Royalty Regime for Future Offshore Projects

PETROLEUM DIRECTORATE-Royalty Regime for Future Offshore Projects

Premier Russell MacLellan said today a new generic royalty regime will ensure Nova Scotians receive maximum benefits from future offshore oil and gas discoveries.

The premier also said the new royalty arrangement could mean as many as seven more mega-projects on the offshore.

"This is an excellent royalty regime and a significant day in the history of resource development for the province," the premier told a media briefing in Halifax. "Nova Scotia wants more oil and gas development, but at a fair price that guarantees the people who own the resources are the ones who benefit the most."

Depending on the type of project, the royalty package guarantees the government between 48 and 67 per cent of net cash flow. It is structured to ensure the province receives its fair share of revenue from its oil and gas resources, while encouraging activity and attracting future development and exploration projects to the province.

Projects in previously underexplored areas will pay the lowest royalties, while those taking advantage of existing infrastructure will be subject to a higher government take. "The higher the risk, the greater the reward," said Mr. MacLellan.

The generic royalty rates do not include a royalty holiday. "The day gas starts flowing is the day the people start receiving their share," said the premier.

Royalties will be based on both gross revenues and profits. "No one will get out of paying the people their fair share by artificially inflating costs to hide profits," emphasized Mr. MacLellan.

It is expected that the Sable Offshore Energy Project, with reserves of 3.5 trillion cubic feet (tcf) of natural gas, could generate royalty revenues as high as $3.5 billion for the province. Additional gas potential in the offshore is estimated to be in excess of 20 tcf.

The premier said the royalty regime compares very favourably with those in other areas - in many cases putting Nova Scotia on the upper end of the scale compared to other projects of this magnitude both in Canada and throughout the world.

The establishment of clear rules before exploration and development will accelerate offshore activity. Petroleum companies want to know what financial circumstances exist before deciding where to invest their exploration and development money.

The premier, who is also Minister responsible for the Nova Scotia Petroleum Directorate, says the royalty arrangement offers oil and gas companies reasonable rates of return for their investment, Nova Scotians a fair share of revenues, and creates a positive climate for more exploration and economic growth.

"That's what it's all about, getting more companies to do more exploration in more areas. Because exploration can lead to discoveries, which means development and jobs for more Nova Scotians."