The Modernized Royalty Framework applies to crude oil, liquid and natural gas wells spud on or after January 1, 2017, and to non-project crude bitumen wells spud on or after January 1, 2017 (since royalties for these wells are calculated based on Crown royalty volume determined under crude oil formulas). Wells spud before July 13, 2016 will continue to operate under the previous royalty framework until December 31, 2026. Wells spud during the early election period (July 13, 2016 to December 31, 2016) that did not elect to opt in early to the MRF or did not meet the criteria will continue to operate under the previous royalty framework until December 31, 2026. The Modernized Royalty Framework will not impact royalties on production from an approved Oil Sands Royalty Project, under the Oil Sands Royalty Regulation, 2009.
C*, also known as the Drilling and Completion Cost Allowance, represents completed well costs. It is a calculated value based on vertical depth, lateral length and the amount of proppant placed. The same C* is used regardless of hydrocarbon target, vertical depth or lateral length.
C* is expressed as a dollar amount. The royalty rate is a flat 5% until the cumulative revenue generated by a well equals its C*, after that royalty rates will be based on a sliding scale based on commodity prices and well production.
The ACCI tracks year-over-year inflationary or deflationary changes in the industry. The ACCI will initially be set to 1.00 in 2017, and allowed to “float” on an annual basis as a function of changes in industry costs. For example, if the ACCI is estimated at 0.97 for subsequent years, it will mean that capital costs are 3% lower than they were in 2017.
Total lateral length (TLL) is the combined length of all laterals in the well.
TLL is calculated by using the Total Measured Depth (TMD) of the first well event, adding the length of each additional leg from the last unique kickoff point for that leg, and subtracting the deepest TVD from this amount. This can be expressed in the following formula.
Total Proppant Placed (TPP) is the total amount of proppant used to stimulate a well. A proppant is a solid material, typically sand, used to stimulate a well during its completion. It holds the fractures that have been opened.
If a well is stimulated using material other than sand, the following equivalency factors will be used:
Type of Completion
Naturally occurring unconsolidated
sedimentary mineral material
Coated Sand (tonnes)
Sand that is treated with a permanent
coating that improves its physical
properties, such as for example
size/shape uniformity, stress
distribution, crush resistance,
brittleness or resistance to thermal degradation
Maturity threshold recognizes that as a well matures its production level declines. After the maturity threshold, royalty rates decrease to avoid early shut-in.
The maturity threshold applies when monthly production from the well is below the equivalent of 194 cubic metres (approximately 40 barrels of oil equivalent per day). The 194 cubic meters (m3) equivalent value is the sum of all products from a well, and not individual streams. The maturity threshold in gas equivalent volumes is 345.5 thousand cubic metres (e3m3) per month (approximately 400 Mcf of gas equivalent per day). The conversion ratio between m3 liquids to e3m3 of gas is 1.7811. If cumulative production is below this point, the quantity adjustment specified in the formulas reduces the royalty rate charged to a well, down to a minimum rate of 5%.
The maturity threshold is determined at the wellhead based on the natural gas and oil equivalent volumes for the oil, condensate and raw gas.
Maturity Thresholds recognize the difference in well economics for oil and gas wells based on different prices, costs and royalty rates. The maturity threshold is calculated at the well level; once a well reaches the maturity threshold royalty rates for all hydrocarbons are reduced.
No, the calculation of the par prices has not changed under the Modernized Royalty Framework. For oil , they will continue to be based on the four density categories. For natural gas , they will continue to be based on the extracted and in stream components.
The Government of Alberta’s treatment of Freehold mineral rights is unchanged by the announcement of the Modernized Royalty Framework. The Government of Alberta continues to levy a Freehold Mineral Tax.