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Alberta Oil Sands Royalty Guidelines : Principles and Procedures [2018]

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Alberta Oil Sands Royalty Guidelines : Principles and Procedures [2018] Alberta Oil Sands Royalty Guidelines Principles and Procedures June 2018 Alberta Oil Sands Royalty Guidelines June 2018 Alberta Oil Sands Royalty Guidelines Principles and Procedures Alberta Energy Resource Revenue and Operations Division 6th Floor • North Petroleum Plaza 9945 - 108 Street, Edmonton, Alberta T5K 2G6 Phone 780.427.8050 • Fax 780.422.0692 Toll free 780.310.0000 <www.energy.alberta.ca> i Alberta Oil Sands Royalty Guidelines June 2018 Contents Alberta Oil Sands Royalty Guidelines ................................................................................... i Principles and Procedures ..................................................................................................... i Notice .................................................................................................................................... vii About This Document ............................................................................................................ x Chapters and Appendices .................................................................................................... xi Additional Information .......................................................................................................... xi 1. Alberta’s Oil Sands Royalty System .............................................................................. 1 1.1 Oil Sands Royalty: A Look Back ................................................................................. 1 1.1.1 The Impetus for Change ....................................................................................... 1 1.2 Generic Oil Sands Royalty .......................................................................................... 2 1.2.1 What Is “Generic” Royalty? ................................................................................... 2 1.2.2 A “Revenue Minus Cost” Approach ....................................................................... 3 1.2.3 Objectives ............................................................................................................. 4 1.2.4 Applicability: Who Pays Generic Royalty? ............................................................. 4 1.2.5 Components of the Generic Royalty Regime ........................................................ 4 Alternative Royalty Regimes ....................................................................................... 5 2. Oil Sands Royalty (OSR) Projects .................................................................................. 6 What is an OSR Project? ............................................................................................ 6 2.1.1 Types of OSR Projects ......................................................................................... 7 OSR Project Requirements ....................................................................................... 10 2.2.1 AER Approval ..................................................................................................... 10 2.2.2 Exclusions .......................................................................................................... 10 2.2.3 Minimum Considerations .................................................................................... 10 The Components of an Oil Sands Royalty Project Approval ...................................... 14 2.3.1 The OSR Project Name ...................................................................................... 15 2.3.2 The OSR Project Application and Approval Order Number ................................. 15 2.3.3 The OSR Project Lessee .................................................................................... 16 2.3.4 Ownership Considerations .................................................................................. 16 2.3.5 The OSR Project Operator .................................................................................. 16 2.3.6 OSR Project Operations ..................................................................................... 17 2.3.7 Lands, Leases and Mineral Rights ...................................................................... 19 2.3.8 Core or Supporting Assets .................................................................................. 19 2.3.9 Criteria for Inclusion of Wells Completed Prior to the Project Effective Date in an Oil Sands Royalty Project ................................................................................... 22 2.3.10 The Effective Date .............................................................................................. 23 2.3.11 Prior Net Cumulative Balance ............................................................................. 24 ii Alberta Oil Sands Royalty Guidelines June 2018 3. Applying for Generic Royalty Terms ............................................................................ 28 When Is an Application Required? ............................................................................ 28 Who Can Apply? ....................................................................................................... 28 The Application Process ............................................................................................ 28 3.3.1 Consulting with the Department .......................................................................... 28 3.3.2 Making an Application ......................................................................................... 29 3.3.3 Completing the Application in OASIS .................................................................. 30 The Approval Process ............................................................................................... 41 3.4.1 Pre-Screening Process ....................................................................................... 41 3.4.2 Departmental Review.......................................................................................... 43 3.4.3 Project Approval: The Ministerial Order and Cost Allocation Order .................... 44 3.4.4 Project Approval Process Timeline ..................................................................... 45 Project Revocation .................................................................................................... 45 3.5.1 Indicators of Project Suspension or Abandonment .............................................. 46 4. Calculating Oil Sands Royalty ...................................................................................... 48 The Royalty Calculation Point ................................................................................... 48 Elements of the Royalty Calculation .......................................................................... 49 4.2.1 Payout Status ..................................................................................................... 49 4.2.2 The Return Allowance......................................................................................... 49 4.2.3 Allowed Costs ..................................................................................................... 51 4.2.4 Project Revenues ............................................................................................... 56 4.2.5 Unit Price ............................................................................................................ 57 The Royalty Calculation for Pre-Payout Projects ....................................................... 85 The Royalty Calculation for Post-Payout Projects ..................................................... 87 4.4.1 Installments ........................................................................................................ 90 Examples of Project Configurations ........................................................................... 91 4.5.1 An OSR Project that Produces Raw Bitumen ...................................................... 91 4.5.2 An OSR Project that includes Processing Facilities ............................................ 93 4.5.3 OSR Projects with Jointly Owned Processing Facilities ...................................... 93 4.5.4 An OSR Project that Provides Custom Processing Services ............................... 94 4.5.5 Royalty Treatment of Bitumen Recovered from Waste Water ............................. 95 5. Capital Assets, Engineering Systems and OSR Projects ........................................... 97 Capital Assets or Engineering Systems ..................................................................... 97 5.1.1 Capital Assets or Engineering Systems included in OSR Projects ...................... 97 5.1.2 Summary Table: Treatment of Costs and Revenues ......................................... 100 Solution Gas ........................................................................................................... 101 NAL Pipeline Services ............................................................................................. 103 5.3.1 Calculating Costs for Non-Basic Pipeline Non-Arm’s Length Services ............. 103 Cogeneration Plants ................................................................................................ 107 5.4.1 Cogeneration Cost Allocation Rules.................................................................. 107 5.4.2 General Allocation and Cost Determination Steps ............................................ 108 5.4.3 Valuing NAL Electricity and Steam.................................................................... 109 iii Alberta Oil Sands Royalty Guidelines June 2018 5.4.4 Fuel and Component Allocations
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