How does a well qualify for the Transition Option?

How long will the 5 year transition option be available?

Is the 5 year transition option eligibility based on vertical or measured depth?

If I elect the 5 year transition option will it apply for the entire production life of the selected well?

Do re-entry wells qualify for the 5 year transition option?

Will wells be allowed to receive benefits under the 5 year transition option and under either the Natural Gas Deep Drilling Program (NGDDP) or the Deep Oil Exploration Program (DOEP)?

Will the depth factor adjustment and the acid gas adjustment factor apply to wells that have opted for the 5 year transition option?

Does the 5 year transition option apply to natural gas liquids?

Does the 5 year transition option apply to field condensate?

Does the 5 year transition option apply to solution gas? 

Our company is about to commence spudding a well and cannot find the application to elect the transitional wells royalty formulas.  How do we go about making our election?

How does a well qualify for the Transition Option?
To qualify for the transition option, companies must elect this option and the well must have a measured depth between 1000m and 3500m and be spudded between November 19, 2008 and December 31, 2013.  Wells producing oil or gas prior to January 1, 2009 are not eligible. 

How long will the 5 year transition option be available?
Wells spudded on or after November 19, 2008 will be eligible for a one-time election for the 5 year transition option. The elective must be made prior to the well being spudded. The modified royalty formulas under the 5 year transition option will apply as of January 1, 2009 until December 31, 2013.  Wells producing oil or gas after January 1, 2009 will have the modified royalty formulas apply for a five year period, whereas wells spudded later will have a shorter time period with the modified formulas.  Wells spudded in 2013, will have less than a full year with the modified formulas.

Is the 5 year transition option eligibility based on vertical or measured depth?
The 5 year transition option is based on the measured depth.

If I elect the 5 year transition option will it apply for the entire production life of the selected well?
No, the 5 year transition option applies to production between January 1, 2009 and January 2014.  Wells producing oil or gas prior to January 1, 2009 must transition to the New Royalty Framework. 

Do re-entry wells qualify for the 5 year transition option?
Yes, re-entry wells that are given a new spud date will be eligible to qualify for the 5 year transition option.

Will wells be allowed to receive benefits under the 5 year transition option and under either the Natural Gas Deep Drilling Program (NGDDP) or the Deep Oil Exploration Program (DOEP)?
No, the NGDDP and DOEP are only available to new wells that do not elect the 5 year transition option.  Both the NGDDP and the DOEP were designed to provide upfront royalty adjustments to new wells.  The 5 year transition option is also designed to provide lower royalties in the initial years of a well’s life when production rates are the highest.  Allowing a well to benefit from both programs would be a doubling up of the benefits.

Will the depth factor adjustment and the acid gas adjustment factor apply to wells that have opted for the 5 year transition option?
No, the depth factor adjustment and acid gas adjustment are specific to the new royalty formulas and do not apply to the 5 year transition option.

Does the 5 year transition option apply to natural gas liquids?
No, the flat rate royalties of 30 per cent for propane and butane and 40 per cent for pentanes plus are not impacted by this option.

Does the 5 year transition option apply to field condensate?
Yes, companies that choose to have the 5 year transition option apply to their qualifying natural gas well will also be subject to the 5 year transition option for the associated field condensate production from this well event.  Companies may not elect to have the 5 year transition option apply to only a portion of the production from the well event.

Does the 5 year transition option apply to solution gas?
Yes, companies that choose to have the 5 year transition option apply to their qualifying oil well will also be subject to the 5 year transition option for the associated natural gas production from this well event.  Companies may not elect to have the 5 year transition option apply to only a portion of the production from the well event.

Our company is about to commence spudding a well and cannot find the application to elect the transitional wells royalty formulas.  How do we go about making our election?
The process of finalizing the details around eligibility and the application process is being finalized.  Wells that are spud on or after November 19, 2008 will be eligible to make an application.  Eligible wells that have been spud prior to the application process being available will be allowed to make an application once that process has been determined.  In the meantime, drilling should proceed as originally planned. 

If you require further technical information, please email your question to response.energy@gov.ab.ca .