Saskatchewan Gains Momentum
Behind its plain, prairie wrapping, Saskatchewan is the second largest crude oil producer in Canada, pumping out approximately 20 per cent of national production, as well as the third largest natural gas producer in the country
Saskatchewan is Canada’s Rodney Dangerfield—”it don’t get no respect.” But just like the late, great comedian, Saskatchewan has more dough than you’d think.
A growing portion of Saskatchewan’s revenues—11 per cent, or just under $1 billion in fiscal 2004/05—spring from oil and gas royalties and leases. Oil field investment alone brought in $1.4 billion in 2004, and industry activity has jumped due to soaring commodity prices that have all of the Western Canadian Sedimentary Basin in a drilling and producing frenzy.
Saskatchewan’s hot, even under the shadow cast by its sister province, Alberta. As the oil and gas capital of Canada and oil sands queen of the universe, Alberta’s reputation could have been a thorn in its neighbouring province’s side while it enjoyed a renaissance in its oil and gas industry. Fortunately for Saskatchewan, a business-friendly government, technological advances, and historically high commodity prices are promoting strong activity in its oil patch. Experts, and the more-than-300 companies active in the province, predict the upward swing will continue.
Background
Soft commodity prices, expensive-to-produce heavy oil, and discouraging royalty regimes played a part in dampening Saskatchewan’s oil patch through to the mid-1980s. Since then, deregulation of the natural gas market and efforts to bring oil and gas regulations more in line with other western Canadian jurisdictions opened doors to new investment.
In early 2005, the province introduced a new royalty system for enhanced oil recovery projects which have injected new life into Saskatchewan’s aging oil fields. The updated regime now collects minimum pre-payout Crown royalties of one per cent, and zero freehold production tax rates. Once the investment payout is reached, Crown royalties increase to 20 per cent of operating revenue, and taxes to eight per cent.
The incentive is similar to Alberta’s tar sands regime, and allows operators to recoup their large initial investments, says Myron Sereda, acting assistant deputy minister (petroleum and natural gas) with Saskatchewan Industry and Resources Department.
Drilling incentives for higher-cost wells, like horizontal or deep oil wells, were adjusted in 2002, with maximum royalty rates of 2.5 per cent and a tax rate of zero per cent of gross revenue on specific initial volumes on new wells. This adjustment was combined with a fourth-tier royalty system for all oil and gas development instituted in 2002, and was another example of Saskatchewan modernizing its regulatory approach.
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