Copyright of the Daily Oil Bulletin 2018
B.C. Montney Oil Credit Appears To Be On The Backburner
In the U.S., Mexico or most other oil and gas producing countries, an area with a potential for the recovery of billions of bbls of oil wouldn’t be ignored for long, but in Canada, particularly British Columbia, that is exactly what is occurring in the Montney play, which straddles the Alberta/B.C. border.
While the Montney in B.C. is more known for its natural gas resources, the surface has barely been scratched when it comes to its oil potential, according to Brad Hayes, president of Petrel Robertson Consulting Ltd.
“If you look at the NEB [National Energy Board] reports, there are one billion barrels of light oil potential in the Montney, plus billions of barrels of liquids,” he said, also citing Alberta Geological Survey estimates.
The former B.C. Liberal provincial government wanted to start unlocking that potential, at one point proposing a deep Montney oil drilling credit. Then last year it was replaced by an NDP minority government, which relies on support from three Green Party members.
While Premier John Horgan’s NDP government has walked a fine line, backing plans by Royal Dutch Shell plc and others to develop LNG export projects in the province, it has drawn the line on oil development and exports in Canada.
The idea of a deep Montney oil drilling credit is clearly not on the new government’s agenda at this point.
Suntanu Dalal, a spokesperson for B.C.’s ministry of energy, in an email reply, said his government reviews royalty rates regularly, “to assure they continue to offer the greatest benefits to the Crown, while maintaining our competitiveness. Royalty programs are designed to attract investment, increasing incremental royalties [and to] generate long-term economic benefits for all British Columbians.”
He went on to say that royalty program updates are announced on the government website “if and when they are available.”
Finally, he wrote that “there are no updates at this time.”
That comes as no surprise to Gary Leach, president of the Explorers and Producers Association of Canada (EPAC).
Last spring, when the election campaign was in full swing in B.C., he was encouraged by the decision of the then Liberal government to include a pledge to implement a Montney oil incentive if re-elected.
“We were, of course, very encouraged when the Liberals endorsed a Montney oil incentive as part of their election policy goals,” he said then. “It was something EPAC and several of our members had been promoting for three years.”
If implemented it would “promote development of some exciting new resource potential and draw investment to NE British Columbia.”
Last summer, after the Liberals had been defeated, Leach and some EPAC members met with Michelle Mungall, newly appointed minister of energy.
“They didn’t see that [the deep oil credit] as likely to advance with the new government,” he told the DOB this week. “The message we got was the timing wasn’t right … and the new government was focusing on LNG.”
As a result, he said EPAC has “put that on the backburner.”
However, Leach said he was impressed with the professionalism of the senior bureaucrats with the department “who were receptive to the issue.”
Geoff Morrison, the B.C.-based representative for the Canadian Association of Petroleum Producers (CAPP), said he also hasn’t heard of any plans for a deep oil credit.
He said there’s little doubt royalty breaks played a substantial role in unlocking the natural gas and liquids potential of the Montney, especially given the remoteness of the play.
Morrison added that no matter how significant the resource potential there might be, the Montney is competing for capital with plays like the Permian in the U.S., which has ready access to infrastructure and nearby markets.
“If we look at royalty breaks in the past, they’ve done tremendous things for the province,” he said. “They were needed to attract investment in the resource potential.”
He said it’s important to understand that royalty breaks cost the government no direct cash.
“This is not the people of B.C. investing. It’s not a subsidy. It’s a royalty incentive.”