Offshore Natural Gas Royalty Regime (Newfoundland and Labrador, Canada)
Last modified on February 12, 2015.
|Place||Newfoundland and Labrador|
|Applies to States or Provinces||Newfoundland and Labrador|
|Name||Offshore Natural Gas Royalty Regime (Newfoundland and Labrador, Canada)|
|Policy Category||Other Policy|
|Policy Type||Generating Facility Rate-Making|
|Affected Technologies||Natural Gas|
|Program Administrator||Newfoundland and Labrador Department of Natural Resources|
The province’s offshore contains large natural gas deposits. The Provincial Government has developed an Offshore Natural Gas Royalty Regime that will ensure these resources are developed in the best interests of Newfoundlanders and Labradorians, while at the same time providing those investors who develop the resource with a fair return.
The royalty has two components: Basic Royalty and Net Royalty. These components exist in the current oil royalty regimes, however, the mechanics of the Natural Gas Royalty terms are quite different.
Basic Royalty provides a revenue stream to the province at all stages of a project. The basic royalty rate is linked to realized prices, rather than volumes or project economics as under existing oil royalty terms. This means that the province’s percentage share of the gross revenue from each project will be largely driven by price. This approach leads to greater transparency and ensures that the interests of the Provincial Government and industry are well-aligned. Net Royalty is based on project profitability and reflects the revenue and costs associated with a particular project. Where profitability of a project is higher, the province will share in that profitability. Where profitability is less or declining, the Net Royalty Rate will be lower and the province’s share will decline.
Both the Basic Royalty rate and Net Royalty rate will be determined by a smoothing formula, rather than the existing “step” based system. This enables the new system to respond quickly to falling or rising prices, sending a positive message to investors and demonstrating that the province is prepared to share in price risk.
The Regime will automatically provide a lower royalty return from the more costly and remote natural gas projects and a higher return from lower risk /lower cost projects. For a project that develops new infrastructure and is the pioneer project, the province is prepared to consider modifications to the rate structure within the Offshore Natural Gas Royalty Regime to reflect that higher project risk and infrastructure investment if economics warrant such consideration.
|Contact Name||Craig Martin|
|Department||Newfoundland and Labrador Department of Natural Resources|
|Division||Royalties Administration and Monitoring Division|