For all wells spudded prior to January 1, 2017 the existing royalty framework will continue to apply, including incentives from the Natural Gas Deep Drilling Program. Royalties payable on these wells will be based on the existing royalty structure until January 1, 2027, at which time they will convert to the MRF.
All wells spudded after the implementation date of July 12th, 2017 (“MRF Wells”) will be subject to royalties determined under the MRF. There will be a single royalty structure for oil and gas wells.
Pre-Payout
Wells will pay a flat rate of 5% until cumulative revenue generated from the well exceeds the Drilling and Completion Cost Allowance, C*. This is referred to as a Revenue Minus Cost (RMC) model. Operating, equip and tie-in costs are not included as a cost component.
For wells with TVD less than or equal to 2000m:
C*($) = 1170*(TVD-249) + 800*(TLL) + 0.6*(TVD*TPP)
For wells with TVD greater than 2000m:
C*($) = 1170*(TVD-249) + 3120*(TVD-2000) + 800*(TLL) + 0.6*(TVD*TPP)
Where:
- TVD is the true vertical depth of the well, in meters;
- TLL is the Total Lateral Length (MD minus TVD), in meters;
- TPP is the Total Proppant Placed, in Tonnes.
Post-Payout and Post-Payout Mature
Royalty rates post-C* are determined using the following formula:
R% = Price Component (rp) + Quantity Adjustment (rq)
The price component is based on par prices determined by Alberta Energy for the various hydrocarbon streams and is independent of production rates. The quantity adjustment kicks in when hydrocarbon production drops below a certain “Maturity Threshold” rate. At the Maturity Threshold, royalty rates are adjusted downward as production rates decline. The price component is determined for each hydrocarbon stream individually and adjusted (if the well has reached its Maturity Threshold) based on total oil equivalent production. The total royalty payable for a well is the sum of the royalty payable for each individual hydrocarbon stream.
A minimum royalty rate of 5% applies to all hydrocarbon products.
Conventional Oil, Pentanes Plus (Extracted and In-stream Component) and Field Condensate
The price component of the conventional oil, pentanes plus and field condensate royalty has a minimum of 10% and a maximum of 40%.
The quantity adjustment begins to apply at the Maturity Threshold of 40 boe/d (194 m3e/month), based on the following formula:
rp = (Q-194.0) * 0.1350%
Where:
- Q is calculated at the well level
- m3e/month is m3 equivalent per month
- rp is 0 or negative.
The quantity adjustment can only reduce the royalty rate to the minimum royalty rate of 5%.
Natural Gas (Methane) and Ethane
The price component of the natural gas (methane) and ethane royalty has a minimum of 5% and a maximum of 36%.
Propane and Butane
The price component of the Propane and Butane royalty has a minimum of 10% and a maximum of 36%
Information contained in this section was based on a report released by Sproule on the BOE:
"Sproule Experts Make Sense of Recent Changes to the Modernized Royalty Framework", April 27, 2016, http://boereport.com/2016/04/27/sproule-experts-make-sense-of-recent-changes-to-the-modernized-royalty-framework/