20 JUNE 2014
Consulting studies done for the provincial Department of Finance paint a very different picture about the value of natural gas revenues to the public purse than that claimed by the Alward government.
After eighteen months and one court appearance under the Right to Information Act, Green Party leader David Coon obtained four consulting studies on the implications of changes to the natural gas royalty system in New Brunswick.
"The studies confirm that the Alward government abandoned the natural gas royalty it originally proposed to the public in May of 2012 by November of 2013," said Green Party leader David Coon. "Behind closed doors, a decision was made to virtually give natural gas away by charging the lowest natural gas royalty rates in North America," said Coon.
In May of 2012, as part of the public consultations led by Louis LaPierre, the provincial government proposed to keep its royalty of ten percent of the market value of the natural gas, but add a 40 percent royalty on excess profits across a company’s New Brunswick operations. The actual natural gas royalty instituted on April 1, 2014 reduced the ten percent royalty to 4 percent of the market value of the gas (with a minimum 2 percent royalty on revenues) and slashed the 40 percent royalty proposed for excess profits down to 25 percent.
The New Brunswick Court of Queen’s Bench released copies of four contracts signed with the Department of Finance and the four subsequent reports to the Green Party Leader in mid-May. The total cost of the work was $135,000 and examined policies on resource royalties for New Brunswick. The documents can be found on the Green Party's website.
“It took us a little time to fully understand the analysis done for the Department of Finance, but when you do the math, what emerges is startling," said Green Party leader David Coon. "The upshot is that the royalty system adopted by the Alward government will only return 2.5 percent of natural gas sales revenue to the provincial treasury. This is a far cry from the 20 to 30 percent of natural gas sales revenue that the Government of Saskatchewan collects to help pay for its public services," said Coon. "This puts New Brunswick's natural gas royalty rates as the lowest in North America by a factor of ten."
The new natural gas royalty system allows natural gas companies that are making profits to reduce the 25% royalty on their excess profits by the 4 percent they would have previously paid on the market value of the gas. As the studies done for the Department of Finance assumes excess profits will on average be 10 percent of total sales revenues; the actual royalties paid to the provincial government will amount to 2.5% of total sales.
The Green Party favours the Saskatchewan royalty structure for natural gas which is transparent, easily monitored, and charges royalty rates in the 20-30 percent range. The royalty rates vary with the productivity of individual wells and the selling price of natural gas. If the productivity of the well increases and the selling price increases, the company has the ability to pay more, so the royalty rate increases.
"It is unbelievable. In its desperation to entice companies to frack for shale gas in New Brunswick, over the objections of many communities and citizens, the Alward government has adopted a royalty regime which effective just give away the natural gas away," said Green Party leader David Coon.
“This is just the latest example of what happens when governments develop public policy in the back rooms with resource companies. The benefits go the companies, and New Brunswickers get shafted," said Coon. "That is why the Green Party would lift the veil of secrecy that hangs over the workings of government. And we would ensure that companies pay their fair share when it comes to conventional natural gas," he said. The Green Party opposes the exploitation of shale gas, as it is unsafe and unsustainable.
An Assessment of Royalty Policy in New Brunswick
Review of Royalty Negotiations Strategy in New Brunswick
Implications of 2012 Federal Budget Changes on Oil and Gas Investment in New Brunswick