Feds and GNL cap oil, gas licences offshore

New measure buried in federal legislation

Under amendments to the federal Atlantic Accord enabling law contained in Bill C-49, companies will only be able to hold a significant discovery licence for 25 years without developing the discovery.

A significant discovery is one that shows the presence of oil or gas in large enough quantities that it could be commercially developed. A Significant Discovery Licence gives the company or companies the exclusive right to explore, develop, and produce oil or gas from that particular subsea land.

The current legislation issues licences with no time limit. Changes proposed in Bill C- 49 allow for an automatic extension beyond 25 years for an licence-holder that applies to have the significant discovery declared by the offshore board to be a commercial discovery. That means the discovery has demonstrated there are enough reserves to justify development and production.

The proposed changes also allow the offshore board to revoke the extension “if the interest owner fails to submit an application for the issuance of a production licence within a reasonable time.”

There has been no explanation of why the provincial and federal governments are making the change. The provincial government has not announced changes to the provincial enabling legislation, which would also be needed to give effect to the proposed changes.

In the early 2000s, the Government of Newfoundland and Labrador under Danny Williams used the issue of licence duration in its dispute with the Hebron proponents over the provincial demand for an equity stake in the development. Williams made an issue of the significant discovery licence term solely as a way of bringing pressure on the companies. The partners in the development could not agree on letting the provincial government buy a small share of the project in addition to the royalties it would collect under provincial offshore regulations.

Williams dropped the issue once the companies agreed to sell the government half of the small interest Williams initially sought. As part of the deal, Williams gave the oil companies a flat one percent royalty rate until the project paid off its development costs. Williams’ energy minister Kathy Dunderdale said the give-away protected the companies from a drop in oil prices. Williams also agreed that the provincial government would side with the companies in any regulatory dispute.

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