During an April 2018 debate in the BC Legislature, Green Party MLA Adam Olsen stated:
…the net revenue collected from the natural gas sector in British Columbia has plummeted in recent years.
In 2016, British Columbia lost $383 million from exploration and development of our gas. Why? It’s because the tax credits earned were more than the income received from the net royalties and rights tenders combined. Again in 2017-2018, we gave companies more through royalty programs and credits than we collected in royalties, fees and levies combined — all of this in the context of an urgent need to transition to a low-carbon economy.
My question is to the Minister of Energy. Why is your ministry continuing this unbelievable giveaway?
NDP oil and gas advocate Michelle Mungall replied:
…in terms of our royalty credit program here in British Columbia, it’s very important to note that the credits that are accumulated are not necessarily disbursed. They’re not necessarily claimed by companies. …In terms of this program, how it is working is ensuring that British Columbians are getting a fair rate of return on their resources.
Not necessarily disbursed? A fair rate of return?
Minister Mungall is dishonest. Just as she was when she told people at Paddle for the Peace that Site C was an intolerable and unnecessary project.
As of November 2018, more than $6 billion in royalty credits have been disbursed to natural gas producers, with around $3 billion in credits still owing. This chart compares net royalty income of the past five fiscal years to the receipts in the five years ended 2005.
These numbers in this table are confirmed by BC’s Auditor General.
Of course, in addition to royalties, companies once paid billions into the provincial treasury for rights to explore and produce natural gas. In the last five years, payments for rights were one-tenth of the contributions in the five years before Christy Clark was appointed Premier. Encana founder Gwyn Morgan, Clark’s transition advisor, is pleased.
This chart shows the history of revenue from sale of rights:
There is a reason for the decline in rights payments.
Land parcels are offered each month and gas companies compete to acquire them for terms ranging from three to ten years. In addition to modest fees, producers offer to pay “bonus” amounts. Over the last 20 years, bonuses averaged 250 times site rentals.
Competitive tendering was instituted to gain the highest value for the public. However, the system has been distorted. When initial terms expire, instead of parcels being re-tendered, rights are renewed administratively. Of course, no bonuses are paid on renewals.
The net effect is that existing producers control subsurface oil and gas in vast areas of the province and pay almost nothing to continue holding these rights. As a result, the Province has few properties to offer in new tenders. This advantages existing producers and obstructs new participants who might wish to enter the industry.
The case is clear. British Columbia’s Government decided to reduce the public share of natural gas revenues to almost nothing so that gas companies could maximize profits. Minimal public revenues are realized despite substantial growth in the quantities of natural gas extracted in BC.
Categories: Natural Gas