Petroleum Royalties: Nova Scotia's Proposed Royalty Regime
Authors: Snook S.J. 
Published: March 2010

Nova Scotia is in the process of designing a royalty regime for its offshore petroleum resources. Exploration has been under way in the Nova Scotia offshore since 1967 beginning with Mobil Sable Island C-67 well. There have been 121 wells drilled, from which 21 significant discoveries have resulted. A total of 4.7 trillion cubic feet of gas, 95 million barrels of condensate and 30 million barrels of oil have been discovered.

Before the recent collapse of the world oil price, a production scheme for Scotian gas was deemed imminent. However, at the moment Nova Scotia is still anticipating its first offshore production project.

The industry operators have been diligently proving up hydrocarbon reserves. Sufficient reserves have been discovered for development. Nova Scotia is at present designing royalty regulations to specify the government fiscal regime and hopefully world oil prices will improve and stabilize in the next few years.

This paper will discuss Nova Scotia's proposed royalty system and contrast it with those existing in other countries with offshore production such as Norway, Australia and the United Kingdom.

Authority to Regulate

On August 26, 1986, in Halifax, the Canada-Nova Scotia Offshore Petroleum Resources Accord was signed. This signified agreement between the federal and provincial governments on the joint management of oil and gas exploration, and on the high priority of development and production in the offshore of Nova Scotia proceeding.

The Accord allocated to the Province of Nova Scotia the responsibility for control and revenue from fiscal instruments as if the resources were on land. This right to set royalties will be legislated in the Canada-Nova Scotia Offshore Petroleum Accord Implementation Act. The royalty regulations will come under a separate act. It is difficult to set royalty regulations specific enough to cover all cases of offshore development especially now, before any production history is established. Therefore, Nova Scotia has proposed generic regulations with enough detail to allow economic analysis and long-term planning. A royalty agreement will spell out the specific details of each project such as the project boundary, the predevelopment costs, and the project definition.

The Accord established a new independent Canada-Nova Scotia Offshore Petroleum Board to administer and regulate all aspects of offshore oil and gas activities. The Board will be responsible for decisions such as:the declaration of significant discoveriesregulating good oilfield practicesexercising emergency powersapproval of technical aspects of Development Planscollecting royaltiespublic review of matters within its Mandatemaking recommendations with respect to proposed amendments to the legislation and regulations under the Accord

A typical offshore Nova Scotia development begins at the exploration stage withan exploration licence (EL) which optimistically results in the discovery of hydrocarbon reserves. The Canada-Nova Scotia Offshore Petroleum Board declares this a significant discovery licence (SOL) after an industry submission. When the operator has discovered economic reserves, he may submit a Development Plan for approval to the Board.

A Production Licence is issued in conjunction with the Development Plan.