BC Introduces New Oil and Gas Royalty System

“Our province is endowed with abundant resources, which belong to all of us. But for too long, a flawed system of fossil fuel subsidies has failed to align with our climate goals or ensure people fully benefit from these resources,” Premier John Horgan said in a statement.

In a press conference, he added that the goal is to restore a balance through justified changes. The province therefore decided to correct an outdated oil and gas royalty system by eliminating the largest fossil fuel subsidy in British Columbia.

The new system will put an end to the province’s deep well royalty program, created in 2003 and denounced by the NGO Stand.earth, as well as other programs deemed outdated and ineffective such as those for marginal wells, ultramarginal wells, low productivity wells, clean growth infrastructure.

Green Party leader Sonia Furstenau considers this new system to be a step forward when science tells us to take a leap forward. She believes the new system fails to recognize the true cost of oil and gas development in the province. She also denounces the generosity of the NDP government towards LNG Canada and the fact that it has “still not ruled out allowing phase 2 of this project, while failing to reconcile it with the Clean BC plan”.

Environmental advocacy organization Stand.earth, meanwhile, welcomes the scrapping of the deep well royalty program which it says cost the Colombian government $1.2 billion in lost revenue. British in 2021.

A shale gas well in northeast British Columbia.

Photo: John Werring

Sven Biggs, Canadian oil and gas program manager for Stand.earth, explains that the announcement is a clear acknowledgment from the Prime Minister [John] Horgan that the fracking companies of [la Colombie-Britannique font des bénéfices] at the expense of taxpayers and the environment, it is a step towards resolving this imbalance.

For Energy Minister Bruce Ralston, the new system was long overdue and will replace an outdated system that was in place for almost three decades.

” The goal is to make the system much more accessible, much more understandable. »

5% royalty on income

Under this new system, companies will pay a flat 5% revenue royalty (compared to 3% currently) until they reach the amount the company spent to drill the well. Royalties could be as high as 40% once drilling costs are recovered.

The province says it doesn’t believe this new system will impact drilling in British Columbia, despite the higher costs to companies.

Stand.earth, on the other hand, moderates its enthusiasm and regrets the creation of new fossil fuel subsidies that continue to use public revenues to encourage the drilling of new fracking wells. New fossil fuel subsidies will only create more fracking pits, which in turn will worsen the impacts of climate change.

Fossil fuels used to provide energy are a major source of pollution.

Photo: iStock

Nancy Olewiler, Director of the School of Public Policy at Simon Fraser University (SFU), and Jennifer Winter, Scientific Director of the Energy and Environmental Policy Research Division at the University of Calgary, conducted an independent assessment of the existing royalty framework.

They concluded that British Columbia’s natural gas royalty system needed to be completely reformed.

In a press release, Nancy Olewiler judges that the new system is a good start to simplify, modernize and eliminate obsolete programs.

” I am happy to say that the government of British Columbia took our advice. »

From November 10 to December 10, 2021, the public was consulted and the results of these consultations were published in a report available online (New window) (in English).

The province says existing credits will expire in four years unless they are transferred to a fund focused on land and environmental restoration and emissions reductions.

Current wells and those whose drilling will begin before 1^er September 2022 will pay royalties based on the current royalty framework until 1^er September 2024. As of 1^er September 2024, these wells will transition to the rules of the new royalty framework.