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Provinces beef up oil and gas incentives Saskatchewan looks at tax and royalty changes aimed at EOR; B.C. targets long-term investments in enhanced gas recovery projects Gary Park Petroleum News Calgary Correspondent
Saskatchewan and British Columbia — the sturdy bookends to the bulging oil and gas world of Alberta — are putting together fresh incentives to ensure they remain on a competitive footing with their cash-rich neighbor.
Saskatchewan Premier Lorne Calvert unveiled tax and royalty changes March 18 along with other measures to stimulate oil recovery, while British Columbia is developing a net profit royalty regime to quicken the pace of its unconventional resources.
Having earlier told a business audience that it is time for his province to start making major withdrawals from the “long-term deposit” of oil in the ground, Calvert said the new “bold and broad” structure — which takes effect April 1 — will benefit enhanced oil recovery projects, which currently account for about 9 percent of Saskatchewan’s production, and apply to any future oil sands or oil shale developments.
He said an estimated 35 billion barrels of oil has been discovered in Saskatchewan, but only 5.2 billion are recoverable using conventional means and current technology.
But the heavy oil recovery rates have been confined to the 5-10 percent range.
If that rate grew to 20 percent, the province would more than double its current remaining recoverable reserves to 1.2 billion barrels.
In Calvert’s view there is a trillion dollars worth of oil locked in his vast Prairie province. Incentives benefit EOR projects The beefed up incentives under the Saskatchewan Petroleum Research Incentive Program will provide up to C$30 million in tax and royalty credits on new small-scale EOR pilot projects and replace two sets of royalty rates with a single regime.
As a result, producers will pay a royalty rate of 1 percent of gross revenue before front-end costs are paid out, after which the rate will rise to 20 percent of net operating revenue — mirroring the regime for Alberta’s oil sands.
There will also be sales tax and fuel tax exemptions on propane, butane and other chemicals injected into reservoirs to increase recovery rates, bringing them into line with the carbon dioxide already used for EOR projects.
Under what he calls a 10-year strategy, Calvert said that rather than waiting for others to develop new EOR technology, Saskatchewan has decided to offer fiscal incentives to promote EOR research and development.
He said the province hopes to encourage the creation of an infrastructure to capture, store and distribute carbon dioxide, building on the success of EnCana’s sequestration project near Weyburn where CO2 from North Dakota is injected into an aging oilfield to increase production by 130 million barrels over the next 30 years. Study touts CO2 benefits The Weyburn scheme received accolades last fall from an international team of researchers who spent C$40 million over four years studying the benefits of CO2 sequestration.
The study was conducted under the auspices of the International Energy Agency and funded by 15 public and private sector organizations, including the U.S. Department of Energy.
It determined that CO2 — the primary culprit among greenhouse gases — could be safely stored in old oil wells, with just a mere fraction seeping into the atmosphere.
A second CO2 project was launched in January by Apache Canada, which hopes to recover an additional 45 million barrels at Saskatchewan’s Midale field, near the Weyburn pool, while storing 8.75 million metric tons of CO2.
Sitting quietly as No. 2 among Canada’s oil and gas producing regions, Saskatchewan is hoping for a rebound from last year when the industry spent C$1.7 billion on exploration and development, but the well count dropped to 3,673 from a record 4,195 in 2003 because of a wet spring and summer. B.C. looks at royalty regime upgrade Facing an election on May 17, the British Columbia government is embarking on more upgrading of its royalty regime to build on its record as Canada’s economic comeback province of the 21st Century.
Energy and Mines Minister Richard Neufeld told a B.C. Oil and Gas Summit earlier this month that B.C. outpaced Alberta in economic growth in 1991 and is determined to “get back there.”
In a little over three years it has created 200,000 jobs and is paying down C$1.7 billion of a C$34 billion debt this year — a first for B.C. — after two years of balanced budgets.
With oil and gas as the key contributor to this turnaround, the government has introduced a multi-phase stream of incentives and is now assembling the pieces for a net profit royalty regime to stimulate development of unconventional reservoirs and undeveloped basins.
It involves a careful juggling act to tie the changes to changing technologies and resource opportunities, unlike the United States where the Section 29 tax credit fired up unconventional gas development until it expired in 1992.
The U.S. credit applied to specific technical definitions of tight gas, just as a special oil sands royalty rate in Alberta affects projects within a geographically defined area.
British Columbia is hoping to develop a more flexible regime that will encourage companies to make long-term investments in enhanced gas recovery projects, tight gas, shale gas, coalbed methane and remote resources in unexplored basins such as Bowser and Nechako that are far removed from pipelines and infrastructure.
The idea of net profit royalties is designed to lower the risk for unconventional projects that require heavy capital spending.
Although it is not known exactly how the British Columbia scheme would work, it is expected royalties would kick in after the front-end investment has been paid off or after a specified percentage of a project’s capital budget has been spent.
British Columbia government officials have indicated their objective is to develop universal rules and regulations that also allow for case-by-case negotiations with individual producers.
Talks with the industry are said to be well advanced, but no timetable has been set for announcing the regime.
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