CALGARY, Dec. 21, 2015 /CNW/ - Fulfilling its campaign promise, the new NDP government announced a review of Alberta's royalty framework in June, 2015.  The province receives royalty revenue from three main sources – natural gas, crude oil and oil sands. Since the 2009-10 fiscal year the largest contributor to Alberta's royalty revenues has been the oil sands.

Over the last six fiscal years the oil sands have contributed an average of 10 per cent of revenues to provincial coffers. This makes oil sands royalties the fourth largest contributor behind personal income taxes (23 per cent), federal transfers (13 per cent) and corporate income taxes (11 per cent).

But how many Albertans really understand how the royalty system works?  What do we mean when we say "royalty"? How does the Alberta Government calculate royalties on oil sands producers?  If the system is going to change, it's important that Albertans understand how the current system works.

The School of Public Policy with author Sarah Dobson released a primer on royalties that will help Albertans to properly judge the impact of new policy, and gain a solid understanding of the current policy environment.  According to Dobson "We all know that oil prices have dropped and oil sands producers are losing profitability.  As such, changes to the royalty system could have a deep and profound impact on the sector".

Here are some of the issues this primer will study:

• Pre-payout projects vs. post-payout projects, in other words, the classification of projects for royalty purposes based on whether the cumulative costs of a project exceed its cumulative revenues
• Monthly payment of royalties vs. annual payment
• Understanding the unit price of bitumen and how that price is applied
• Gross vs. net revenues and the application of royalties
• How the price of oil and the exchange rate between Canadian and U.S. dollars impact royalties
• The historical and forecast contribution of oil sands royalties to Alberta's finances

Needless to say, a primer like this should be required reading for policymakers. It should also be required reading, however, for any Albertan who cares about the long-term benefit of the oil sands to Alberta's revenue, and our financial future as a province.

The papers can be downloaded at http://www.policyschool.ucalgary.ca/?q=research

SOURCE The School of Public Policy - University of Calgary