Alberta introduces lower royalty rates to spur new oilsands investment

CALGARY · The Alberta government has introduced a new royalty payment program it says will encourage new investment and increase production in the oilsands. The Oilsands Growth Program offers eligible new projects and expansions a guaranteed 10-year royalty schedule, starting with a two per cent rate for the first five years. The rate will increase by one percentage point annually until it reaches six per cent in the ninth and tenth years. After the decade ends, projects will return to the province's existing royalty framework.

Premier Danielle Smith announced the program in Calgary on Friday, framing it as a necessary tool to compete for global capital. She said Alberta aims to double oilsands production to eight million barrels per day by 2035, up from the current level of about five million barrels. "To meet our goal of doubling oilsands production in the coming decade or so, we need hundreds of billions of dollars in new investment and we need to do that while competing with the United States and Venezuela," Smith said. "Investors have choices about where they put that money, and we want them to put it here in Alberta."

The program is designed to lower upfront financial barriers, particularly as the province works to secure shippers for the proposed Pacific Link pipeline to the West Coast. Smith said the program will not replace existing regulatory or environmental requirements, including Indigenous consultation. Eligibility is not limited to the largest companies and will be assessed project by project, including expansions. The government plans to launch the program this spring but will consider projects announced after Nov. 15, 2026, as eligible. A review of the program's effectiveness is scheduled for December 2029.

READ MORE: Bank of Canada poised for first interest rate hike in more than three years

READ MORE: Majority of Alberta doctors would leave province if it separates from Canada, survey finds

Industry representatives welcomed the announcement. Kendall Dilling, president of the Oil Sands Alliance, said predictable royalty rates help companies make long-term investment decisions. "We're trying to predict what oil prices are going to be five, 10 years down the road. We can't control that. So what we can control is things like predictable royalty rates for the first 10 years of a project," Dilling said. Rich Kruger, chief executive officer of Suncor, praised the move. "Make no mistake, when this industry does well in Alberta, Alberta does well," Kruger said.

Under Alberta's existing royalty system, rates vary based on the price of West Texas Intermediate oil and whether a company has recovered its capital investment. In the pre-payout phase, companies pay between one and nine per cent of gross revenue, with the maximum rate applying when oil reaches US$120 per barrel. As of Friday afternoon, WTI was trading at about US$88 per barrel. The new program decouples the royalty rate from oil price fluctuations for its first decade. Alberta Energy Minister Brian Jean said if the standard provincial royalty rate ever falls below the incentive rate, the company would pay the lower amount.

Some critics questioned the need for the incentive. Janetta McKenzie, oil-and-gas director at the Pembina Institute, a clean-energy think tank, said the oilsands sector is already very profitable. "At a time when the industry is amassing billions in windfall profit due to the conflict in the Middle East, the private sector is absolutely capable of financing production expansion if they believed in sustained long-term oil demand," McKenzie said in a statement. She expressed concern that the province could lose out on revenue by removing price sensitivity from the royalty calculation.

Richard Masson, a former chief executive of the Alberta Petroleum Marketing Commission, said the program reduces risk for companies making massive upfront investments. "What they've done is make it less onerous for companies in the early years of a new project. When companies have invested hundreds of millions, or billions, of dollars, they're really keen to start to get their cash back early," Masson said. He predicted the change, combined with recent federal tax measures, would lead to a decade of solid growth for the sector. The provincial government officials could not specify how much companies might save, saying it would depend on individual projects and future oil prices.

The announcement comes as the provincial and federal governments work with industry on an agreement to reduce oilsands emissions alongside production growth. Federal Energy and Natural Resources Minister Tim Hodgson expressed confidence a deal would be reached soon. Smith said the new royalty program is part of a broader effort to create a competitive investment climate, pointing to recent federal regulatory rollbacks as positive steps. She argued that increased production would ultimately benefit Albertans through higher royalty revenues in the long term.

With files from The Canadian Press, Global News and CBC News