​ Enhanced Hydrocarbon Recovery Program


In January 2016, government accepted the recommendations laid out in the Royalty Review Advisory Panel's Report: Alberta at a Crossroadsexternal link icon. The Panel recommended two strategic programs to promote expanded production potential and generate long-term returns to Albertans.
The new Enhanced Hydrocarbon Recovery Program came into effect January 1, 2017 and replaces the existing Enhanced Oil Recovery Program.

It will help to promote incremental production through enhanced recovery methods and generate additional royalties and other benefits to Albertans. Enhanced recovery methods involve the injection of various materials into an oil or gas pool in order to increase hydrocarbon production from existing developments.

​For more information on the application process please refer to the application procedures, checklistand required spreadsheets.

Objectives
The objectives of the new program are to:

  • Provide appropriate royalty treatment for incremental hydrocarbon production to account for the higher costs associated with enhanced recovery methods;

  • Generate incremental hydrocarbon production through enhanced hydrocarbon development; and

  • Collect incremental royalty revenue for Albertans.

Program Design
The Enhanced Hydrocarbon Recovery Program consists of two main components. The first component targets tertiary recovery schemes which enhance recovery of hydrocarbons from an oil or gas pool by miscible flooding, immiscible flooding, solvent flooding, chemical flooding or other methods approved by the Minister.

The second component targets secondary recovery schemes which enhance recovery of hydrocarbons from an oil or gas pool by water flooding, gas cycling, gas flooding, polymer flooding or other methods approved by the Minister.

Under both components of the program, a company will pay a flat royalty of 5 per cent on crude oil, natural gas and natural gas liquids produced from wells in an approved scheme for a limited benefit period. After the benefit period ends, wells in these schemes will be subject to normal royalty rates under the Modernized Royalty Framework.

Program Benefits
The benefit period that schemes approved under the program receive could be up to a maximum of 90 months. This period will depend on the recovery methods used and the estimated additional amount of hydrocarbons that can be recovered using enhanced recovery methods.

For schemes that use tertiary recovery methods, the benefit period will be determined using the benefit schedule for the current Enhanced Oil Recovery Program. However, the benefit periods in this schedule will be reduced by 25 per cent to better align with new royalty rates under the Modernized Royalty Framework.

For schemes that use secondary recovery methods, the benefit period will be determined on a case by case basis.

After the first two years of program implementation, the approaches for determining royalty benefit periods for both tertiary and secondary recovery methods will be reviewed, and possibly revised, to better align with the Modernized Royalty Framework’s cost allowance approach.  

Program Eligibility
Enhanced recovery schemes must meet all of the following eligibility criteria:

  • Receive technical approval of a scheme, where a scheme application is submitted to the Alberta Energy Regulator (AER) on or after October 23, 2016;

  • Be an enhanced recovery scheme that uses either secondary or tertiary recovery methods to inject substances into an oil or gas pool;

  • Produce more hydrocarbons from the pool than could be produced from the base recovery scheme for that pool;

  • Demonstrate that costs are significantly greater than operating the base recovery scheme; and

  • Provide a net royalty benefit to the Crown over the life of the scheme.

In addition, new schemes involving water flooding, gas cycling or gas flooding must be located in a pool or a part of a pool where these activities have not occurred previously.

Enhanced Hydrocarbon Recovery Program

What types of enhanced recovery methods are eligible for the Enhanced Hydrocarbon Recovery Program?

Schemes employing either tertiary or secondary recovery methods may be eligible for the new program.  Tertiary recovery methods for the purposes of this program involve miscible flooding, immiscible flooding, solvent flooding, chemical flooding or other methods approved by the Minister. Secondary recovery  methods involve water flooding, gas cycling, gas flooding, polymer flooding or other methods approved by the Minister.

For purposes of the program, scheme eligibility will be subject to an economic and technical review conducted by the Department of Energy.

How does the new Enhanced Hydrocarbon Recovery Program differ from the existing Enhanced Oil Recovery Program?

Unlike the existing Enhanced Oil Recovery Program, the new Enhanced Hydrocarbon Recovery Program will apply to all types of hydrocarbons produced from wells in an approved scheme, including crude oil, natural gas and natural gas liquids.

The new program will extend eligibility to additional recovery methods such as polymer flooding, water flooding, gas cycling and gas flooding.

The Enhanced Hydrocarbon Recovery Program will apply a flat 5% royalty rate for a limited benefit period for approved schemes, instead of a maximum 5% royalty rate under the Enhanced Oil Recovery Program.
 

Are only new schemes eligible to apply for the Enhanced Hydrocarbon Recovery Program?

To be eligible for the program, all new or amended enhanced recovery schemes must have received technical approval from the Alberta Energy Regulator (AER). To enable applications to the program when it comes into effect on January 1, 2017, enhanced recovery scheme applications can be submitted to the AER on or after October 23, 2016 (and be subsequently approved); this additional time reflects the average review period for the AER to process applications.

If the scheme approved by the AER is an amendment, the amendment must be due to a change in injection method.

If the scheme approved by the AER is new and involves water flooding, gas cycling or gas flooding, the scheme must be located in a pool or a part of a pool where these activities have not occurred previously. The department will consider applications for a water flood, gas cycling or gas flooding scheme if the scheme is extended vertically to target a pool or part of a pool where these activities have not previously occurred. The applicant will be required to provide necessary geologic and engineering data to demonstrate the extended portion is in rock with different characteristics that has not been impacted by an existing water flood.

The Enhanced Hydrocarbon Recovery Program will come into effect on January 1, 2017 and applications to the Program will be accepted by Alberta Energy on or after this date.

How long will schemes receive royalty benefits under the Enhanced Hydrocarbon Recovery Program?

Schemes that use tertiary recovery methods will be eligible for a prescribed benefit period provided in months. The benefit period will be determined using the benefit schedule for the current Enhanced Oil Recovery Program. However, the benefit periods in this schedule will be reduced by 25 per cent to account for changes to royalty rates under the Modernized Royalty Framework.

For schemes that use secondary recovery methods, the benefit period will be determined on a case by case basis.

After two years, the approaches for determining royalty benefit periods for both tertiary and secondary recovery methods will be reviewed, and possibly revised, to better align with the Modernized Royalty Framework’s cost allowance approach.

Do new wells in an enhanced recovery scheme also receive a Drilling and Completion Cost Allowance (C*)?

Under the Modernized Royalty Framework, any new production wells drilled on or after January 1, 2017, will receive a Drilling and Completion Cost Allowance (C*). This will also apply to any new wells drilled in an enhanced recovery scheme approved under the Enhanced Oil Recovery Program or the Enhanced Hydrocarbon Recovery Program. In these cases, the Drilling and Completion Cost Allowance (C*) will run concurrently with the program benefits.

Does the Enhanced Hydrocarbon Recovery Program apply to freehold minerals?

No. The program only applies to Crown minerals. To be eligible, an enhanced recovery scheme must have a Crown interest greater than zero.

Enhanced Oil Recovery Program

When will the current Enhanced Oil Recovery Program end?

The Enhanced Oil Recovery Program will accept new applications until December 31, 2016. Schemes approved under the Enhanced Oil Recovery Program will continue to receive benefits until their royalty benefit period ends or until the Enhanced Oil Recovery Program terminates on December 31, 2026, whichever comes first.

Which royalty rates will apply to wells in a scheme after the Enhanced Oil Recovery Program ends?

When the Enhanced Oil Recovery Program terminates after December 31, 2026, wells within those schemes that were part of the program will then be subject to royalty rates under the Modernized Royalty Framework. These schemes will not transition to the new Enhanced Hydrocarbon Recovery Program. 

What about changes to already approved schemes inthe Enhanced Oil Recovery Program?

Under the Enhanced Oil Recovery Program, new program applications are required in cases when a scheme is expanded to include a new injection pattern or the recovery technique changes.

After January 1, 2017, these types of program applications must be submitted to the new Enhanced Hydrocarbon Recovery Program and will be reviewed under the new program for scheme eligibility.