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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OPA awards 500 new FIT 3 renewable energy contracts

P. Jason Kroft and Tamir Birk -

On July 30, the Ontario Power Authority (OPA) awarded 500 renewable energy contracts, representing 123.5 megawatts of power, under its Feed-in Tariff (FIT) program. According to the OPA, these contracts represent enough energy to power approximately 15,000 homes.

“The FIT contracts we are about to offer represent significant investment in Ontario and in our electricity system. They show that the transformation of our electricity system to be cleaner and more sustainable is well on its way,” said OPA CEO Colin Andersen.

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BC LNG: Environmental Assessment Process

Jonathan Drance and Cameron Anderson -

The various LNG Export Terminals proposed to be built in British Columbia may be subject to environmental assessment (or EA) under both the Canadian Environmental Assessment Act, 2012 and the British Columbia Environmental Assessment Act. The EA process, whether under the Federal or Provincial legislation, examines projects to identify adverse environmental, economic, social, heritage and health effects that may occur during development and operation of proposed facilities. The EA process includes involvement/consultation with interested parties such as First Nations and working groups, technical studies and the development of comprehensive reports.

In order to minimize duplication and streamline these generally similar Federal and Provincial processes, the Canadian Environmental Assessment Agency (CEAA) and the British Columbia Environmental Assessment Office (the BC EAO) have entered into a Memorandum of Understanding on the Substitution of Environmental Assessments with the Canadian Environmental Assessment Agency  (the MOU). The MOU provides a mechanism for the CEAA to issue a Substitution Order and to effectively substitute the BC EAO’s process for its own and to rely on the record established by the BC EAO in conducting its EA of projects located in BC, such as the LNG Export Terminals. Any such Substitution Order is subject to certain terms and conditions including as to the general nature of the process to be run by the BC EAO and also clearly preserves the right of the Federal government to exercise any judgement or discretion which it may possess under applicable Federal legislation as it sees fit. However the MOU does at least hold out the prospect of reducing unnecessarily duplicative proceedings.

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The Tsilhqot'in decision: a view from Quebec

Erik Richer La Flèche -

On June 26, 2014 the Supreme Court of Canada recognized for the first time a First Nation’s aboriginal title over an area outside a reserve in Tsilhqot’in Nation vs. British Columbia.

Since then much has been written on whether the decision would have an adverse impact on natural and infrastructure development across Canada, with some columnists and think tanks being alarmed at the consequences the decision may have on projects.

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