I can remember the first Williston Basin conference I went to in 2008 in Minot, North Dakota. Horizontal technology was just hitting its stride and the main concern about producing Bakken oil was lack of infrastructure to deliver it to market. No one was talking about government regulation or royalties around the resource because everyone was excited to start producing. Now that there is heavy horizontal production coming from this area the same concerns linger; however the eternal question of how to compensate the people for the extraction of their resources has of course become a concern.
In Alberta, and the Western Canadian Sedimentary Basin in general, we have long been producing oil and gas and our methods and rates for royalty calculation are under constant scrutiny. It’s no surprise then that North Dakota, Montana and other new oil and gas hot spots are facing the same issues.
In Comparing Unconventional Oil Tax Policy Across US States Headwater Economics, a non-profit out of the US, does some analysis with use of VISAGE and the gDC US data to better understand and compare royalty rates between some of the states.
“Applying data and assistance from VISAGE and geoLOGIC Data Center, Headwaters Economics has analyzed how North Dakota, Colorado, Montana, and Wyoming approach the collection and distribution of energy revenue in the context of the unconventional oil boom. The goal of the research is to provide decision makers in each state with good information upon which to make better decisions.
The following figure shows the type curve for an average Bakken horizontal oil well which produced 157,222 barrels of oil over the first 36 months of production”
I checked and Alberta royalties are 5% for the first year of production on horizontal oil wells;
How do the other provinces stack up? Do these rates make Alberta competitive or not? Is it more or less expensive for us to get our oil to market; should royalty rates compensate for that? How can we use these same tools to make better decisions going?
Let me know what you think!