Sizing up BC's LNG opportunities

Jonathan Drance and Cameron Anderson -

The recent provincial budget in British Columbia included a basic framework for taxes and royalties on the liquefaction of natural gas at LNG facilities in the province. Although the specifics of the LNG tax have not yet been announced, in connection with the budget the province recently released an “Analysis of the competitiveness of BC’s proposed fiscal framework for LNG projects” prepared by Ernst & Young for the Ministry of Natural Gas Development.

It is interesting to compare the hypothetical set of assumptions set out in the E&Y Analysis regarding the intensity of development which the province is assuming compared to the historical growth in other countries such as Qatar and Australia.

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IESO launches phase 1 of energy storage procurement

Glenn Zacher & Micheal Nilevsky -

On March 12, 2014, the IESO issued an RFP to procure 35 MW of energy storage resources.  This procurement follows on the commitment made by the government in the long-term energy plan and the Minister of Energy’s more recent request to the IESO and the OPA. The Minister requested that the IESO and OPA design a process to procure 50 MW of energy storage by the end of 2014 and conduct an independent study assessing the value of energy storage for Ontario as well as review the regulatory barriers to storage’s participation in the Ontario electricity market. 

The IESO and the OPA collaborated in designing a framework for the procurement of 50 MW of storage, which they submitted to the Minister at the end of January.  The recent RFP relates to Phase I which will be led by the IESO and which will seek to procure up to 35 MW of regulation service and/or reactive support and voltage control from grid energy storage facility operators.  Phase II will be launched later this year and will procure the balance of the 50 MW. This second phase will be led by the OPA and will focus on meeting future capacity needs and may include considerations for remote communities. 

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Ontario Large Renewables Procurement Update

Matt Cameron & Karl Bjurstrom -

At the first day of Ontario’s 5th Feed-in-Tariff and Renewable Energy Forum on March 17th, 2014, Shawn Cronkwright, the Ontario Power Authority’s director of renewables procurement, presented capacity targets for large renewables by technology for the years 2014 and 2015:

 

Wind

Solar

Bioenergy

Hydro

2014

300 MW

140 MW

50 MW

50 MW

2015

300 MW

140 MW

50 MW

45 MW

In reviewing key feedback from municipal meetings, to avoid multiple developers simultaneously engaging in projects which may never proceed, it was suggested that community engagement be moved to the Request-for-Proposal (RFP) stage as opposed to the Request-for-Quote (RFQ) stage. As an alternative, feedback suggested that a municipal support resolution similar to the FIT program be applied and that developers be required to prepare community engagement plans. With respect to the RFP, feedback from municipal meetings suggested that decommissioning bonds be required to ensure municipalities not be left with costs at the end of a contract.

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Yield-based investments more attractive

Douglas Richardson and Julie D’Avignon -

The proposed introduction of an anti-treaty shopping rule in Canada would impact non-residents looking to invest in the Canadian oil and gas industry in order to obtain capital appreciation. For this and other reasons, yield-based products could become more attractive to non-residents and, particularly, U.S. residents. For instance, non-residents dealing at arm’s length with a Canadian corporation can generally capitalize the corporation with high yield debt without being subject to any debt:equity restrictions or Canadian withholding taxes. Consequently, in these circumstances, the Canadian corporation can be leveraged beyond the 1.5:1 debt:equity ratio and non-participating interest payments made to non-resident investors would be deductible by the Canadian corporation and received by such investors without the incidence of Canadian withholding tax. 

2013 Oil and Gas M&A Year in Review - Themes and Deal Points

Chip Johnston, Andrew D. Wong, Brad Ashkin, Kevin Guenther, Brandon Leitch and Alisha Bhanji -

 Recently, our firm’s Calgary office completed a review of M&A themes and deal terms in the oil and gas sector for 2013. This study contains a list of oil and gas M&A transactions over the last year, a review of key trends in deal terms, a summary of notable features of each transaction, an analysis of the timelines and a numerical analysis of key deal terms.

 
A few key themes emerged from our review:

The year started slowly with nine deals announced in H1. The market announced 10 deals in H2, trailing the equity uptick that occurred in the last half of the year by some distance. This made for a long 12 months for public equity holders, management, employees and advisors. The landscape in 2013 was dominated by privatizations, financial buyers, service deals and very small transactions. Domestic and international strategic buyers were absent from the market and were responsible for the dramatic decline in activity. The highlights were colourful, but somewhat downbeat.

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Ostrander Point Wind Project gets Green Light from Ontario Divisional Court

Patrick Duffy and  David Spence -

On February 20, 2014 the Divisional Court released its decision in Ostrander Point GP Inc. v. Prince Edward County Field Naturalists. The case concerned three appeals from a decision of the Environmental Review Tribunal (Tribunal). The Tribunal’s decision addressed an appeal of the Ministry of the Environment’s (MOE) decision to grant a Renewable Energy Approval (REA) to Ostrander Point GP Inc. (Ostrander) to construct nine wind turbines (the Project) on a site known as Ostrander Point, about fifteen kilometres south of Picton, Ontario. The Tribunal allowed the appeal and decided to revoke the REA, agreeing with the Prince Edward County Field of Naturalists’ (PECFN) position that the Project would seriously and irreversibly harm a species of turtle called the Blanding’s turtle.

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Obama's Climate Change Policy Presented

P. Jason Kroft and J.B. Elliott -

During President Obama’s State of the Union address on January 28th, he made his intentions clear that he would use his authority to continue to push forward new standards and regulations that would curb the amount carbon pollution US power plants are allowed to dump into the air. Further still, Obama stated that the United States must “act with more urgency” citing continuing climate changes which have seen droughts and floods affect North American cities in recent years.  Canadians must watch these developments for potential implications for business.

In furtherance of these positions, Obama has directed the EPA to issue a draft of a regulation that would set new national standards for carbon pollution by June 1st of this year. It appears the brunt of these changes will target coal-fired power plants, likely forcing hundreds of plant closures throughout the country, and, as such, coal-heavy states have lobbied the EPA extensively with respect to the stringency of the standards to be set in the impending regulation.

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BC LNG - Even No News, is News

Rachel V. Hutton -

While expectations remain high as to the magnitude and profitability of anticipated BC LNG projects, the “who”, “how” and “where” of BC’s nascent liquid natural gas industry are being replaced with one question: “when”? A series of announcements over the past year from the BC government appear to constitute delays in the establishment of the taxation framework for the BC LNG industry.

The current tension lies between industry players who won’t commit until they know the LNG tax regime, and BC government’s challenge of establishing a tax regime that meets political expectations and pleases LNG developers who can shop for plants internationally.

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Alberta and China enter into a Cooperation Agreement

Shawn Smith and Jeff Hershenfield -

In the fourth quarter of 2013, the province of Alberta and China entered into a non-binding cooperation agreement to increase energy trade between the respective jurisdictions. The agreement explicitly acknowledges Alberta’s major role in global resource development and China’s growing need for a reliable, competitive and sustainable supply of energy.

The agreement sets forth five guiding principles intended to facilitate its successful implementation. These include:

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2014 will be a very busy year for Quebec's energy sector

Erik Richer La Flèche -

As I discussed in an earlier post, Quebec’s Minister of Natural Resources struck a committee and issued a consultation paper last summer as part of a process expected to result with a new energy policy for Quebec. The public consultation process was completed last October and the commission’s report is expected in early 2014. Barring any early elections, a new policy should be released later in 2014.

As outlined in my previous post, the government’s objectives are ambitious and require significant capital. While it is highly unlikely that any policy objective would be dropped by the current government, it will be interesting to see the priority and the resource allocation assigned to each objective.

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