Alberta holds royalty rates on existing wells, oil sands

Fri Jan 29, 2016 1:09pm EST
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By Julie Gordon

CALGARY Jan 29 (Reuters) - Alberta's left-leaning government unveiled a new oil and gas royalty framework on Friday that left rates unchanged on existing oil wells and the oil sands project, alleviating fears that costs would rise to punishing levels amid the worst oil price slump in decades.

The western Canadian province, which is home to huge oil sands deposits, along with conventional and unconventional oil and natural gas, said its new framework following a review that began in June will drive innovation by rewarding producers who reduce drilling costs below the industry average.

The government said the new royalty framework, aimed at bolstering provincial finances over the long-term, would take effect in 2017, with existing royalty rates remaining in place for 10 years on wells drilled before 2017.

Royalty rates for oil sands projects will not change, but the government pledged more transparency and accountability on costs producers are allowed to deduct when paying royalties.

Under the new framework, crude oil, liquid and natural gas wells will all be covered under a single royalty structure, with new rates to be unveiled in the coming months. Currently, there are different rates depending on what is produced.

The review, an election campaign promise by the left-leaning New Democrat government that swept to power in Alberta last May, had concerned oil and gas executives who warned it could lead to higher costs and job losses at a time when Canada's energy heartland is already reeling from the collapse in oil prices. (Additional reporting and writing by Euan Rocha in Toronto; Editing by Alan Crosby)