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British Columbia dangles the bait Government mulls cost-sharing seismic, 'net-profit' royalties to entice industry to two under-explored, challenging basins Gary Park For Petroleum News
British Columbia’s desire to expand its oil and gas industry outside its northeast region could see the government taking a financial role in seismic exploration of what it terms “frontier” areas and introducing a “net-profit” royalty incentive, Energy Minister Richard Neufeld said.
The ideas are being seriously considered by the province in hopes of getting the industry “into a brand new area where it’s never operated before,” he said during the North American Prospectors Exchange Expo in Houston.
Neufeld said the thrust is aimed at the Nechako basin (in west-central B.C.) and Bowser basin (in northwest B.C.), where the government has been trying to stimulate activity.
Geoscience BC, a government-funded agency, has rated the potential of Nechako at 5 billion barrels of oil and 9.5 tcf of gas and Bowser at 2.5 billion barrels of oil and 8.3 tcf of gas.
Those figures are roughly consistent with earlier projections by the Geological Survey of Canada.
Areas have complex geology But the two areas pose formidable obstacles — complex geology, isolation and limited data — making it difficult to assess how much of the resources could be commercially produced.
To date, the exploration history is sparse, with Canadian Hunter Exploration drilling a handful of wells in Nechako almost 25 years ago and generating insufficient results to spur further work, while Dome Petroleum completed two wells in Bowser more than 30 years ago, but found the area to be too gas prone at a time when commodity prices were too low to prompt additional work.
Shell Canada was awarded more than 1 million acres of petroleum and natural gas exploration tenure in Bowser in 2004.
It has conducted “modest” field activity, drilling three wells and conducting some environmental assessment, but postponed further exploration until the community has “more time to work through their internal issues about resource development” and the company can engage in talks with aboriginal communities.
Industry wants help In more recent years, the industry has strongly hinted that it needs some added financial help to undertake seismic work.
Neufeld said the challenge for the governments is that when prices are strong they pursue easier production; when prices slump they are even less interested in the frontiers.
“We have to look seriously at how government is going to … get a little more involved to encourage that development,” he said.
In addition, he said a “net-profit” royalty regime would allow companies to retain their profits until capital costs are paid off.
The approach has yielded positive results in Canada’s Arctic and East Coast oil and gas regions and in the mining sector.
Because vast areas of B.C.’s forests have been ravaged by a mountain pine beetle epidemic, Neufeld said it could take 80 years to grow a new crop of trees, forcing the government to turn its attention to mining, oil and gas and agriculture so that the forestry-dependent communities “don’t die.”
Spokesmen for the Canadian Association of Petroleum Producers said the ideas being floated by Neufeld are a way to spread the risk, although the geology of the two basins (Nechako in particular) is a formidable barrier.
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