In response to the recent collapse in oil prices, Premier Jason Kenney announced on March 20 that the Government of Alberta will pay the Alberta Energy Regulator (AER) industry levy for six months. The AER collects the industry levy under the Responsible Energy Development Act to cover its net expenditures in any given fiscal year. Historically, the industry levy – which funds the entirety of the AER’s operating budget – has been paid for by AER-regulated companies. In addition to funding the industry levy, the Government of Alberta has extended the term of mineral agreements expiring in 2020 by one year and has extended a $100 million loan to the Orphan Well Association.
At present, no further information regarding the six-month funding of the industry levy has been released by the Government of Alberta or the AER. As the AER’s fiscal year runs from April 1 to March 31, Alberta’s funding of the industry levy will likely cover the first six months of the upcoming fiscal year.
This measure follows significant cuts to the AER’s budget and staffing levels. In late October, Alberta announced an 8% reduction in the industry levy. By the 2022-23 fiscal year, the AER will collect 18.3% less through the industry levy than it did in 2018-19. These cuts come in the wake of a governance scandal, where investigators say the AER’s former head “demonstrated a reckless and wilful disregard for the proper management of public funds.”
Industry levy and upcoming review
Alberta’s decision to pay the industry levy will be a welcome relief for many oil and gas companies, especially those with many low-producing wells. The formula for calculating the industry levy applicable to wells, although based on production, favours high-producing wells in that high-producing wells pay far less in industry levy charges on a per-cubic-meter-of-production basis than do low-producing wells. Moreover, the industry levy has recently been criticized because many large companies with relatively larger revenues pay a significantly smaller percentage of their revenues to cover the industry levy than do a number of much smaller companies.
The AER itself appears to recognize the need for a review of the industry levy. In Bulletin 2019-33, dated December 9, 2019, the AER revealed it would review how the industry levy is currently calculated. To this end, the AER will be soliciting stakeholder feedback and establishing a joint committee with industry stakeholders, which committee will examine various factors, including the types of facilities, activities and sectors currently included in the industry levy calculation. The AER has stated further details of the industry review will be announced in early 2020, but it will not affect the November 29, 2019, industry levy.
The author wishes to thank articling student Ryan Taylor for his help in preparing this legal update.