Royalty rejigging in offshore eastern Canada

Canada

ST. JOHN'S, November 3, 2015 – A new generic offshore royalty scheme was unveiled by the government of Newfoundland and Labrador on Monday as part of an effort to attract investors to the eastern Canadian province’s oil and gas industry. The standardised model will see royalties increase as fields become more profitable, and replaces the prior system of negotiating rates on a case-by-case basis.

Under the new framework, a basic royalty rate of 1 percent will be applied to gross revenue starting at the time of first oil and increase up to 7.5 percent as the project recoups its initial costs. Once these costs have been recovered, a net royalty of 10-50 percent is applied to net revenue, against which the existing basic royalty can be deducted as a credit. The top rate of 50 percent will be reserved for projects that return C$3 ($2.3) after royalties for every C$1 ($0.76) spent.

The new royalty regime will apply to all new production licences, including those that are agreed upon from existing exploration licences and discovery licences. Final approval on the programme under the Petroleum and Natural Gas Act is expected for early 2016. If approved, it will apply to the proposed Bay du Nord deepwater development put forward by Norwegian national oil company Statoil, which made the discovery in the Flemish Pass in 2013.

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