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British Columbia port in storm? Neufeld rejects Ottawa-based center’s call for higher royalties, end to subsidies, gas production limits, new carbon tax and more Gary Park For Petroleum News
While neighboring Alberta is buffeted by a storm that rivals those which usually pound the Pacific coast, all is calm in British Columbia.
Even an attempt by the Canadian Center for Policy Alternatives to stir the waters by calling for higher royalties in British Columbia was quickly brought under control by the government.
Instead the province reveled in its latest series of land sales, which climbed close to record territory, drawn by the rush to secure shale gas rights.
The CCPA, as well as suggesting a hike in royalties, recommended that British Columbia should establish a standalone fund along the lines of Alberta’s Heritage Savings Trust Fund (a close relative of the Alaska Permanent Fund).
The Ottawa-based research organization also called for the government to quickly phase out “all provincial government subsidies” to the petroleum industry; ban gas flaring and charge royalty fees on every unit of gas flared; set limits on the amount of gas produced; impose a carbon tax; and tighten protection for special areas.
The CCPA called for the elimination of government subsidies or initiatives such as royalty credit programs to promote summer drilling.
“It’s not as though wells drilled in the summer cannot be drilled in the winter,” the study said, while conceding that year-round activity provides a more stable environment for workers and reduces employment peaks and valleys. “But from a strict resource conservation perspective, does it make sense to subsidize activities that have the effect of speeding up development and depleting resources faster than they might otherwise be?”
B.C. brushes off CCPA B.C. Energy Minister Richard Neufeld brushed off the recommendations, noting that the province’s royalties are reviewed on an annual basis when he appears before the government’s Treasury Board and is required to demonstrate that B.C. is getting the best value it can from oil and gas.
He also argued that the province is not offering subsidies, so much as encouraging investment in the development of its resources. Any move to limit gas production would be only a repetition of social ideas that failed in the 1990s, Neufeld said.
On the upside, the minister was enthusiastic about results from the August and September land sales, which were dominated by shale gas prospects, and generated C$50 million and C$265 million respectively — the second and fourth most successful sales in history.
For the first nine months of 2007, the sales have pumped C$579 million into government coffers, trailing only the comparable C$600 million in 2003.
Although brokers kept the identities of successful bidders confidential in the last two sales, the government said the buyers were dominated by a number of Calgary-based companies.
And shale gas is the lifeline for B.C., which is forecast to see conventional drilling activity slide by more than 40 percent this year and extend into 2008, with the Petroleum Services Association of Canada predicting the province’s well count will drop to 795 in 2007 from 1,375 in 2006.
Net-profit royalties With a potential shale gas resource of 250 trillion cubic feet, and government estimates that 20 percent of the gas in place can be recovered, B.C. has introduced a new net-profit royalty regime in hopes of stimulating development of higher-risk plays, such as shale, tight gas and coalbed methane.
The program sets royalties at 2 percent of gross revenues until capital costs have been paid off, switching then to 35 percent of net revenues (or 5 percent of gross) after capital costs plus 105 percent have been generated.
Although shale gas remains in the longer-term category, a joint venture of EnCana and Apache hopes to launch a commercial venture in the Horn River Basin in a “short period of time,” the first in Canada.
Leases in the basin are held by those two companies, along with EOG Resources, Devon Canada, BP Canada Energy, Nexen and Paramount Resources and experimental wells have been drilled on about a dozen properties.
Over the past two years, companies have invested C$240 million on Horn River leases and C$40 million this year in the Cordova Embayment.
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