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May 18, 2018

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FERUS ANALYSIS OF THE REVISED AB ROYALTY FRAMEWORK – IMPLICATIONS TO PRODUCERS AND SERVICE CO’S

May 10, 2016

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

 

 

 

 

 

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