Newfoundland and Labrador’s Department of Natural Resources on Monday announced the framework for the Provincial Government’s enhanced generic offshore oil royalty regime.
As explained by the Government of Newfoundland and Labrador, the province has offshore royalty regulations in place; however, they are negotiated separately with each operator of current offshore oil development. The new regime will be internationally competitive, simplified, and transparent, the government said.
In a press release issued on Monday, Derrick Dalley, Minister of Natural Resources said that establishing the enhanced generic offshore oil royalty regime was another step in the government’s preparation for future offshore oil projects.
“This generic royalty and our equity participation, provides the fiscal certainty that industry has been seeking. It also provides progressive sharing of revenues from resource development between the province and the investor. With increased prospectivity and certainty on our fiscal regime, we will continue to attract companies to our offshore, ensuring resource projects benefit our province, our economy and our people now and well into the future,” Dalley said.
As stated in the press release, the new regime is a commitment in the Provincial Government’s long-term energy plan which will serve the best interest of Newfoundland and Labrador while respecting the need for oil companies to earn a fair return on investment.
Furthermore, royalty rates will increase as fields become more profitable, and the highest royalty rate will be payable by oil fields that have returned $3 to the producers (after royalty) for every $1 spent.
Government sees potential in offshore oil and gas
Ross Wiseman, Minister of Finance and President of Treasury Board said that the new offshore royalty regime showed the government’s understanding of the potential that exists in the province’s offshore.
“We are leveraging our significant natural resources as well as supporting the strengths of an innovative business community that is competing in global markets. The Provincial Government remains focused on the province’s long-term prosperity and through sound fiscal management and responsible decisions, we are positioning Newfoundland and Labrador for success for generations to come,” said Wiseman.
According to the government, the new regime will apply to all new production licences, including production licences issued based on existing exploration and significant discovery licences and on future exploration and significant discovery licences obtained through the scheduled land tenure system, including the upcoming land sale on November 12, 2015. There will be no retroactive application of the new regime to existing projects where regulated or negotiated royalty terms are in place.
Worth noting, the framework is subject to formal regulation development and final approval under the Petroleum and Natural Gas Act, which is expected in early 2016.