ALASKA HIGHWAY NEWS
A16 | PIPELINE NEWS NORTH | THURSDAY, OCTOBER 21, 2021
B.C. may deep-six deep well credits for oil and gas Nelson Bennett nbennett@biv.com Royalties and tax credits for B.C.’s oil and gas industry are outdated, piecemeal, complex, and don’t provide the societal benefits that they should, according to an independent assessment by two public policy and energy experts commissioned by the B.C. government to review its oil and gas royalty structure. But rather than try to tinker with the system – simply eliminating B.C.’s controversial deep well credit, for example – the assessment suggests a complete overhaul of the way the natural gas industry is taxed, and points to Alberta’s revised system as an example worth considering. The assessment, released today, was conducted by two noted academics – Nancy Olewiler, a public policy professor at Simon Fraser University, and Jennifer Winter, associate professor of economics and scientific director of the energy and environmental policy research at the University of Calgary. Their assessment will form the foundation for a public review of B.C.’s royalty and tax structure oil and gas that B.C.’s ministry of Energy, Mines and Low Carbon Innovation has launched. “The review process we are launching will allow the public to have their say on a new, modernized royalty system that meets our goals for sustainable economic development,” said Energy
MATT PREPROST PHOTO
A drilling rig in the Gundy region, Oct. 12, 2019
Minister Bruce Ralston. Anti-fossil fuel activists and the Green Party have long criticized B.C.’s “fracked gas” for being subsidized by the B.C. government. B.C.’s deep well credits have been particularly singled out, and have been blamed for the declines in revenue that the government has received from natural gas producers over the last decade. In fact, declining natural gas royalties have largely been the result of declining natural gas prices – which only recently have begun to soar – although the assessment does suggest that the B.C. government is not getting full value from its royalty structure. Olewiler’s and Winter’s assessment concludes B.C.’s royalty system for oil and
gas is out-of-date and may be incentivizing “lowervalue wells” that are not maximizing value, either for the companies or the government. “It may incentivize companies to drill to access the credit rather than to minimize costs and maximize revenue,” the assessment says. The deep well credit program was implemented in 2003, when horizontal drilling and hydraulic fracturing were still relatively new alternatives to conventional drilling. They were intended to offset costs of drilling and completion for wells that were very deep and, therefore, more capital intensive. “As of March 2021, the accumulated deep well credits total $7.325 billion,” the
assessment finds. “Of that, $3.56 billion have been drawn down.” In other words, only half the credits approved have been claimed. The credits reduce the royalties the B.C. government receives by 3% to 6%. Whereas deep horizontal drilling was an “unconventional” approach to natural gas extraction when the credits were introduced, it is now a standard approach in B.C., which raises the question of whether the incentives are even needed any longer. But deep well credits aren’t the only tax incentives offered, and the assessment suggests the whole system could benefit from a do-over. “All of the royalty deduc-
tion programs are out of date,” the assessment notes. “They were introduced at a time with more favourable product prices, and do not take into account changing extraction technology and shift to natural gas liquids in the product mix and investment profile.” “The system is characterized by piecemeal changes over time with programs that have led to compounding effects that substantially reduced royalty payments as a share of net value of the resource.” The most productive region in B.C. for oil and gas is the Montney formation, which straddles the B.C.Alberta border. The assessment suggests that, as part of a review of B.C.’s system, it could take a page from Albert’as playbook. “Alberta undertook a major reform of its oil and gas royalty system, phasing in its new system in 2017,” the assessment notes. “Given the Montney’s shale deposits straddle the BC-Alberta border, moving to a system such as Alberta’s would better align production, reduce any incentive to shift production from one province to the other to minimize royalty payments, and overall promote a more efficient and equitable system.” The Olewiler-Winter assessment will form the basis of a discussion paper that Ralston’s ministry plans to release in November, which will then be opened to a public consultation process. The government plans to release the findings of its review in February.
$65 million for land restoration
PROVINCE OF B.C.
B.C. and the Blueberry River First Nations reached an initial agreement Oct. 7, 2021, to support land and cultural restoration in Blueberry’s traditional territory in Northeast B.C.
NorthRiver expansions planned Tom Summer tsummer@ahnfsj.ca NorthRiver Midstream appeared at the Peace River Regional District’s Oct. 7 board meeting, providing an overview on four expansion projects in the North and South Peace. The Aitken Creek, McMahon, Tupper West, and the Northeast BC connector are all slated for additional development. Supporting the community is a priority, says Land Manager Rod Locke, who presented the updates alongside Director of Operations Andrew Benjamin, noting they always aim to hire local and indigenous contractors. “Day to day we’re actively evaluating our opportunities to transform NorthRiver into an energy company of the future,” said Locke, noting while the company is new, their assets have been around for 65 years. At Aitken Creek, the company has proposed six new pipelines, with segments shipping natural gas liquids,
condensate, and sour raw gas. “It’s really about maximizing the value of our existing footprint. It’s up near the Wonowon area, and this project will interconnect them to provide more value to us and our customers that are connected,” said Benjamin, noting the goal to modernize their facilities. The project is already underway and slated to finish by July 2022, employing 55 people at the facility, and 60 on the pipeline when construction begins in February. A sequestration project has also begun in McMahon, but is in the early stages, with decisions yet to be made. “We’re actively looking at the merit of it and we think there’s a really good opportunity here. This one is really about modernizing our existing facility with newer technologies that we have deployed in a lot of our other facilities,” said Benjamin. Lowering emissions and improving air quality in Taylor and the surround-
ing areas is a key focus of the project, he added. Once completed, 122,000 tonnes of CO2 and 1,500 tonnes of SO2 would be captured, reducing sour gas flaring and CO2 venting. The Northeast BC Connector also remains in the works, with 215 km of pipeline stretching from Wonowon to Gordondale in Alberta, connecting oil and gas sites across the Peace. “For the most part this project parallels existing infrastructure, so right around 90 per cent is paralleling existing right of ways,” said Locke, noting the project is pending regulatory approval, with construction expected to begin in 2023. $15 million has been directly invested in the connector for operating expenses, with 65 permanent jobs to be created. A third site is planned for Tupper West operations, dubbed Tupper West III, located south of Arras, with 25 km of pipeline added to service sweet sales gas. —Local Journalism Initiative
The provincial government has announced $65 million in funding to support land and cultural restoration in northeast B.C., following the B.C. Supreme Court ruling that the province breached its treaty obligations to the Blueberry River First Nation. The province also said that a majority of forestry and oil and gas projects permitted and authorized before the court’s decision in June will still proceed. Indigenous Relations and Reconciliation Minister Murray Rankin and Blueberry River Chief Marvin Yahey made the joint announcement as part of an initial agreement following the court’s ruling. “It’s the first step and it’s an important step,” Rankin said. “It’s something that will support what we call healing the land. It helps provide stability and certainty for permit holders in Blueberry territory and in the immediate term provides that certain that industry has spoken to me about.” As part of the agreement, the province says it will establish a $35-million fund for Blueberry to undertake activities including: -land, road and seismic restoration; -river, stream, and wetland restoration; -habitat connectivity; -native seed and nursery projects; and -training for restoration activities. Another $30 million will be allocated to support Blueberry River for g: -work on cultural areas, traplines, cabins and trails;
-educational activities and materials, including teaching traditional skills and language; -expanding Blueberry River resources and capacity for land management; and -restoring the health of wildlife through wildlife management, habitat enhancement including prescribed burning, and research. Chief Yahey said he was pleased to see the province take the Supreme Court ruling seriously, which he said sets a new path for Blueberry’s future. “Today’s initial arrangement provides stability. It allows us to get to work straight away,” Yahey said. “This includes our members and everyone living and working on our territory.” Rankin said 195 forestry and oil and gas projects will still be able to move forward under the agreement, or 90% of the permits that were already authorized before the court’s decision, he said. Twenty authorizations in areas of high cultural importance have been deferred, Rankin said. “Our next step is to develop an interim approach for decision making for new applications that will come forward, one that can be in place before the end of this year, and that meets our commitment to recognize and respect Blueberry Rivers’ treaty rights,” Rankin said. “That will set the stage to work together collaboratively with other Treaty 8 nations, with industry, with local governments on long term solutions,” he said.