An end is in sight to a bitter eight-year dispute involving natural gas and oil sands producers in northeastern Alberta and the province’s energy regulator.
A solution surfaced in recent cabinet changes to Alberta’s gas royalty regime that allow the Alberta energy minister to provide royalty relief to any gas producers who have their wells in the Athabasca region shut in by the Energy and Utilities Board.
If the plan gets final government approval, it will result in lowered royalties equivalent to a portion of the gas operator’s lost cash flow from shut-in gas.
As a result, Energy Minister Murray Smith said Oct. 15 that lost royalties could cost the province as much as C$175 million over 10 or 12 years, or less than C$10 million if a way is found to allow gas production to take place without having a negative impact on the bitumen. The gas shut-in, which represents less than 1 percent of the province’s total gas production, was imposed to preserve bitumen reservoir pressures in a region holding an estimated 25.5 billion barrels of reserves.
Under a complex formula, the gas producers who currently have lost 123 million cubic feet per day from more than 1,000 wells and are denied access to about 280 billion cubic feet of reserves would receive compensation of C$2.44 per thousand cubic feet when gas prices at are C$6.50 per thousand cubic feet.
Currently, the producers — including Paramount Energy Trust, BP Canada, Devon Canada, Petro-Canada, Talisman Energy and Canadian Natural Resources — are receiving 60 cents per thousand cubic feet for lost production.
Although there is no indication when the plan might be implemented, a spokesman for Energy Minister Murray Smith said there have been encouraging discussions with the producers, while Paramount President Susan Riddell Rose said she was “very encouraged by the plans.”
She said the minister now has the “authority and a mechanism to implement a financial solution.”
Smith said the solution “reflects appropriate signals” to the investment community and the industry, while protecting the integrity of the Energy and Utilities Board “in protecting Albertans’ interest in the resource.”
