Background
For most of the changes pursued under this legislative initiative, proposed amendments were already laid out in the Engagement Paper that sparked the conversation.
Significant discoveries were a notable exception.
For this priority area, the GNWT laid out a series of issues and a variety of options in its Engagement Paper rather than any defined recommendations to open the conversation.
The discussion focused on Significant Discovery Licences (SDLs) and Significant Discovery Declarations (SDDs) — the two tools by which a significant discovery of petroleum in the NWT is defined and administered by the GNWT.
The Significant Discovery Process
To understand the changes which are being proposed, it is important to understand the significant discovery process as it sits today.
If an interest holder believes that it has made a “significant discovery” — meaning a discovery of enough petroleum in its interest to potentially allow for sustained production – that interest holder can apply to the Regulator for a SDD under section 27 of the PRA.
The Regulator will consider the application. If satisfied that a significant discovery has been made, the Regulator will make a SDD describing the land to which the declaration applies. SDDs remain in force until the results of future drilling demonstrate that the discovery no longer meets the definition of a “significant discovery” under the PRA.
The area of land covered by the SDD is called the “significant discovery area” (SDA). Over the years, the potential size of an SDA has increased due to advances in technology, particularly the use of modern techniques such as horizontal drilling.
Before the Regulator makes a decision on whether to issue the SDD, section 28 of the PRA requires the Regulator to notify all Directly Affected Persons who may be affected by that decision. The Directly Affected Persons, who are generally neighboring interest holders, can then ask to have the SDD apply to their interest as well.
This process can lead to an already large SDA extending onto Directly Affected Persons lands and Territorial reserve lands. Furthermore, it can allow a Directly Affected Person interest holder to obtain a SDL without having explored or drilled for petroleum on the lands covered by that SDL.
Once the SDD is made and the SDA is established, interest holders that have an interest included in the SDA can apply for a SDL pursuant to section 30 of the PRA. That application would be reviewed by the Minister of Industry, Tourism and Investment and granted if they felt the application met the criteria. A SDL gives the same interests as an exploration licence, but the SDL holder retains the ability to explore and develop the resource for as long as the SDD remains in force without any obligation to undertake any work to advance towards production.
The SDL term is effectively indefinite. In principle, the term of a SDL may be limited if the SDD is amended or revoked, the SDL is converted to a production licence, or by way of a “drilling order.” A drilling order is an extraordinary measure in which the Minister may step in and force a company to drill or relinquish their interest if they do not comply.
Significant Discovery Licences
The Issue
The PRA allows interest holders to obtain SDLs providing exclusive interests to potentially large areas of petroleum lands for an indefinite period of time without any obligation to undertake any work to advance towards production.
The PRA also allows an interest holder to obtain a SDL without having explored or drilled for petroleum on the lands covered by that SDL
How is it being addressed?
Amendments are proposed to the PRA that would change the way SDLs are issued and maintained.
If these changes pass, every company would be required to fulfill the drilling requirement of an exploration licence before being eligible for a SDL. This would mean completing work requirements and submitting geological information to the GNWT before getting the licence and being able to hold that interest for a long period of time.
The mandatory fulfilling of these requirements extends to Directly Affected Persons — the companies that might have adjacent interests who may have once been able to declare a significant discovery based on the work of others. This means those companies would need to complete work, define a resource, and submit geological work of their own to the GNWT before getting the exclusive interest to hold that area for future petroleum development.
The terms have also been shortened on SDL to 15 years. The Minister will have the discretion to grant an extension to that should the Minister feel it is appropriate. Things the Minister could consider would be whether work is being undertaken or whether there is work planned in the future.
Rationale
These amendments would strike the right balance between recognizing the challenges of doing business in the NWT, while addressing the need for the GNWT to be responsible stewards of land and natural resources.
Setting a term limit will create a hard deadline for the Minister to make a decision on whether it is in the territory’s best interest to continue to grant the exclusive interest to develop that petroleum land to the interest holder.
These terms are set to 15 years because investing in petroleum exploration and development is a long-term investment with a lot of costs, complexity and regulatory requirements. This means rules need to recognize the need for stability in these long-term investments, and the time needed to meet regulatory requirements for a proposed development.
Ensuring that the drilling requirement of the exploration licence has been met before any SDL is granted means that companies will continue to add value for the NWT, including local economic activity and geological information, while reaching the point of receiving the SDL.
This means that companies will no longer be able to get SDLs simply because they have an interest next to someone else who makes a significant discovery.