Natural Resources Committee on Nov. 23rd, 2010

[Richard Dunn]

No, the wells at this point are looked at on an individual well or pad basis together. Where the cumulative effects assessments are done, for example, up in the Horn River, is in the land use planning exercises. So rather than an individual permit, you'd look at bearing the accountability for a cumulative impact assessment through land use planning.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

Is that sufficient? I've been involved in some of those land use planning efforts. They don't have anywhere near the scientific effort that an environmental assessment has.

Would it be outside the realm of common thinking to look at individual wells when trying to understand the environmental impacts on, say, the amount of water taken out of a system or the amount of chemicals introduced into a watershed?

Would it not make logical sense to the public, and to you as an industry, to say that we have to take the assessment of the full 100 wells? If we place and lease another 100 wells on top, and another 100 wells on top of that, they're not existing individually. That's insane. They're existing together, and the impact is together.

Is that not true?

[Richard Dunn]

That's a very fair comment. I'd take back one point, sir, that I'd initially think about, and that is the need for competitiveness to keep the industry viable. It would not make sense to do a cumulative effects assessment.

It would be efficient to do it on a well-by-well basis, but what we do support—be it through a land use planning exercise or some sort of an area cumulative effects assessment—is working with the government to understand the industry plans and looking at what those plans will have on a cumulative impact assessment.

One area that I'd like to bring forward is the work that we're doing up in the Horn River shale basin, where we're looking at a five- to ten-year development plan and working with the provincial government on how those plans could be integrated with concerns around species at risk. The cumulative effects of those plans can be integrated into mitigating those effects on species at risk, including the caribou in the area.

That's a very effective way of not burdening individual projects but still getting to the need to assess cumulative effects assessments.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Dunn and Mr. Cullen.

We go now to Mr. Harris for up to seven minutes.

[Dick Harris, Conservative, Cariboo—Prince George, BC]

Thank you, Mr. Chair. Welcome, gentlemen.

My first question would be to Mr. Dunn. I'm curious about the market and the competitiveness of our Canadian shale gas versus the U.S. supply. You mentioned things like price and distribution. What areas of competition with U.S.-produced shale gas would concern you in regard to, say, the tax treatment in the U.S. that you brought up versus anything the federal government has to offer? What would you be looking for?

You talked about a robust regulatory regime for you to operate in. Are there things we can do in Canada to ensure the competitiveness of our Canadian resources?

[Richard Dunn]

Thank you. I appreciate the question.

With regard to the details on the tax, in the United States the developers are given an immediate writeoff of their expenses against their taxes--

[Dick Harris, Conservative, Cariboo—Prince George, BC]

Is that their capital cost allowance, equipment and stuff?

[Richard Dunn]

That's correct. It's effectively a capital cost allowance. They're enabled with a 100% writeoff in the first year against taxable income.

In Canada, historically, for development expenses, it's been a 30% declining balance, so it can take somewhere between five to seven years to get that same level of writeoff against the taxes. In an industry where cashflow is critical at this point in time, this 100% writeoff provides a significant advantage to the competitiveness of the U.S. shale plays.

What we are advocating through the Canadian Association of Petroleum Producers is effectively the same. At this point in time, when the industry is so competitively challenged, we're advocating the same tax treatment that's been afforded to the manufacturers in Canada over the last five years, which is effectively a two-year straight-line writeoff, 50% a year. So it's not quite what the U.S. gives, but again, it would provide a significant advantage over what Canadian tax regulations currently provide.

[Dick Harris, Conservative, Cariboo—Prince George, BC]

When your company embarked upon the recovery of shale gas, was the competitive environment different at that time, or was the success of what you're doing contingent on the federal government coming on with tax incentives, etc.?

[Richard Dunn]

That's an excellent question. With the emergence of shale gas in the last few years, the price of natural gas has dropped by approximately 50% to 60%. When we embarked on work in the Horn River Basin, for example, gas would have been valued at somewhere between $7 and $8 per 1,000 cubic feet, mcf, if you will. Today that same gas sells for $3.50 to $4 per mcf, a 50% drop in the commodity price. This drop in commodity price has really put the Canadian industry under severe competitive challenges. As the commodity price goes down, every nickel becomes that much more important. The inherent disadvantages that we have in terms of operating in a cold weather environment, as well as the increased distance to transport gas to market, and the increased costs associated with that, really make it critical that we all pull together and do whatever we can to keep the industry viable at this point in time. Certainly this CAPP tax proposal is a very important bridging opportunity to keep the industry viable in these tough competitive times.

[Dick Harris, Conservative, Cariboo—Prince George, BC]

Thank you very much, Mr. Dunn. I appreciate your comments.

Mr. D'Iorio, I'm a little confused about slide 8 in your deck. The first point, on the regulation of onshore oil and gas and so on, falls primarily under the provincial jurisdiction. I understand that statement, but then you go on to name a number of different federal government departments that would play a role in this, and it looks as though the word “primarily” is perhaps not used properly there. Just how big a role do those federal government departments that you named play in a primarily provincial jurisdiction situation?

[The Chair, Conservative, Leon Benoit]

Mr. D'Iorio, could we have a brief answer, please?

[Marc D'Iorio]

Yes.

Thank you for the question. Rapidly, primarily, you have to look at the balance of the number of cases in which the provision of these acts would actually be triggered, and there are very few of them. Typically, for example, under the Fisheries Act or the Canadian Environmental Protection Act, there are very specific conditions that would trigger these things, so they're not triggered very often. For example, environmental assessments can be triggered by the Fisheries Act and then the Species at Risk Act and the Migratory Birds Convention Act can be brought into play.

[Dick Harris, Conservative, Cariboo—Prince George, BC]

Okay. Let me ask you a quick specific question, if I may.

[The Chair, Conservative, Leon Benoit]

Be very brief, Mr. Harris, please.

[Dick Harris, Conservative, Cariboo—Prince George, BC]

Say in a province that had a moratorium on oil and gas drilling there was an initiative by a first nations group that wanted to proceed with oil and natural gas exploration notwithstanding the moratorium. Would the federal government likely be involved in protecting any rights of that group to do that?

[Marc D'Iorio]

I'm really not an expert in this area. I do not know the answer to that, but we could find the answer to that if you want.

[Dick Harris, Conservative, Cariboo—Prince George, BC]

All right. Thank you.

[The Chair, Conservative, Leon Benoit]

Thank you.

Thank you, Mr. Harris.

The witnesses are free to leave. I just want to thank Mr. Dunn very much for being here by video conference, and I thank the members from the department, Mr. Lavoie, Mr. Boerner, and Mr. D'Iorio.

Mr. Cullen has an issue. He said it would take two minutes, and I promised him that two minutes.

Go ahead, please, Mr. Cullen.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

Sure. Does this need to be in camera? I'm unsure.

[The Chair, Conservative, Leon Benoit]

Is this going to take two minutes? It will take longer than that to go in camera.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

Okay. Committee members have the motion in front of them. This is with regard to the export of steam generated by Bruce Power. We submitted this within the appropriate timeline. Here's the question.

There's a timeline consideration for committee, and this is why we move this motion. The CNSC has held, I believe, two public hearings--Cheryl will know this--on the transport of waste out of Bruce Power?

[A voice]

It was one in two days.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

It was one hearing in two days. Excuse me.

Their decision is actually now coming up, and this committee hasn't reviewed this at all. The reason we're putting this forward is there isn't a policy framework regarding the shipment. Canada has never done this before. The waste needs to be shipped past places where many millions of people live--down the Great Lakes and out through the St. Lawrence.

I think it bears witness...and I think CNSC will be interested in coming before us, as well as some of the other folks we mentioned here, because one hearing over two days probably isn't sufficient when there is no policy framework for Canada at all. If the government has developed one or is developing one, this would be helpful, but I think it would also be helpful to hear from people who are feeling the impact of this.

So I put this forward to the committee to take a look at. December 8 is the date on which the CNSC is expected--unless they delay again--to issue a statement about whether the policy framework that exists or doesn't exist is sufficient for protecting Canadians' health.

[The Chair, Conservative, Leon Benoit]

I understand that you just want to get a quick feel for what the committee wants to do.