Natural Resources Committee on Dec. 14th, 2010

[Paule Brunelle, Bloc, Trois-Rivières, QC]

You said that the members of your board, the BC Oil and Gas Commission, are appointed by Cabinet. Is the public represented on that board? Does the public have a seat?

[Eric Alexander Ferguson]

In any good corporate governance model, I would think the cabinet authorities or the cabinet assignments are done in the public interest. The board, like any board, has a responsibility to all the stakeholders in Canada, as opposed to one single shareholder. I think it's always a governance issue for any organization that's governed that way to understand the responsibilities to all the stakeholders and not just the one shareholder, or a shareholder.

We have many other ways for the public to give input to our processes. We are driven primarily by a piece of legislation and all the regulations under that, on which we consult widely with the public and the stakeholders. We also have the ability to strike advisory committees to advise the board on any kind of public interest matter that they wish to put before them in terms of changing how the commission is operated, but the board is the primary governance of the operation, not the statutory decision-makers that are there.

[Paule Brunelle, Bloc, Trois-Rivières, QC]

If I am a land owner and I sign a lease with a company, if I am unhappy for any reason or if I have any concerns, to whom would I address my complaint?

[Eric Alexander Ferguson]

In terms of a contractual arrangement, the one certain place for landowners to go to get their rights better expressed would be a court process, because it is a third party contractual arrangement. If there are issues between the operator and the landowner, we do offer to mediate and we find ourselves quite engaged in mediating. If there is a break in that agreement that leads to a regulatory issue for us, we will address that directly, but if it's related to a compensation discharge that wasn't done appropriately or something, depending on our relationship with the landowner and the operator, we often find ourselves engaged in an informal mediation role. We have quite a bit of influence on the industry in that regard.

[The Chair, Conservative, Leon Benoit]

Merci, Madame Brunelle.

Mr. Shelly and Ms. Tolmie-Thompson, we remember you're there. I'm sure someone will have some questions for you.

We go now to Mr. Cullen. I'm pretty sure he'll be the first one to do that.

Go ahead, Mr. Cullen.

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

I was going to ask Mr. Ferguson some questions first, but I am coming to you good folks in Alberta.

Mr. Ferguson, at the very end of his presentation we heard Mr. Shelly mention the need to maximize the economic opportunity from the resources in Alberta. Does the B.C. Oil and Gas Commission have that as their mandate? In the legislation that guides you or directs how you do leases or what you approve or don't approve, is there anything that directs you to maximize the economic opportunities for British Columbia?

[Eric Alexander Ferguson]

Thank you.

I would suggest it's more in the form of soft, indirect language related to an optimization, given all the other issues that we have in front of us.

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

I suppose there are competing interests whenever you sit on a commission.

[Eric Alexander Ferguson]

Yes.

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

I just wanted to go over your numbers again. In 2008, around $2 billion in leases, is that right?

[Eric Alexander Ferguson]

In land sales.

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

In land sales, and then in 2009, $893 million?

[Eric Alexander Ferguson]

Yes.

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

That's dramatic. Is that simply a reflection of prices?

[Eric Alexander Ferguson]

Certainly the big year was an interest in the shale gas basins that were up there. I do want to clarify that those land sales are done by the Ministry of Energy now, not by us as a commission.

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

Some boards are set up in such a way that people who sit on the board represent a certain perspective. They come from an industry perspective and that's the chair that they hold. The B.C. Oil and Gas Commission isn't set up that way, though. You have members appointed who are meant to hold all perspectives, is that the idea?

[Eric Alexander Ferguson]

It's not--

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

My question is you don't have anyone who sits there and says “I come from a first nations perspective and I hold that position so that we can have that perspective in our meetings”, or someone from an environment perspective--nothing like that, right?

[Eric Alexander Ferguson]

None that I know of, although we do have one board member who is a retired industry executive from a drilling company. I don't know if that would be an interest area. From my experience, I haven't seen him talk about an industry emphasis.

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

Does B.C. have an energy security strategy? Does that discussion happen in British Columbia? Do you have a mandate for that? Do you have a plan?

[Eric Alexander Ferguson]

As a regulator, no, we don't.

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

Now to our good folks in Alberta.

Mr. Shelly, this is a very interesting presentation, by the way, in terms of looking at the actual value of bitumen when you get it out of the ground: how much is actually achieved through mining, and how much is achieved through upgrading.

To go over your numbers, on two million barrels a day, you have $25 billion for the actual bitumen mining, but twice that for the synthetic crude production, and then three times that amount for the petrochemicals production. Is that correct? Am I hearing those numbers right?

[Neil Shelly]

That's correct.

One of the differences between bitumen and synthetic crude oil is called the light-heavy differential, and this number actually bounces around quite a bit on market factors. The numbers you see there were done back in about 2008 based upon market prices. Since then the differential has narrowed down, but it's widening back out again, so these numbers depend upon market factors that are there. The doubling is based upon about a 50% difference in heavy and light prices. Right now we're sitting at about 30%, so you can sort of factor that in there.

The $25 billion in petrochemicals was based upon three different studies we've done in conjunction with the Government of Alberta that said if we now take these byproducts and move them up the chain, what will the net value be? They identified a number of different opportunities. There would be feedstock advantage, and the consultants' estimates were that the value of these petrochemicals would be $25 billion annually.

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

So these studies, and you mentioned another one that was supported by both the provincial and federal government.... We've invested taxpayer money to understand what the value could be in upgrading bitumen, yet it seems that the same governments, both provincially and federally, are also promoting a policy that says export it before any of those values can be achieved, before the money can be made for the people of Alberta, for the people of Canada.

It seems contradictory on the surface for a government to support studies that say here's all the value we can get, and at the same time, in the same breath, say we'd like to export it raw anyways.

[Neil Shelly]

If you look back to the map that Ms. Tolmie-Thompson provided with all the land holdings, it goes back to what we call the gold rush days back in our areas, where we were cost-advantaged and all this was going to happen. Because of a number of different factors—the rising Canadian dollar, inflationary costs, and whatever—a lot of companies are proposing to go to the United States. I think the will is there when you talk to a lot of people. It's almost like motherhood and apple pie that we advance this up the chain.

The question is, how do you do it now? It forms a balance between not scaring away investors in the actual extraction of the resource, and yet making us more competitive here. We've been on fact-finding missions to Louisiana and Houston, and we've seen some of the incentives they have in place there. An accelerated capital cost allowance for refinery upgrades is in place in the United States, which gives them an advantage. There's a lot of infrastructure in the United States that's considered public infrastructure that directly helps the industry in that area.

As I said, I wish there was a silver bullet answer that if you just do this, we'll get to retain the value. Now that we've identified the size of the prize, the next challenge is to look at what practical policy options can be put into place to make sure that we gain this maximum value.