Minister introduces amendments to the Petroleum and Natural Gas Act

Mines and Energy Minister Lloyd Matthews announced today that government will commence second reading of a Bill entitled "An Act to Amend the Petroleum and Natural Gas Act" (PNG Act) during today�s session of the House of Assembly.

The proposed amendments focus primarily on Part II of the act which governs the collection and administration of royalties for the province�s onshore and offshore petroleum industry. The proposed amendments will update and modernize the act and prepare it for the introduction of detailed royalty regulations. The amendments will also improve the audit, security and payment enforcement provisions.

These amendments will apply to the Terra Nova project, onshore projects and all future offshore oil projects including White Rose. The current Hibernia contractual royalty regime will not be affected by these amendments.

"Amendments will clarify the administrative procedures, thereby improving government�s ability to collect royalty payments from companies that produce petroleum in Newfoundland and Labrador," said Mr. Matthews. "These amendments and the detailed royalty rules which will govern the province�s royalty regimes will also provide clarity and certainty to petroleum companies operating in Newfoundland and Labrador. This will ensure that the companies know their royalty requirements prior to making substantial investment commitments."

"In order to attract investment, this province must be competitive when implementing its royalty regimes," said Mr. Matthews. "Government must strike an appropriate balance. We must ensure that the province receives its fair share from the development of its resources, while addressing the legitimate interest of companies that develop these resources."

Minister Matthews noted that industry representatives were consulted on the amendments to this act and they will also be fully consulted as government prepares the detailed royalty regulations necessary to govern and fully implement these royalty regimes.

See attached backgrounder for information on the royalty regimes. 

Media contact: Tara Laing, Communications, (709) 729-4890.

 

Bill to amend the Petroleum and Natural Gas Act
Backgrounder

The province currently has four royalty regimes: These include:

• Hibernia royalty regime - applies to the Hibernia project
• Terra Nova royalty regime - applies to the Terra Nova project
• Generic offshore royalty regime - applies to future offshore projects (eg. White Rose, Hebron Ben Nevis)
• Generic onshore royalty regime - applies to future onshore projects (eg. Garden Hill)

All regimes have a similar structure in that there is a basic royalty on the gross value of production, regardless of profitability. Additionally, there is a two-tiered profit sensitive royalty. The profit sensitive component will allow government to achieve higher royalties when the companies recover their project costs and an allowed rate of return. (See attached table for royalty rates.)

The Petroleum and Natural Gas Act (PNG Act) governs all projects with the exception of the Hibernia project as this royalty is in place by way of a contractual agreement.

The PNG Act consists of two parts:

• Part I deals primarily with onshore administrative and licensing procedures. The Canada-Newfoundland Offshore Petroleum Board is responsible for administration and licensing in the offshore.
• Part II deals with royalties for the onshore and offshore. Part II of the act is incorporated by reference by the Canada Newfoundland Atlantic Accord Implementation Act making it applicable to the offshore.

Bill 55 primarily makes amendments to Part II of the act. The amendments prepare the legislation for the introduction of detailed royalty regulations. The main objective of the changes was to improve government�s ability to administer royalty for both onshore and offshore projects. The changes focused on:

• reorganizing and making the act more clear and concise;
• maintaining consistency with the Canada Newfoundland Atlantic Accord Implementation Act; and
• enhancing our security, audit and enforcement of payment provisions.
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Provincial Petroleum Royalty Regimes

CPI � Consumer Price Index

LTBR � Long Term Government Bond Rate

Note: If crude oil prices are below $30US/BBL (1987 $US) rate is indexed (reduced) during the scheduled repayment of loans guaranteed by the Government of Canada. This is applicable to the Hibernia project only.

2001 12 11                          1:00 p.m.