The British Columbia government is phasing out industry credits for oil and gas drilling over two years and increasing its minimum royalty rate, expecting to collect more revenue from Crown-owned resources and improve the environmental cleanup of well sites and ground disturbances in the gas-rich northeast of the province.
The new system eliminates the deep-well credit, which Energy Minister Bruce Ralston describes as BC’s oil and gas subsidy, as well as marginal, low-productivity and other well credits developed in 2003 and before. . Horizontal drilling and deep shale extraction technologies have developed over the years, and gas and liquid oil prices have risen dramatically as British Columbia prepares to export liquefied natural gas to Asia .
“This new system is long overdue and will replace an outdated system that has been in place for nearly three decades,” Ralston said May 19 as he and Premier John Horgan announced the new royalty program.
The province expects to raise oil and gas royalties by about $200 million, with the minimum royalty rising from 3% to 5% for new wells, to be phased in from September. Existing well credits are due to expire in four years, with oil and gas producers given the option to transfer unused credits to a “land healing and emissions reduction pool”.
The new royalty system is based on actual revenues from refined products at processing plants, less actual costs of production, rather than volume. Liquids such as butane are produced with natural gas, which is largely methane.
“Producers will now pay a 5% royalty rate on capital recovery, and this is when companies drill and complete a well, a significant increase from the minimum 3% rate under the system. current,” Ralston said. “Once the revenue earned exceeds the initial capital investment – in other words, the cost of drilling and completing a well – producers will pay a rate ranging from 5% to 40%, depending on the product and price.
Northeastern British Columbia is criss-crossed with seismic lines, roads and well sites built for oil and gas exploration and development as well as logging. The impacts of this over four decades were the basis of a BC Supreme Court ruling in July 2021 that found industrial development violated the treaty rights of Blueberry River First Nations near Fort St. John.
The Land Healing and Emissions Reduction Fund is voluntary, giving companies a way to mitigate impact on land and reduce greenhouse gas emissions, which are key strategies for attracting continued investment. in the resources of British Columbia. British Columbia’s new system is similar to Alberta’s, but is being implemented more quickly.
A review last year by University of Calgary economist Jennifer Winter and Nancy Olewiler of Simon Fraser University described a 1992 system with layers of incentives put in place over the years, gas state-owned being sold for diminishing returns in a system disconnected from the actual product value network.
Legislative Assembly of British Columbia British Columbia Politics LNG