Regina– The May edition of Pipeline News featured several stories highlighting concerns raised by Saskatchewan-based junior oil producers regarding this province’s competitiveness for oil investment, especially given the election of Jason Kenney as the new Alberta premier. Kenney’s platform included reducing red tape and cutting corporate taxes.
Those stories were entitled “Saskatchewan’s ever-increasing regulations are making this province uncompetitive: Hromek,” (viewable at pipelinenews.ca/1.23814126) and “Competitiveness is a provincial issue, not federal, and Saskatchewan has issues there,” (pipelinenews.ca/1.23814160).
The editorial was entitled “By becoming more like Alberta, has Saskatchewan lost its competitive edge?” and can be found at pipelinenews.ca/1.23814176.
Energy and Resources Minister Bronwyn Eyre, prior to providing testimony to the Senate committee looking into Bill C-48, the tanker moratorium, approached Pipeline Newson May 1 with a request to respond to the concerns raised by those producers. That took place by phone on May 10.
Competitiveness with Alberta
“Clearly, I feel we’re competitive,” Eyre said.
“On the provincial side of things, obviously our royalty regime is competitive with Alberta. There was talk of the ‘Kenney factor,’ in some of those pieces in the May issue. I get that. But on horizontal drilling, our (royalty) is 2.5, Alberta introduced a flat rate of 5 per cent, the CStar royalty rate, a few years back. Yes, Kenney could lower that to levels closer to Saskatchewan’s, but we would still be competitive. Of course, we have to stay on top of our game, but just in terms of stability and the incentives we do have around EOR (enhanced oil recovery), around horizontal, obviously it’s led to massive investment. They are top-in-class incentives that are Saskatchewan-specific.”
“I know the regulations come up, such as Directive 17 (on measurement). I think we do have to look at that, or relook at some of that. But let’s not forget, it’s been around for a while, and industry consultations began in 2014. The directive came in in April 2016 for the new facilities. But for the facilities build before 2016, they were given a four-year phase-in window. They have until April 2020 to meet all the requirements. Operators of the phased-in facilities are required to implement 25 per cent each year, but they do have that phase-in window overall to April 2020.”
Recent land sales
The editorial pointed out that the $1.5 million Crown land sale in April was one of the worst land sales in the last 11 years.
“I would say those have to be read in context. In December, our land sale brought in about $47 million, of the $61 million that had been forecast in Q2. But the previous December, it’s my understanding, we had made about $9.5 million,” Eyre said.
(Eyre referred to the December 2018 land sale which brought in $20.1 million, with the fiscal year to date cumulative land sale revenues being $47.3 million, according to the government press release at the time.)
She said that went up significantly over the year, and that “on both the fiscal and calendar year basis, we continue to post the highest average per hectare revenues among western provinces.”
“For the 19-20 fiscal year, Saskatchewan dollars per hectare averaged $278.32. Alberta averaged, at the time of the April 2019 news release, $155.61 per hectare. B.C. had averaged $180.”
While the April gross amount was low, she said, “It is, but not if you look at what December was. That was pretty good. So you have to look at it in context, not just that one time. And for the calendar year, Saskatchewan averaged $524.42 (per hectare), Alberta averaged $175.72. B.C. was $504, and B.C. had no sale in February in 2019 because there was a lack of interest from industry.
“I think it’s important to have that context.”
“We can safely say, the sector has not been booming. So that is, of course, a factor. But it’s not a Saskatchewan specific thing.”
Regarding the licensing of flowlines, she said, “The provincial auditor’s report in 2012 identified that as an issue. There were a number of issues with the current pipeline and flowline regs, and Energy and Resources (ER) had to address that. Obviously, the Husky incident highlighted the need for that. But I think what isn’t getting out, or isn’t getting out enough, is that licensing flowlines first of all brings Saskatchewan into line with other provinces. It ensures the pipelines are well regulated. But the cost of the first phase of that pipeline regulation and the IT (information technology) development was accommodated within the existing levy.
“The Phase 2 automations plans are being substantially reduced, in scope, to avoid increasing the levy and to minimize the impact on operators on licensing flowlines. Those retroactive licenses will be based on minimal data – eight data fields. And once the flowline licensing is required, operators will have four years to complete that retroactive licensing. We feel, at ER, that isn’t necessarily out there.”
Methane Action Plan
Regarding incoming federal regulations on methane, referred to as the Methane Action Plan, Eyre said, “I’m not sure it is understood, this is not something we did to the industry for the good of our health. We had to come up with a plan, or the feds would do if for us, or do it to us.
She expressed frustration with the reference to that, saying, “Our side isn’t mentioned there.”
“About 20 per cent of natural gas is wasted by oil producers through venting and flaring. Fine. But our plan, the Saskatchewan plan, we feel, is not just based on presumed, theoretical reductions, based on models and assumptions like the feds. Ours is about flexibility. We don’t target specific equipment, facility by facility. We do it results-based. It’s designed to establish company-wide levels of reductions of emissions annually. They can make investment decisions for all their facilities.
“The feds’ is completely different. It’s much more like Alberta’s program was, very prescriptive.
“There’s also a significant accommodation for smaller operators. So (Warren) Waldegger is talking about this, but these regulations only apply to companies that exceed the threshold of more than 50,000 tonnes of CO2 equivalent. Companies may not need to reduce their emissions if they’re already conserving or combusting a certain portion of their associated gas. But believe me, operators say they want our plan over the federal plan.
“It’s about the federal plan, which would be backstopped. Some of this work was ongoing anyway. But we really had to act, otherwise we would have had the federal methane plan.
Tie in of infrastructure
In the one story, Fire Sky Energy CEO Warren Waldegger referred to the economic practicality (or lack thereof) of tying into infrastructure.
“Waldegger makes this point about the tie in of infrastructure, and about the different geology, and I get that. That’s why we’re bringing in the Saskatchewan Petroleum Innovation Incentive (SPII), which is more around research and development. We’ve also announced the OGPII, which is the oil and gas processing investment incentive, which is more around infrastructure. It incentivizes tying in, which is why it is being brought in. And we’ve heard very positive things about that, and you’ll see very positive announcements around that,” Eyre said.
She noted that small oil producers will be able to qualify for new and expanded infrastructure for any project that qualifies under that incentive, including gas processing, waste flare, power generation and regional gas gathering. “That would allow them to directly access the royalty credits based on investment.”
“We’re really digging deep on the RM issue, and the crazy patchwork of rules and fees,” she said. “It’s the number one issue for competitiveness.”
Indeed, the day of the interview, the issue of certain rural municipalities charging high dollar, and perhaps questionable permits and causing other costs came up in three different conversations Pipeline Newshad earlier in the day. When the price of oil was high, these practices were tolerated as a cost of doing business, but now the frustration is starting to rise to the surface. No one wants to speak about it on the record, however, because they fear the RMs will just beat them up more.
Eyre said, “There are huge issues around that. But we’re on it. I know it’s a big issue. It’s the number one issue, including from CAPP (Canadian Association of Petroleum Producers). It’s a huge issue. We are working on that, both Government Relations and Energy and Resources, so watch the space on that, for sure.”
She noted some competitiveness items, like flow-through shares for small companies, are a federal issue, but they are looking at it.
“You will hear things in the not-too-distant future about the red tape issues,” she said.