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Saskatchewan Beefs Up EOR Incentives

[Daily News] After earlier dropping hints that relief for enhanced oil recovery (EOR) operators might be on the way, Saskatchewan Premier Lorne Calvert has announced tax and royalty changes among other measures to boost the amount of oil produced in the province through EOR.
The changes include a simplified tax and royalty structure, a renewed and improved Saskatchewan Petroleum Research Incentive Program (SPRI) and provincial sales and fuel tax exemptions on materials injected into oil-bearing formations for EOR. The changes reflect discussions with industry on steps that could be taken to expand Saskatchewan's EOR production.

Calvert announced the changes, which take effect April 1, from the province's Petroleum Technology Research Centre in Regina. According to a prepared statement, the province said the incentives were developed by the Industry and Resources department jointly with the Canadian Association of Petroleum Producers (CAPP).

A new and simpler tax and royalty regime for EOR brings it into line with lower rates currently in place for EOR projects involving carbon dioxide (CO2) injection, the government said. The revised structure will apply to all new and expanded EOR projects, as well as any possible future oilsands and oil shale projects.

In an interview with Nickle's Daily Oil Bulletin, Bruce Wilson, assistant deputy minister for the province's Petroleum and Natural Gas Division, said Saskatchewan currently has two royalty structures for EOR, each with slightly differing royalty rates. The new regime will replace these with a single regime, in which companies will pay a royalty of one per cent of gross revenue before project payout, rising to 20% of net operating revenue after payout.

"It's very similar to what exists in Alberta for high-cost (oilsands) projects," he said.

In addition, provincial staff estimated that renewal of the province's SPRI program for another five fiscal years would provide an estimated $30 million worth of tax and royalty credits on new small-scale EOR pilot projects. All pilot EOR projects will be eligible for SPRI.

The province said sales tax and fuel tax exemptions on propane, butane and other chemicals injected into oil reservoirs to increase recovery bring those substances into line with the tax exemption already in place for carbon dioxide used in EOR projects.

Wilson said the province's list of substances is not, however, exhaustive, and could include injectants other than butane and propane. If used in recognized EOR projects, such substances might also be exempt from the provincial sales tax and the provincial fuel tax under the new rules.

Many of Saskatchewan's oil pools, discovered in the early 1950s, are fast maturing. Based on an average recovery rate of 15%, the province's initial established reserves are about 5.2 billion bbls, of which about four billion bbls have been produced to date. If the average oil recovery rate for the province increased by only five per cent, to 20%, provincial staff said, it would more than double the province's current remaining recoverable oil reserves, to about 1.2 billion bbls.

Industry and Resources staff also estimated that roughly nine per cent of Saskatchewan's crude oil production currently comes from recognized EOR projects, most in heavy oil regions, using thermal techniques to improve recover rates. In addition, a major EOR project has been under way for some time in the Weyburn oil pool, with another announced for the Midale pool in southeastern Saskatchewan.
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