B.C.’s new oil and gas royalty system eliminates lucrative industry credits

The government is making major changes to B.C.’s royalty system that it says will generate an additional $200 million annually in revenues

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John Horgan’s B.C. government on Thursday announced major changes in the province’s royalty system that will eliminate lucrative credits to the oil and gas industry and is expected to generate an additional $200 million annually in revenues for the province.

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“Our province is blessed with abundant resources, which belong to all of us. But for too long, a broken system of fossil-fuel subsidies has failed to align with our climate goals or ensure people fully benefit from these resources,” said Horgan. “This will give British Columbians a fair return and allow us to invest in their priorities — like improving services, bringing down costs and tackling carbon pollution.”

The changes to the royalty system, introduced in the 1990s and modified in the early 2000s, will be phased in during the next two years.

The changes are similar to those underway in Alberta, and as a result the B.C. government believes the oil and gas sector will remain competitive with their chief rival and investments and production will not be affected.

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B.C. is moving faster than Alberta, whose royalty system changes will not be fully implemented until 2027.

The royalty system is one where companies pay to have access to the natural gas resource and share their revenue with the provincial owner. The amount that companies pay has been determined by a complex system that provides credits for infrastructure such as access roads and allows for some costs to be deducted.

Royalties annually topped a billion dollars for almost a decade starting in 2000, largely from natural gas. Gas royalties peaked in 2005-06 at $1.92 billion, but by 2010 royalties had plummeted to sometimes less than $150 million, even though gas production was rising.

The changes announced by the B.C. government Thursday will eliminate the deep well royalty program for new wells, which has amassed more than $3 billion in credits.

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A new minimum royalty rate of five per cent will replaced the old rate of three per cent.

The new rate will be in effect while companies pay off costs of new drilled wells. Once that point has been reached, the royalty rates will range between five to 40 per cent, depending on profits and the price of natural gas.

Under the changes, existing royalty credits will expire in four years unless transferred to a new environmental program where companies can use the credits to fund land rehabilitation and reduce carbon emissions, but only if beyond existing regulatory requirements.

One of the authors of a royalty review commissioned last year by the B.C. government lauded the changes.

“The new system is a good start to simplify, modernize, and eliminate outdated programs,” said Nancy Olewiler, director and professor, School of Public Policy, Simon Fraser University.

More to come …

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