The Governments of Canada and Newfoundland and Labrador, along with the Canada–Newfoundland and Labrador Offshore Petroleum Board (C-NLOPB), are working together to increase competitiveness and provide regulatory certainty with respect to research and development expenditures by producing operators in Newfoundland and Labrador.

In support of these shared objectives, a ceiling of 0.5 per cent of project revenues will be used in calculating research and development expenditure requirements for all producing projects in the Canada-Newfoundland and Labrador Offshore Area. This is in line with what most oil and gas companies spend globally on research and development as a percentage of gross sales.

It replaces a calculation using a Statistics Canada benchmark that had increased significantly in recent years, primarily due to the decline in global oil and gas prices since 2014. The unchecked application of that benchmark in the offshore area would unduly inflate expenditure requirements locally despite the downturn. Instead, the ceiling will help to ensure that expenditure requirements are predictable and more reflective of changes in annual oil prices as well as production levels, which are expected to increase in the years ahead.

Along with creating a more competitive investment climate, this regulatory certainty also helps Canada meet its international trade obligations. With an expected increase in production levels, increased investment and development in Newfoundland and Labrador will lead to jobs, government revenues and continued significant research and development spending in the province. New funding is also available from sources such as the Innovation and Business Development Fund and the Ocean Supercluster.

This measure, to be implemented retroactively to 2017, is the latest result of ongoing collaboration by the two governments and the C-NLOPB to build a best-in-class regulatory regime with respect to offshore safety, environmental protection and international competitiveness, in order to contribute to economic growth, jobs and prosperity.

Quotes
“This initiative is aligned with Advance 2030, supports continued high investment in research and development, and provides for a predictable, stable environment‎ to attract investment in the province’s offshore oil industry.”
Honourable Siobhan Coady
Minister of Natural Resources

“We’ll keep attracting investment to our offshore by improving competitiveness. And we do that by building regulations that both create jobs and protect the environment.”
Honourable Seamus O’Regan
Minister of Natural Resources Canada

“The C-NLOPB is committed to providing certainty in the world-class delivery of its regulatory mandate.”
Scott Tessier
Chief Executive Officer, C-NLOPB

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Learn more
Advance 2030 – A Plan for Growth in the Newfoundland and Labrador Oil and Gas Industry 

Advance 2030 – 2018-19 Implementation Report 

Follow us on Twitter: @GovNL  and @NR_GovNL

Media contacts
Lisa Lawlor
Natural Resources
709-729-5777, 631-8155
lisalawlor@gov.nl.ca

Media Relations
Natural Resources Canada
Ottawa
343-292-6100
NRCan.media_relations-media_relations.RNCan@canada.ca

Carlene Variyan
Director of Communications
Office of the Minister of Natural Resources
613-292-6837
Carlene.Variyan2@canada.ca

Lesley Rideout
C-NLOPB
709-778-4224, 725-2900

BACKGROUNDER

The Accord Acts require that expenditures for research and development, as well as education and training, be carried out in the province.

In 2004, the C-NLOPB issued Guidelines for Research and Development Expenditures and since that time, has calculated the spending obligations for each project operator annually.

In recent years, the five-year average of the Statistics Canada benchmark for research and development has increased substantially – from 0.46 per cent in 2009 to 0.74 per cent in 2015. Based on the latest available information, the five-year average would have further increased to 1.42 per cent, representing a 92 per cent growth over 2015 and a 209 per cent escalation over 2009.

Increasing expenditure requirements as a result of escalation in the Statistics Canada benchmark negatively impacts competitiveness versus other jurisdictions. Similar to Statistics Canada’s benchmark, the European Commission’s R&D Scoreboard measures the ratio of global corporate investment into R&D as a percentage of net sales revenue. From 2003 to 2018, the global spending ratio averaged 0.3 per cent for a group of major exploration and production companies.

Upstream oil and gas companies continually identify where to invest in exploration and development. In market downturns or in times of significant capital constraint, investment opportunities estimated to generate the highest returns are often sanctioned ahead of less competitive alternatives.

Investment in Canada’s oil and gas sector has fallen dramatically over the last number of years. Based on Statistics Canada’s data for the third quarter of 2019, oil and gas sector capital investment has declined by approximately 60 per cent (over $13 billion) since the end of 2014.

The Governments of Newfoundland and Labrador and Canada have been working together to support global competitiveness in our offshore oil industry, as indicated in the plan for growth – Advance 2030. In this regard, regulatory certainty must be provided to industry, in consideration of Canada’s international trade obligations.