Perpetual receives a financial solution from the Alberta government for natural gas volumes that have been shut-in due to their close proximity to bitumen resources. The concern is that natural gas production today may ultimately interfere with bitumen recovery in the future.
The AEUB, formerly the ERCB, as part of its broad bitumen conservation strategy, has ordered the shut-in of natural gas production in the Wabiskaw and McMurray formations in certain parts of the Athabasca Oil Sands Area in northeast Alberta. This includes the shut-in of certain Perpetual assets. The Alberta government has prescribed a gas over bitumen financial solution through amendments to the royalty regulations. This provides a mechanism to reduce Crown royalties for operators of gas wells that have been denied the right to produce. The formula for calculation of the royalty reduction is:
0.5 x ((deemed production volume x 0.80) x (Alberta Gas Reference Price - $0.3791/GJ))
Through this formula, operating expenses are effectively deemed to be $0.40 per Mcf, royalties are deemed to be 20 percent, the deemed production is assigned the Alberta Gas Reference Price, which includes a transportation component and the entire formula is assigned a 50 percent reduction factor. The deemed production volumes are reduced by 10 percent annually.