Thursday, 17 May 2012

Highlights from shale gas discussion paper

FREDERICTON – A discussion paper containing 116 recommendations for the environmental management of New Brunswick's oil and natural gas industry was released today. The recommendations include proposals to augment the province's existing regulatory framework.

“The proposals contained in this discussion paper would make our existing regulations even stronger and would ensure we are prepared if the industry expands in our province,” said Natural Resources Minister Bruce Northrup. “...we look forward to receiving constructive feedback on these recommendations from New Brunswickers.”

The discussion paper, entitled Responsible Environmental Management of Oil and Gas Activities in New Brunswick, is organized according to a set of 12 principles announced by the provincial government late last year. The principles address a full range of oil and gas activities from exploration to well abandonment.

A second discussion paper was also released related to the sharing of financial benefits associated with the potential development of the natural gas industry.

Northrup also announced plans for legislative changes affecting the province's royalty regime and penalties for violations of the Oil and Natural Gas Act.

The measures in the plan for Responsible Environmental Management of Oil and Gas Activities in New Brunswick focus on:

●    protecting water and the environment; and
●    protecting communities and landowners.

The provincial government will receive comments on the discussion papers until July 18. You can share your views online at: http://www2.gnb.ca/content/gnb/en/corporate/promo/natural_gas_from_shale/consultation.html

Details of a related citizen engagement tour planned for June will be announced in the coming weeks. Up to 10 public meetings are expected to be arranged around the province for community feedback.The locations will be publicized on the province's natural gas website at:
www.gnb.ca/naturalgas

Following are highlights of the discussion paper. Its full content can be viewed online at: http://www2.gnb.ca/content/gnb/en/corporate/promo/natural_gas_from_shale/consultation.html

Protecting and managing water

Proposed measures include:

●    mandatory pre-seismic well water testing, which was first announced June 23, 2011, and post-seismic water well testing;
●    mandatory pre-drilling well water testing, also announced June 23, 2011, and post-drilling well water testing;
●    appropriate set-backs between oil and gas facilities and water supplies, wetlands, and watercourses;
●    establishing surface water and groundwater monitoring requirements;
●    establishing requirements for monitoring of petroleum wells for leaks, corrosion or deterioration;
●    establishment of a hierarchy of preferred water sources for hydraulic fracturing. For example, use of recycled waste water must be considered first;
●    mandatory assessments of proposed water sources that consider the needs of other water users, including ecological needs;
●    water use reporting by the operators of oil and gas activities; and
●    strategic water use planning.

Oil and gas well integrity and waste management

Proposed measures include:

●    enhanced casing and cementing standards for oil and gas wells;
●    assessment of geological containment prior to hydraulic fracturing;
●    pressure testing of equipment prior to hydraulic fracturing;
●    mandatory waste management plans that will require the chemical analysis of all wastes and approval of disposal locations before wastes leave the site;
●    requiring the use of "closed loop" (no open pits) systems for handling drill fluid, and the use of closed containers for receiving backflow water;
●    requiring petroleum operators to follow waste management guidelines that address such issues as flowback water and naturally occurring radioactive materials;
●    requiring petroleum operators to implement measures to prevent spills and leaks, and ensure notification and response protocols are in place should spills and leaks occur;
●    imposing chemical management requirements for fracture fluids and other chemicals; and
●    setting standards for storage tanks and containers, including mandatory leak detection systems and secondary containment.

In addition to the above measures, the discussion document contains recommendations for addressing a variety of issues, including air emissions, noise and visual impact, and emergency planning. The document re-affirms the provincial government's commitment to having companies publicly disclose the contents of fluids used in hydraulic fracturing and enhancing public access to information about oil and gas activities.

Revenue sharing discussion paper

Northrup also released for public comment the discussion paper on sharing financial benefits associated with the development of the natural gas industry.

“On June 23, 2011, we announced our intention to develop a program to share the royalties from natural gas activities with landowners who host a producing well on their property as well as with nearby communities,” said Northrup. “Under our proposed program, a property owner would receive one half of one per cent of the royalty on natural gas collected by the province. As well, a total of two per cent of the royalty collected by the province will be shared with municipalities and local service districts within a 25-kilometre radius of the centre of a producing well pad. This funding will be available to support infrastructure projects.”

Comments on the proposed revenue sharing program should be submitted by July 18. The citizen engagement tour planned for June will also receive comments on the revenue-sharing discussion paper.

Royalty regime

The provincial government would maintain its current royalty rate for natural gas at 10 per cent, as a minimum, but would introduce an economic profit royalty of 40 per cent of the profit from a resource investment.

“The current 10 per cent royalty ensures a minimum payment to the province but, on its own, does not capture the true value of the resource as prices increase,” said Northrup. “Adding an economic profit component ensures that the province would maximize revenue as prices increase or as projects mature.”

The basic royalty component of 10 per cent for natural gas is based on the actual selling price or fair market value at the time and place of production, less deductions. Deductions include processing costs to make the gas transportable and the costs of transporting the gas to the consumer markets. The deductions are unchanged.

For the economic profit royalty component, the allowable costs will include the gas field processing costs, transportation costs, capital costs, an overhead allowance and an accepted investment allowance.

Stronger penalties

Northrup said he will be introducing legislative changes to increase penalties that can be levied against a company that violates the Oil and Natural Gas Act.

According to existing legislation, fines of between $640 and $10,400 are applicable for most violations. The maximum penalty under the proposed changes would be $1 million.

As well, the Department of Natural Resources would be empowered to impose the penalties. At present, a charge must be laid in provincial court and penalties imposed by a judge.

Northrup said the legislative changes pertaining to the imposition of penalties and changes to the royalty regime will be made in the fall session of the legislature.