Oilsands royalties surge as project costs are paid off

Oilsands wellpad worker Source: JWN Energy

Oilsands producers are poised to pay an increasing share of their revenue to the government in coming years as surging oil prices allow them to pay off the costs of multibillion dollar well and mining projects earlier than planned, bumping them into a higher royalty bracket.

Five oilsands projects reached so-called “post-payout” royalty status last year from “pre-payout” and two more are expected to reach to post-payout each year from 2022 to 2025, the Alberta government said in a budget update Wednesday. 

A windfall of cash from higher oil has allowed companies to pay off the up-front costs incurred when oilsands well sites or mines were built, sometimes years in the past. Once paid off, oilsands projects are pushed into a higher bracket for royalty payments, meaning a bigger portion of revenue generated by companies goes to the government.

Companies themselves have contributed to the trend as they resist building new projects or expanding older ones in order to pay down debt and return cash to shareholders. Oil and gas investment is expected to rise about 35 per cent in Alberta this year but most of the increase reflects higher input costs, the government said. 

Alberta’s two-tier royalty structure means companies pay little or no royalties when they are still paying off the costs of their initial investment. Below are oilsands projects where parts the facilities moved to “post-payout” in 2021 from “pre-payout” in 2020 plus the royalties they paid, generated from Alberta government data. 

  • Suncor Firebag
  • Strathcona Tucker
  • Canadian Natural Jackfish
  • Canadian Natural Jackpine
  • Strathcona Orion

Oilsands royalties for Alberta’s government are forecast to reach C$20.1 billion ($15.3 billion), C$9.7 billion higher than originally budgeted, in the current fiscal year, the Alberta government said Wednesday. The windfall from hydrocarbons will contribute to a C$13.2 billion budget surplus for the province.  

© 2022 Bloomberg L.P.

Dear user, please be aware that we use cookies to help users navigate our website content and to help us understand how we can improve the user experience. If you have ideas for how we can improve our services, we’d love to hear from you. Click here to email us. By continuing to browse you agree to our use of cookies. Please see our Privacy & Cookie Usage Policy to learn more.