Enhanced Hydrocarbon Recovery Program
New Strategic Program
In January 2016, government accepted the recommendations laid out in the Royalty Review Advisory Panel's Report: Alberta at a Crossroads . 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.
- 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.
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.
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.
- 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.