Natural Gas Royalty Review
The need for a Natural Gas Royalty Review
The current natural gas royalty framework in British Columbia has been in place for nearly thirty years. The way natural gas is produced has changed significantly over this time period due to changes in technology, as have market conditions, costs, and global concerns on the need to address climate change.
As part of his mandate letter, the Premier asked Bruce Ralston, Minister of Energy, Mines and Low Carbon Innovation to undertake a review of oil and gas royalty incentives to ensure they meet B.C.’s goals for economic development, a fair return on the public resource, and environmental protection.
B.C. will undertake a comprehensive review of the entire royalty framework but will focus primarily on natural gas royalties, as there is very little oil produced in B.C.
Natural Gas Royalties
In B.C., the Crown owns most subsurface oil and natural gas reserves. Interested parties can bid on the exclusive right to explore for or produce oil and gas located in Crown reserves. Rights are issued to successful bidders as a form of subsurface tenure, but activity cannot begin until activity permits are obtained from the B.C. Oil and Gas Commission.
If a company is successful in finding natural gas, it then pays a royalty on every unit of natural gas produced. These royalties depend on natural gas prices and volume of production. Royalties also depend on various royalty deductions and incentives.
The Deep Well Royalty Program was created in 2003 and initially intended to offset higher drilling and completion costs incurred by wells that are considered particularly deep. Royalty incentives reduce royalties payable to the Crown when production occurs.
The Province is dedicated to reconciliation with Indigenous Peoples as committed to through the Declaration on the Rights of Indigenous Peoples Act (Declaration Act).
As part of the royalty review, the Province will engage on a government-to-government basis with First Nations with asserted treaty or aboriginal rights located within the area of oil and natural gas development to understand those Nations’ views on how to balance the goals for the royalty review and on proposed changes to the royalty system to consider measures that will avoid, minimize, or address impacts on their interests. Indigenous Peoples throughout B.C. will also have the opportunity to provide feedback on the Discussion Paper. Working cooperatively is crucial to develop policy that balances the interests of Indigenous Peoples with the Province’s goals for the royalty review.