Research Report

Royalty Reform Solutions: Options for Delivering a Fair Share of Oil Sands Revenues to Albertans and Resource Developers

Amy Taylor
Copyright Date: May. 1, 2007
Published by: Pembina Institute
Pages: 29
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Table of Contents

  1. Front Matter
    (pp. None)
  2. Table of Contents
    (pp. i-ii)
  3. Just the Facts
    (pp. 1-2)
  4. 1. Introduction
    (pp. 3-6)

    The Alberta government established the current oil sands royalty regime in 1997 with the aim of accelerating oil sands developments beyond 1 million barrels per day by the year 2020.² The terms were set to explicitly favour investors and support a fledgling industry. Ten years later, however, economic conditions have change significantly: oil sands extraction and upgrading technologies have matured, and current and projected oil prices have increased substantially. The price of bitumen (the raw product from oil sands) has increased 256%.³

    Not surprisingly, capital investments in oils sands projects are soaring in response. Since 1997, capital investments have increased...

  5. 2. Modelling Alternatives
    (pp. 7-12)

    What could the royalty regime deliver to Albertans if the government updated the structure to reflect today’s economic realities and Albertan’s interest in maximizing the revenues from their resource?

    To explore the implications of different royalty structures for citizens and companies, the Pembina Institute developed “net cash flow” models of typical oil sands projects — i.e., projects involving either mining and upgrading or in situ technology.

    A company’s share of the net cash flow (revenues after expenses) from a project represents its profits. These profits are the commission companies receive for undertaking resource developments on behalf of Albertans. The Alberta...

  6. 3. Options for Reform
    (pp. 13-22)

    There are a number of options available for reforming the oil sands royalty regime to ensure that 70% of the available revenue is captured by government. The Pembina Institute examined a number of such options, including increasing the 25% net royalty rate, adding a third tier to the royalty regime and introducing an environmental levy. Each of these options for reform is discussed in more detail below. Models for Oil Sands Royalty Reform contains detailed results from the modelling of these options.

    As described above, the current royalty regime for oil sands involves a 1% royalty on gross revenue until...

  7. 4. Conclusion
    (pp. 23-23)

    Alberta faces a different economic reality today than in 1997 when the government introduced the existing oil sands royalty regime. Since that time, the price of oil (and bitumen) has increased substantially, massive capital investments in the oil sands have taken place and oil sands production has sky-rocketed. Despite these drastic changes, the royalty regime has remained stagnant and consequently has become dismally out of date.

    The oil sands royalty regime needs to be updated to reflect today’s economic reality and to deliver a better deal for Albertans. This means maximizing the value provided to Albertans for the development of...