Written by Vivek Warrier, Jason Roth and Keely Cameron
Interest by investors in developing helium deposits in Alberta has to date been deterred by the lack of a helium specific royalty rate. On May 13, 2020, Alberta Energy announced the introduction of a royalty rate specific to helium.
Pursuant to Information Letter 2020-22, the helium royalty rate has been set at 5 percent minus a helium royalty adjustment factor of 0.75 percent, resulting in an effective rate of 4.25 percent. This rate is effective retroactive to April 1, 2020. The adjustment factor will be reviewed in five years. Helium producers must report monthly production volumes and average selling prices.
A helium specific royalty rate is the first step to facilitating the repurposing of inactive Alberta wells for the production of other resources. It is expected that royalty rates specific to the production of other resources such as lithium and hydrogen will follow. While the development of a specific royalty rate is one step towards facilitating such diversification of the energy industry, for wide scale adoption further amendments to the regulatory regime are likely required to address other issues such as the application of the AER's liability management program.
Helium production is nothing new in Canada. Helium is largely extracted via wells and is produced as a byproduct of natural gas and liquid natural gas. Saskatchewan has had a royalty rate specific to helium since 1964. Given that Alberta has adopted the same royalty rate, we can expect Saskatchewan's experience and policies to influence the development of helium policies within Alberta.
Bennett Jones is a leading Canadian law firm that offers full service advice on natural resource development. We have the capability to service all the needs of clients, from capital markets and corporate matters to the full life cycle of development including regulatory and environmental issues. Please contact the authors directly for more information on the development of helium.