Newfoundland and Labrador introduces new royalty regime for offshore oil

ST. JOHN’S, N.L. — The Newfoundland and Labrador government released details of its new generic offshore oil royalty regime on Monday, saying the simplified system will make the province more competitive on the world stage.Natural Resources Minister Derrick Dalley said the new framework will see royalty rates increase as fields become more profitable, but he insisted the new generic regime will provide a more predictable starting point for energy companies.Under the old regime, the province negotiated separate royalty regimes and benefit agreements on a per project basis.“This generic royalty … provides the fiscal certainty that industry has been seeking,” Dalley said in a statement. “It also provides progressive sharing of revenues from resource development between the province and the investor.”Benefits agreements will continue to be negotiated for individual projects. The new royalty system applies to all new production licences, including those based on existing exploration and significant discovery licences.That means the framework will apply to the proposed Bay du Nord deep-water project in the Flemish Pass. Statoil ASA of Norway, which announced the find in 2013, has yet to decide on whether it will develop that field.On Monday, Dalley told a news conference that talks with Statoil to develop Bay du Nord had reached an impasse. He said the company simply wanted more than the province was willing to give, and he stressed that the new royalty system was not a factor.The project is considered a must-have in a province that has suffered financially since oil prices started plunging in June 2014. Offshore energy royalties account for about one third of the province’s budget.Four months ago, Newfoundland and Labrador Premier Paul Davis said the new system would be modelled on the more streamlined approach taken by Norway, an approach that should appeal to Statoil.He said a standardized regime would clarify international expectations and accelerate negotiations.Monday’s announcement comes only days before Davis is expected to officially announce the start of a provincial election campaign that will culminate with a vote on Nov. 30.The province’s governing Progressive Conservative party, in power since 2003, is widely considered a long shot in the race, having been behind in the polls for two years.Under the new framework, a basic royalty will apply to gross revenue when a project starts producing oil, increasing from one per cent to 7.5 per cent as the project recovers its costs.Once costs have been recovered and profits start to roll in, a net royalty will be applied to net revenue, ranging from 10 per cent to 50 per cent — and the basic royalty becomes a credit against net royalties.The highest royalty rate will be payable by oilfields that have returned $3 to the producers — after royalties — for every dollar spent.The framework is subject to final approval under the Petroleum and Natural Gas Act, which is expected in early 2016.Canadian Press read more