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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

Chart showing Royalty Rates to production rates and maturity over the life cycle of a well

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

Charts showing higher proppant tonnage results in higher production

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Tel: 1-877-923-3787

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