NDP leadership candidate Erin Weir is proposing to collect a fair return from the province’s oil and uranium by closing loopholes that allow corporations to avoid paying royalties.
“The people of Saskatchewan can collect more than half a billion dollars of additional revenue by closing loopholes in the oil royalty system without changing royalty rates,” said Weir. “Specifically, I would remove horizontal drilling incentives, the special deal for enhanced oil recovery, and the Saskatchewan Resource Credit giveaway.”
The provincial government introduced incentives for horizontal drilling in the 1980s, when it was a new technique. Companies still pay virtually no royalties on the first 38,000 barrels of oil extracted from any horizontal well. Enhanced oil recovery projects similarly pay almost no royalties until all investment has been paid off.
“Horizontal drilling is now so well established that it accounts for a majority of wells drilled in Saskatchewan. The incentive is no longer needed,” said Weir. “Our policy goal should not be to deplete Saskatchewan’s finite oil reserves and emit greenhouse gas as quickly as possible by subsidizing drilling,”
Currently, the provincial government collects royalty revenue equal to only 12% of the value of oil extracted from Saskatchewan. By closing loopholes, we could collect at least 20%, which is still well below official royalty rates. Even assuming a somewhat slower pace of oil extraction and lower Crown land sales, a 20% return would mean $645 million more provincial revenue. Because royalties are deductible in calculating corporate taxes, this additional revenue would come partly at the expense of federal revenues.
The most recent edition of the Canadian Association of Petroleum Producers’ Statistical Handbook (2010) reports that companies extracted $11.1 billion of oil and gas spent $6.5 billion on exploration, development and operations, and paid $1.8 billion of royalties in Saskatchewan.
“The industry’s own figures indicate that it made $2.8 billion more in Saskatchewan than was required to immediately pay off all its investments,” said Weir. “The royalty return I propose is modest compared to company profits and compared to the returns collected by the Blakeney and Devine governments.”
Former Premier Blakeney’s memoirs acknowledge Weir for researching the oil and gas chapter. He has consistently advocated a better royalty return since writing Saskatchewan’s Oil and Gas Royalties: A Critical Appraisal, published by the Saskatchewan Institute of Public Policy in 2002.
Weir’s proposal to remove the Saskatchewan Resource Credit is included in the above figures for oil and would collect a further $10 million from uranium (1% of a billion dollars of annual uranium sales). He is also calling for an end to the Sask. Party’s behind-closed-doors “review” of uranium royalties.
“Saskatchewan people have seen this movie before. We don’t need a giveaway to the uranium companies like we have had to the potash and oil companies,” said Anne Smart, the former MLA for Saskatoon Centre. “One of the reasons I support Erin for Saskatchewan NDP Leader is his longstanding commitment to collecting a better public return from our non-renewable resources.”