Royalty Regime to Have Flexibility

Nova Scotia's generic royalty regime for future oil and gas activity on the Scotian Shelf will be flexible enough to account for differing technical and financial risks among offshore projects, Premier Russell MacLellan said today.

Staff at the Nova Scotia Petroleum Directorate have been working for the past year toward a generic royalty regime that will ensure Nova Scotians receive full and fair return for their resource, while at the same time encourage the development of the East Coast offshore industry. Details of the regime will be announced shortly, said Premier MacLellan.

"We recognize how important it is to have that information set out as soon as possible," the premier said at a news conference in Houston, where he is attending the Offshore Technology Conference. "We appreciate that the petroleum sector needs the certainty that a generic regime provides before making investment decisions.

"But we also recognize -- equally -- the importance of this new industry to the future of Nova Scotians. Our challenge is to put in place a royalty regime that encourages exploration and development while ensuring a fair share of rewards."

The premier, who holds ministerial responsibility for the Petroleum Directorate, was in the Texan city to join about 60 Nova Scotia delegates attending this week's giant technology conference and accompanying trade show, held annually at the Astrohall. The Nova Scotians, many of them young players in the offshore petroleum industry, make up the largest contingent from the Maritime province in the event's 30-year history.

The conference and trade show represent an opportunity for professionals in the offshore to learn about the technological strides being made in the growing industry. This year, the four-day event has attracted about 45,000 delegates from around the world.

Almost 50 technical sessions and some 300 presentations are scheduled to run until Thursday. More than 1,500 companies, occupying 32,500 square metres of exhibit space, will also be present to describe their services and display their products.

Premier MacLellan said Nova Scotia recognizes it's still the new kid on the block when it comes to offshore exploration and development, but the province is proving to be a quick study.

The handling of offshore royalties is one example. Despite limited experience in this area, he said, the province has grown quite certain of its approach.

"Our short history of handling offshore royalties has consistently supported our belief that the most appropriate regime for an offshore area such as the Scotian Shelf is one that is profit-sensitive and provides for low front-end royalties as a way of reducing industry's capital exposure," he said at the news conference.

The work toward developing an equitable royalty regime has involved exhaustive economic analysis and considerable consultation. Members of the Canadian Association of Petroleum Producers and individual companies with an interest in the Scotian Shelf offered feedback on an early set of proposed rates and trigger points. Their input will help shape a royalty regime that is more responsive to different exploration and development situations.

The plan now is to structure a regime to deal with three types of activity: incremental or stand-alone gas developments in the Sable Sub-basin; small marginal oil developments; and oil or gas developments in areas with limited exploration history and high risks.

Built-in flexibility will ensure that any generic royalty regime Nova Scotia adopts will not remain static, said Premier MacLellan. "It will evolve as circumstances change and the Nova Scotia industry grows.

"Frankly, we want to do it right. When we present the royalty regime to the people of Nova Scotia and the petroleum industry, we want to be confident that it will be judged as a worthy mechanism through which all parties can secure mutual gains."

NOTE TO NEWS EDITORS: For the full text of the Premier MacLellan's remarks and a backgrounder detailing the status of the Sable project, please contact Communications Nova Scotia at e-mail <[email protected].>