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British Columbia explores royalty break for tight, shale gas
Gary Park Petroleum News Calgary correspondent
The British Columbia government, motivated by a positive response to its conventional royalty incentives, is now dangling the prospect of a net profit royalty regime for unconventional plays such as tight and shale gas.
The British Columbia Ministry of Mines and Energy is discussing terms of a royalty break with the industry, with the major focus on easing high front-end development costs.
There is general agreement on what constitutes shale gas, which has been produced in the United States for 20 years, but government and industry are still grappling over a definition for tight gas.
If those issues can be resolved, they could translate into bonus for EnCana’s huge plays in the Greater Sierra and Cutbank Ridge areas of northeastern British Columbia, where combined reserves could be 9 trillion cubic feet.
Production at Greater Sierra reached 215 million cubic feet per day at the end of 2003, which EnCana credited partly to the provincial government’s royalty regime for summer drilling and its commitment to improve road infrastructure. New 50-mile pipeline link to be built Construction of a new 50-mile pipeline link to the Alberta gas transmission network is scheduled for start-up before mid-year, with capacity of 400 million cubic feet per day.
Cutbank Ridge, where EnCana invested more than C$500 million last year to support its belief in a 4 tcf play, is already producing 20 million cubic feet per day and is expected to yield 400 million cubic feet per day over several years. Talisman also involved at Monkman Talisman Energy is also involved in a geologically complex play at the Monkman area, where it has rated unrisked reserves at 1 tcf and has been on stream for almost a year.
If a net profit royalty regime is introduced, it would benefit only unconventional projects by stalling royalty payments until operators have recovered their full investment in projects.
The change would be part of the second stage of British Columbia’s oil and gas development strategies that are seen as instrumental in boosting the province’s expected gas royalties for 2003-04 to C$1.26 billion from C$1.06 billion in 2002-03.
In the latest provincial budget, unveiled in mid-February, petroleum royalties, permits, fees and minerals-related revenues are projected to increase to C$869 million from C$532 million.
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