FERUS ANALYSIS OF THE REVISED AB ROYALTY FRAMEWORK – IMPLICATIONS TO PRODUCERS AND SERVICE CO’S
Revised Alberta royalties effect wells drilled on or after January 1, 2017
Three stages:
Pre-payout – Flat 5% royalty rate until payout
Post payout – Rate fluctuates based on commodity prices
Oil Maturity Threshold – <40 bpd rate, royalty rate decreases to accommodate increasing operating costs
What’s new?:
New oil royalty framework’s 5% royalty holiday is based on payout of Drilling & Completion Cost Allowance (C*) rather than a volume / time calculation under the previous framework
D&C Cost Allowance incentivizes operators to efficiently develop plays with deeper wells, longer laterals, and higher fracture intensity
Liquids rich plays will benefit due to elimination of the flat royalty on associated condensate and NGL’s
C* is a proxy for average industry costs, including components for depth, lateral length, and total proppant placed
Implications to producers:
Encourages producers to drill longer laterals, larger frac treatments with more proppant pumped
Incentive for operators to be cost efficient
Will benefit operators and service companies working in high fracture intensity plays, such as: Montney, Duvernay and Deep Basin
These benefits may see more producer focus on the major resource plays
Implications to Ferus and Service Co’s
The Montney and Deep Basin are experiencing benefits from longer laterals, more frac stages and larger proppant volumes
These areas have also seen significant growth in the per well volumes of N2 and CO2 energizers pumped
Montney – Benefits of Fracture Intensity
