The Province of British Columbia thinks it has a winner and is launching a new installment of its offer for royalty forgiveness in exchange for construction of roads and pipeline infrastructure. The province is putting up to C$120 million in royalty credits on the table to spark the next round of infrastructure development in BC's petroleum and natural gas sector.
Companies which fund selected infrastructure projects will be able to recover up to 50% of the approved projects costs through credits that reduce their royalty payments to the government, which owns all the mineral rights.
The BC government is betting the resulting infrastructure will improve access to underdeveloped areas and support year-round exploration and production activities. "This generates more jobs and business opportunities than would otherwise occur and promotes the competitiveness of BC's natural gas sector," the provincial announcement said.
"We've been very successful at leveraging investor capital to generate additional royalty revenue for the Province," said Minister of Energy Steve Thomson. "Not only does the program help create more year-round jobs, it results in higher revenues that fund critical programs like education and health care."
The 2011 program is expected to generate approximately C$240 million in new industry capital spending in BC. The province aims to achieve a five-year rate of return on investment of C$2.50 per royalty-credit released. In other words, five years from now, the 2011 allocation of infrastructure royalty credits is expected to have generated new net incremental royalties of C$300 million.
The return on investment increases with time because wells produce for many years, meaning the earliest installments of the program are providing the largest source of revenue for the Province.
The program is one strategy for luring companies to invest in British Columbia over other jurisdictions. Companies must demonstrate how their project will increase government royalties, open up new areas of exploration, and increase year round activity.
Starting last Thursday, the new installment of the Ministry of Energy's successful Infrastructure Royalty Credit Program started accepting applications from companies who want to invest in new or upgraded roads and new pipelines. The open season ends April 14.
Since its inception in 2004, the Infrastructure Royalty Credit Program has led to the development of 76 new road-based ventures and 97 new pipeline projects. This accounts for more than C$1 billion in capital investment and about C$5 billion in private sector drilling and other investment activities.
The natural gas and petroleum sector, a major economic engine for BC, is expected to generate C$1.37 billion in government revenue in fiscal 2010-11, accounting for nearly 50% of BC's total resource revenue.
Details about the Infrastructure Royalty Credit Program, including request for applications and information about previous installments of the program, can be found at http://www.empr.gov.bc.ca/OG/oilandgas/royalties/infdevcredit/Pages/default.aspx.
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