the March 11 announcement. The royalty rate is the sum of a price component and the quantity component. The quantity component of the formula remains the same as under the existing gas royalty framework. There are changes to the price component of the gas royalty formula to moderate the increase in the rate at prices higher than C$5.25/GJ. The government said the new formula will be applied to all Alberta Crown production including production from existing wells effective Jan. 1, 2011, with the exception of production from wells that choose to remain on the Transitional Royalty formulas. Wells that remain on the Transitional Royalty formulas will receive those rates until December 31, 2013.

The government also announced Thursday that it is initiating two studies to expand the mapping, geological and resource knowledge of shale gas in Alberta and the enhanced oil recovery potential of conventional oil pools in Alberta. The studies are expected to provide important data to help industry make better-informed investment decisions and help guide future government policy development.

©Copyright 2010Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.