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By Altus Group | December 19, 2019

The following is a summary of our presentation from November 4, 2019 and the discussion that followed.


Well assessments were reviewed in depth, with the government’s Assessment Services Branch (ASB) and industry representatives agreeing on many areas of the assessment calculation and rates.

 The two groups are not aligned on the following areas:

  • ASB proposes to introduce new well rate categories specific to deep horizontal wells while industry feels the existing rates are satisfactory and require only adjustments for the deeper, longer horizontals that are commonly drilled now
  • SAGD well rates are proposed at significant increased value
  • Industry feels new rates should be supported by current legislation and regulation while ASB has used research for the well rates that is not supported by industry data
  • Industry does not agree that the well models, as proposed, meet the goal of improved transparency, do not reflect market conditions and do not align with assessment principles


As with the well review, there are several areas where both ASB and industry are not aligned. The lack of alignment relates to:

  • ASB does not consider major and minor water crossings to be interference costs and now include those costs as typical in the pipeline values
  • Industry is requesting consideration for operational efficiency of a pipeline. Similar to what is available in Saskatchewan, industry would like to see a throughput allowance brought into the equation for pipeline assessment (Volume Adjustment Factor)
  • Also, industry is requesting consideration for multi lines in the same trench and inclusion of cost reductions related to these lines
  • As with wells, industry does not agree that the pipeline assessment models, as proposed, meet the goal of improved transparency, do not reflect market conditions and do not align with assessment principles

Machinery & Equipment:

The Minister’s Guidelines for the Assessment of Machinery and Equipment (M&E) are intended to include rates for typical oilfield equipment. M&E that is not included in the Guideline is assessed based on reported cost to install the equipment on site. These reported costs are based on the direction provided in the CCRG and forthcoming RIPA document.

ASB and Industry agreed that updated rates were required for existing equipment as well as new equipment and technology that did not exist or was not widely used in 2004; the last rate review. Industry encouraged more consolidation of equipment packages and simplification for reporting new sites. The theme promoted through this process was ‘group and reduce’ to combine equipment components that are commonly installed together and reduce the number of individual line items that need be reported.

ASB proposed new rates and packages; however, many of these were not supported by industry as there was found to be duplications and a lack of clarity in how assessors were grouping inventory packages. Industry feels strongly that, as with well and pipelines, costs included in the assessment rates need to align with legislation and regulation.


The Focus Group formed for M&E quickly identified that a separate committee was required to properly address depreciation. Presently, all property types discussed have depreciation considered in the assessment calculation:

  • Schedule C – Fixed and immediate (33% wells and pipelines, 25% to 60% machinery & equipment)
  • Schedule D – Additional depreciation based on specific criteria for each property type

The initial review work presented a number of considerations so a Sub-Committee was established.

Well Depreciation:

While ASB is proposing the move to the Iowa depreciation curve (Machinery & Equipment), age life based, Industry is suggesting any decisions on Well depreciation be delayed until the Well assessment rates are finalized.  ASB is also proposing additional depreciation be limited to wells that have not produced for a full twelve months or those on the AER Debtor Registry.

Pipeline Depreciation:

ASB and Industry agree that the fixed and immediate model is not effective. ASB is proposing a move to a modified Iowa depreciation curve; age life based. Industry proposes a move to use Marshall & Swift valuation service data; a widely used assessment modelling tool. Industry has proposed that rates should better reflect market conditions and has encouraged ASB to consider processes established in other jurisdictions such as the volume adjustment factor that is used in neighbouring Saskatchewan.

Machinery & Equipment* (M&E) Depreciation:

*Note that M&E depreciation regulations apply to any and all M&E in the province of Alberta; it is not limited to only oil and gas assets

Both ASB and Industry are seeking clearly defined assessment depreciation and tax policy. While ASB would like to adjust both the ‘floor’ and ‘ceiling’ of the depreciation table currently in place, Industry believes only the ‘floor’ requires adjusting.  Industry’s position is that the definition of depreciation originally used in 1967 be reinstated for all depreciation. ASB is proposing extremely limited additional depreciation (Schedule D) while Industry feels it should include any loss in value that is not already accounted for in Schedule C; normal physical and functional depreciation.

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