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New Brunswick Announces New Royalty Structure

The New Brunswick provincial government has unveiled a new royalty structure intended to lure oil and gas companies to the province.

Under the new system, operators will pay a 4% basic royalty based on the wellhead price, or a 2% minimum tax on gross revenues, whichever is greater. Once a well turns profitable, the province will also receive a 25% royalty from the profits.

Operators paid a 10% royalty based on the wellhead price under the former system.

"New Brunswick continues to be a largely unexplored region, with companies still trying to determine if there is a viable resource to extract," Energy and Mines Minister Craig Leonard said Monday. "As a government, we have to strike a balance between encouraging investment and making sure that New Brunswickers receive the most possible from our resources."

Leonard added that the provincial government believes revenue generated under the new royalty system will be about 50% higher over the lifespan of a drilling project.

"The current model is simply not competitive with other jurisdictions in terms of investment incentives, and also fails to earn the best possible return on the resource for the province," Leonard said. "The [new] model provides the industry with a framework where investments can be recouped quickly and allow for profits to be earned earlier in the life of a project.

"Once a project's total revenues start exceeding total expenses, the province will receive a significant share of those profits."

The province's Department of Energy and Mines said the revised royalty structure was based on nearly two years of research and analysis by it, the Department of Finance and a variety of stakeholders, including First Nations.

New Brunswick is home to the prospective Frederick Brook Shale, but current production is only a small portion of Canada's total.

According to estimates from Canada's National Energy Board in October, marketable natural gas production from the province will average 424,083 cubic meters/day (15.0 MMcf/d) in 2013. By comparison, the estimated national average for the year is 380.1 million cubic meters/day (13.4 Bcf/d).

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