News Release Archive
PREMIER'S OFFICE--Cabinet Approves Sable Royalty Agreement
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Cabinet has approved an interim, and improved, royalty agreement
between the province and the Sable Offshore Energy Project,
Premier Russell MacLellan announced today.
Under the agreement, Nova Scotia will receive royalties of up to
$3.5 billion, depending on production and natural gas sales, from
the current project.
"The royalty regime we have negotiated protects our interest by
encouraging investment in offshore petroleum opportunities while
ensuring that significant levels of revenue flow to the
province," the premier said. "This agreement is as good as or
better than that derived from other Canadian projects of this
magnitude, as well as most others worldwide."
The royalty framework was established in May 1996 and improved
during recent negotiations between the province and the project's
proponents.
"We were able to obtain real gains in recent months that will
enhance the royalty deal for the province," Premier MacLellan
said. He suggested a conservative estimate of the added royalty
would be $20 million annually.
Among the improvements:
-After net royalty becomes payable, in the unlikely event that
net revenues are low, there will be a minimum royalty payment of
five per cent of gross revenues. This gives reasonable certainty
to provincial cash flows.
-Third-party revenues from non-SOEP projects for the processing
and transportation of gas and liquids through SOEP facilities
will enter into the royalty calculation. The effect will be a
faster progress through the royalty tiers, as well as additional
royalty revenue for the province.
-The province can elect to take its royalty in kind, either as
cash and gas, cash and liquids, or gas and liquids. There is also
a provision under which the province can take its royalty in one
product only. This will give the province control over additional
volumes of product for provincial use, if it chooses.
-Other areas in which the province was able to achieve positive
outcome include: the treatment of investment tax credits,
disposal of assets, and abandonment costs. All will result in
increased royalties to the province.
-Unlike other project royalty agreements, the province can
unilaterally act to close any royalty loophole in the future by a
change in the royalty regulations.
Under the five-tiered royalty agreement, Nova Scotia will receive
one per cent of gross revenues from the first three years of
production. After three years, the royalty rate doubles to two
per cent of gross revenues. The third tier of the schedule
increases the royalty to five per cent of gross revenues.
As the project becomes more profitable during the peak years, the
royalty rate rises to 30 per cent of net revenues in the fourth
tier. During the fifth and final tier, the royalty rate increases
to 35 per cent of net revenues.
"While there are still minor details to be resolved, this interim
agreement sets out the commercial terms for royalty determination
and is legally binding between the province and the proponents,"
Premier MacLellan said.
He said it is critical to have this agreement in place at this
time to allow the SOEP proponents to sanction the project before
the end of the year.
"Royalties are one aspect --but only one --of the benefits that
we will derive from the Sable project," said the premier. "With
our reduced delivery costs, our availability of gas, our laterals
to Halifax and Cape Breton, and training that will be available
for Nova Scotians, it all adds up to the beginning of a whole new
economic era for people of this province."
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Contact: Maurice MacDonald
Petroleum Directorate
902-424-4426
E-mail:macdonmf@gov.ns.ca
ngr Dec. 16, 1997 3:20 p.m.
