New natural gas royalty structure announced

FREDERICTION (GNB) – The provincial government has developed a new royalty structure that will significantly increase the royalties received for natural gas in the long-term without discouraging development. 

The new royalty regime was unveiled by Energy and Mines Minister Craig Leonard today at the 38th Annual New Brunswick Exploration, Mining and Petroleum Conference.

“New Brunswick continues to be a largely unexplored region with companies still trying to determine if there is a viable resource to extract,” said Leonard. “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. We believe this new model will do just that with royalty revenues increasing by about 50 per cent over the lifespan of a project.”

The royalty natural gas structure is based on about two years of research, discussion, and analysis headed by the Department of Energy and Mines and the Department of Finance with input from consultants, key stakeholders and First Nations.

“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,” said Leonard.

The revised royalty regime for natural gas gives the province the greater of a 25 per cent royalty on the economic rent earned by a project, a four per cent basic royalty calculated on the wellhead price, or a two per cent minimum tax on gross revenues.

“The 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,” said Leonard. “Once a project’s total revenues start exceeding total expenses, the province will receive a significant share of those profits.”

Leonard said through a competitive royalty structure, the development of the province’s natural gas and oil reserves represents an opportunity to not only grow the economy, stimulate investment, and create jobs but also to pay for services for New Brunswickers.

In a study commissioned by Future NB and the NB Business Council, Deloitte reports that each well drilled would result in $13 million of direct investment along with 75 direct, indirect and induced jobs. With a model drilling program of 50 wells per year over a 20-year project, this translates into more than $10 billion in investment along with more than 3,500 jobs.