Saskatchewan unveils world's first commercial-scale carbon capture & storage project

P. Jason Kroft and Tamir Birk -
 

On October 2, 2014, SaskPower unveiled the world’s first commercial-scale carbon capture & storage (CCS) project at its Saskatchewan Boundary Dam facility. The project is expected to reduce emissions by one million tonnes of CO2 per year, the equivalent of taking 250,000 cars off the road. Some of the carbon released by the plant will be liquefied and sold to oil companies to help extract more crude from the ground (known as enhanced oil recovery), while captured sulphur dioxide will be sold for industrial use. The remaining CO2 will be injected through a steel pipeline more than 3km underground where it is to be stored permanently. Of the $1.4 billion spent to retrofit the Boundary Dam facility, the federal government provided $240 million.

Proponents of carbon capture and storage cite the approximate 7,000 coal-fired turbines worldwide that provide much of the planet with reliable electricity. Since world electricity demand requires these facilities to operate well into the foreseeable future, investments in CCS technology can significantly help reduce the harmful impacts they have on the environment. Ian Yeates, Vice President – Carbon Capture & Storage Initiatives at SaskPower, for example, stated that “we are going to be burning fossil fuels as a world economy for many many decades if not a century or two as energy demands grow…[and as such] something like carbon capture and sequestration will be of value to deal with that.” Undoubtedly, CCS technology has the potential to help governments and project managers meet increasingly burdensome regulatory environments and developing climate change legislation. Yeates and others believe that the unveiling of the CCS project at the Boundary Dam facility may pave the way for others around the world to explore CCS technology and implement it into their operations. Indeed, strengthening environmental regulations and rising carbon prices will help justify steep investments in CCS technology.

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Key developments in Canadian public markets law for the oil & gas industry - third quarter 2014

Alisha Bhanji, Keith Chatwin, Ben Hudy, Brad Squibb and Chip Johnston -

The last few months have seen a number of regulatory developments in Canadian capital markets that may specifically affect companies in the oil and gas industry. Below, we’ve compiled a list of key legal developments since July 1, 2014 that may be of particular interest, along with corresponding links to our securities blog.

Capital Markets

  • TSXV approves the completion of three oil and gas team-led recapitalizations of shells by written consent of a majority of shareholders (five in total since December 2013).
     
  • TSX circuit-breaker rules are expanded to all actively traded stocks (more than 500 trades a day and average $1.2M in value per day).

Continuous Disclosure

  • Canadian regulators adopt rules for the disclosure of gender diversity and other board composition issues by non-venture issuers. These requirements apply in the 2015 disclosure cycle.
     
  • Canadian regulators announce the outcome of the joint continuous disclosure review of more than two hundred issuers — key issues included revenue recognition in financial statements and non-GAAP measures in MD&A.
     
  • TSX publishes Electronic Communications Disclosure Guidelines and provides guidanceon using social media — confirms the importance of factual statements that avoid selection disclosure. 
     
  • Amendments to the rules governing auditor oversight provide for disclosure of CPAB remedial orders, certain changes to rules involving foreign audit firms and other procedural matters.
     
  • The ASC decision in Haggerty confirms that an “impression, speculation or abstract possibility” does not constitute material information.
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Federal Government introduces legislation to mandate disclosure of payments by extractive industry participants

Keith Chatwin and  Ivan T. Grbešić -

The Government of Canada yesterday introduced legislation to implement the Extractive Sector Transparency Measures Act, following through on the announcement by Prime Minister Stephen Harper in June 2013 that Canada would be establishing new mandatory reporting standards for extractive companies directed at payments made to foreign and domestic governments at all levels, including Aboriginal groups. The Government of Canada has stated that the legislation is intended to be similar to that being implemented in the European Union, and is anticipated to be similar to that expected to be proposed by the United States Securities and Exchange Commission by March 2015.

It is also intended that the Canadian legislation be implemented in a manner that allows for reporting requirements that are uniform across these jurisdictions so as to reduce associated administrative costs for affected companies.

Given that the United States has thus far not introduced comparable legislation, it will be interesting to monitor whether the ultimate orientation and implementation of the Canadian legislation is modified to align with the initiative south of the border. While the SEC introduced a rule under Section 1504 of the Dodd-Frank Act in 2012 to require disclosure of payments by resource extraction issuers, the U.S. District Court for the District of Columbia, in American Petroleum Institute v. SEC, concluded, among other things, that the SEC misinterpreted Dodd-Frank by forcing public disclosure of detailed data on payments, and failed to consider associated competitive effects. Following the ruling the SEC has taken no further regulatory action, although the SEC has indicated that it would issue a new proposal under Section 1504 by March 2015.

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B.C. unveils liquefied natural gas tax framework

Doug Richardson and Cameron Anderson -

Earlier today, the Liquefied Natural Gas Income Tax Act (the “Bill”) was introduced into the British Columbia legislature. The Bill reflects the culmination of the Province’s goal to introduce an LNG tax framework, which was initially unveiled in February 2014. The Bill provides for a tier 1 tax rate of 1.5% and a tier 2 rate of 3.5%. The LNG tax applies to the net income from all liquefaction activities in British Columbia.

Effective for the taxation years beginning on or after Jan 1, 2017, the tax rate on net income will be 3.5%. During the period when net operating losses and the capital investment are being deducted, the tier 1 tax rate of 1.5% will apply and is creditable against the 3.5% tier 2 tax. In 2037, the tier 2 rate will increase to 5% of net income. The tier 2 rate set out in the Bill represents a significant reduction from 7% contemplated in the initial framework announced in February.

Since the valuation of revenues, expenses and the cost of capital investment are central to the calculation of the tax, the Bill provides a special set of rules for non-arm’s length transactions applicable to integrated LNG projects and companies, however, there is still significant uncertainty that exists with respect to the application of these rules.

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Ontario to Become First Government in Canada to Issue "Green Bonds"

P. Jason Kroft and Tamir Birk -

In just a few weeks, Ontario is expected to become the first government in Canada to issue “green bonds” (also known as climate bonds), a new and burgeoning type of security that raises capital to finance projects that help fight climate change or protect the environment. The offering, expected to be up to $500 million in size, will help fund the Eglinton Crosstown LRT in Toronto and will be initially aimed at institutional investors. According to a Government of Ontario news release, “Green bonds will help Ontario finance transit and other environmentally-friendly infrastructure projects across the province, supporting job creation and strengthening the economy.” As such, Ontario green bonds will be reserved for projects that lower carbon footprints and enhance environmental conditions.

The Government of Ontario is relying on investors to buy the bonds out of a desire to curb climate change and help the environment. According to Ontario Minister of Finance Charles Sousa, there is pent-up demand among investors for green bonds and sustainable investment opportunities, which will enable his government to pay lower interest rates as compared to other types of bonds. Green bonds also provide a diversification opportunity for investors, by providing them with exposure to renewable and green infrastructure projects. Indeed, the world market for environmentally friendly bonds is growing at a rapid pace, with approximately $40-50 billion worth of green bonds expected to be sold in 2014, up from $11 billion in 2013 and $3 billion in 2012. Some analysts predict those numbers could jump north of $100 billion in 2015.

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The Canada-China FIPA: Energizing Canadian oil & gas investment in China

Susan Hutton and Erin Dand -

On Friday, September 14, Ottawa announced the ratification of the Canada-China Foreign Investment Promotion and Protection Agreement (the Canada- China FIPA). The Canada-China FIPA, which comes into force on October 1, 2014, is the newest addition to Canada’s growing list of foreign investment protection agreements (FIPAs).

A FIPA is not a full-blown free trade agreement, but rather a bilateral agreement between two signatory states intended to protect and promote foreign investment through legally-binding rights and obligations to protect foreign investors. Specifically, a FIPA grants foreign investors from each signatory state the right to claim damages against the host state when the guarantees contained in the FIPA are contravened. These claims are heard by international arbitration tribunals, which have the power to grant legally binding awards against host states, and whose decisions are not reviewable by domestic courts.

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Eastern Promises? LNG expands beyond B.C.

Jonathan Drance and Cameron Anderson -

Much media attention (including this blog) has been devoted to following the developments of British Columbia’s nascent LNG Export industry. At the same time potential LNG Export Projects on Canada’s East Coast are slowly gaining momentum. The following chart sets out LNG Export Projects on Canada’s East Coast that have been announced to date.

PROJECT

PARTNERS ON PROJECTS

EXPORT CAPACITY

Goldboro LNG

Pieridae Energy Ltd.

10 MTPA

Canaport LNG*

(*Repsol has publicly indicated that it is considering converting this import facility into an LNG Export Terminal)

Repsol YPF SA/Irving Oil

Not yet announced

H-Energy LNG Project

H-Energy

4.5 MTPA

Bear Head LNG Project

Liquefied Natural Gas Ltd.

2 MTPA

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2014 Oil and Gas M&A Review, Q1/Q2 - Themes and Deal Points

Chip Johnston, Brad Ashkin, Andrew D. Wong and Brandon Leitch -

Recently, our firm’s Calgary office completed a review of M&A themes and deal terms in the oil and gas sector for the first half of 2014. This study contains a list of oil and gas M&A transactions over the six month period, 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.

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BC LNG: Environmental Assessment Process for pipeline projects

Cameron Anderson and Jonathan Drance -

In a previous post, we discussed the Environmental Assessment (EA) Process applicable to the proposed BC LNG Export Terminals. Here, we discuss the EA Process applicable to various Pipelines designed to serve the LNG Export Terminals.

Unlike the LNG Export Terminals, where EA jurisdiction has historically been shared between the Federal and Provincial governments, the Pipelines are generally governed only by the BC EA Process, as administered by the BC Environmental Assessment Office (BC EAO). This is largely a result of Federal Regulations (enacted October 24, 2013) which remove from the Federal EA Process any Pipelines which are effectively intra-provincial in nature – as all of the currently proposed LNG Pipelines are.

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Glenn Murray to lead new Ministry of the Environment and Climate Change

P. Jason Kroft and Tamir Birk -

In announcing her new cabinet on June 24, Ontario Premier Kathleen Wynne appointed Glen Murray as Minister of the renamed Ministry of the Environment and Climate Change (formerly the Ministry of the Environment). According to Wynne, the expanded portfolio “will ensure Ontario can protect the gains it has made in fighting climate change, lead Ontario's mitigation and adaptation efforts to extreme weather and strengthen its position as a leader in clean technology.” Murray will leave his previous post as Transportation Minister and replace Jim Bradley, Ontario’s longest serving member of the legislature.

Ontario’s emphasis on reducing greenhouse gas emissions is nothing new. The province recently shut down the Thunder Bay coal-generating plant, for example, becoming the first jurisdiction in North America to eliminate coal as a source of electricity. However, Murray’s appointment and the revamped Ministry elevates the climate change issue to the cabinet level for the first time, reflecting the province’s increasing recognition of climate change as a central challenge.

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