British Columbia has been competing on an uneven oil and gas industry playing field with its neighbour to the east and a pair the province’s independent MLAs want that to change now.
“All of the spin-off benefits from the oil and gas sector accrue to Alberta, not to British Columbia,” said Vicki Huntington, Delta South MLA.
Along with Bob Simpson, Cariboo North MLA, she issued a call to the provincial government on Wednesday, Nov. 14 requesting disclosure of information concerning efforts to address the longstanding issue of oil and gas residency requirements.
Alberta has a regulation enforced by their Energy Resources Conservation Board (ERCB) stipulating that the management staff of any explorer and producer company operating in Alberta must reside in Alberta, but B.C. has no such requirement.
Huntington and Simpson charge that the result is that economic benefits ranging from fleet vehicle purchases to personal income taxes are flowing from B.C.’s natural gas fields back to Alberta, while B.C.-based producers, and the province of B.C. by extension, have no ability to benefit from oil and gas activity in the Province of Alberta.
“When you’re talking about jobs and taxes and purchases of equipment and insurance and contractors and senior staff especially – although I think basically all the drillers on the wells are paid out of Alberta – you’re losing a lot of the economic drivers of the industry to a local community,” said Huntington.
“We found out when we were in the Peace that a lot of the economic benefits associated with developing B.C.’s oil and gas is accruing to Alberta,” added Simpson, discussing a trip he and Huntington had taken to northeast B.C. in March, 2012, which included a long discussion about oil and gas development in the province with the BC Oil and Gas Commission (OGC).
“A large proportion of the workforce are residents of Alberta and pay income tax in Alberta,” he continued.
“The fleet vehicles for the most part – that goes right from the pick-up trucks up to the heavy duty trucks – are purchased, insured, serviced in Alberta. The project management expertise, engineering expertise all in Alberta. And then, of course, the inside track for consulting and contractors is in Alberta as well.”
Simpson said he heard residents joke during his visit to the Peace Region that all the benefits in terms of health care, education and infrastructure so often discussed by Premier Christy Clark and other BC Liberal MLAs in relation to the oil and gas industry in B.C. are actually being felt in Alberta.
“It struck a chord with us,” said Simpson, remarking that the government seems to look at the economic benefits of the oil and gas industry in B.C. simply in terms of royalty revenues, which actually account for a small amount of total government revenues, while ignoring the potential revenues that are being lost to the province to the east.
“Alberta has very specific residency requirements,” he continued. “So, if you’re operating in the Alberta oil patch and if you’re operating in the Alberta gas fields, there’s a requirement in Alberta that you have what they call your mind and management of your company in Alberta.”
Consequently, Alberta is the home of all the decision-making personnel for that company.
“And that’s really what the foundational piece is that causes Alberta to be able to benefit from a lot of British Columbia’s oil and gas resources, simply because they have a residency requirement and we don’t,” said Simpson.
That imbalance was supposed to be addressed under the tenets of the Trade, Investment and Labour Mobility Agreement (TILMA) between B.C. and Alberta and the New West Partnership Trade Agreement (NWPTA) that also includes Saskatchewan.
Not only was the issue not resolved, but Huntington and Simpson were becoming frustrated with the lack of communication on the subject from the government.
“The government has been pushing Alberta to change its regulation, but I don’t know what that means, because we’re not entitled to look at it at this stage,” said Huntington.
“And so, apparently, they had drafted their regulations, but B.C. wasn’t satisfied with them. So, how it’s going to come to pass, I don’t know, only that the sooner the better. Because I think B.C. has been an enormous loser.”
“It’s our understanding that there’s been negotiations ongoing,” said Simpson. “And, unfortunately, in our conversations with the Alberta government, we’ve had more transparency about the nature of some of that dialogue that’s going back and forth than we have from the B.C. government.”
Alberta Ministry of International and Intergovernmental Relations spokesperson David Sands confirmed that the solution is a work in progress.
“We know that British Columbia raised it with us initially under the New West Partnership agreement in October of 2011,” Sands said during a Nov. 14 interview.
“We took a look at what they were talking about and almost immediately agreed that there was a problem there that wasn’t consistent with what our agreements were and that we needed to find a solution for it,” he continued.
The Alberta government subsequently developed changes to the regulation.
“Neither British Columbia nor Saskatchewan had any concerns with our proposed solution,” said Sands. “So, we sent it back to the ERCB. They have to look at it. And only today told us that … the changes will be made.”
That version of events didn’t correspond with Huntington’s understanding of the situation in the middle of November.
“You hear it a little bit differently from B.C. officials,” she said. “They say, ‘Well, the Alberta proposals weren’t really acceptable. So, we’ve had to go back to further discussions and now we’re looking at something else that seems a little better.’
“And I can’t comment on what the proposals are one way or another because they won’t let us see them,” she added.
“Under TILMA, I think that Alberta has to remove its residency requirements, and that has to be made public so that all of the companies and contractors and others know that that requirement no longer exists,” said Simpson.
“And then I think the British Columbia government needs to work with Alberta to try and figure out what some of the strategic partnerships are that the Alberta government has with the oil and gas industry and start to replicate some of those strategic partnerships here around human resource development, infrastructure development, technology development. And start to replicate some of that so we create a level playing field.”
Huntington suggested that the residency requirement in Alberta doesn’t need to be eliminated, but that a similar requirement should be developed for B.C.
“It’s time we stop being an energy colony,” she said.
Huntington wonders why B.C. is looking to Alberta for what should be a homegrown solution to a homegrown problem.
“That’s kind of my contention,” she said. “Obviously, there’s a problem. And the companies don’t want to pay their management structure twice. But I think we have to find a solution that benefits B.C. and the companies are just going to have to live with it. They owe us that.”
The B.C. Ministry of Jobs, Tourism and Skills Training alleviated some of the confusion around the issue on Thursday, Nov. 15 with a statement about discussions with the Alberta government concerning residency requirements.
“Negotiations with Alberta have resulted in their agreeing to bring themselves into compliance with their trade obligations,” the ministry said.
“Alberta will remove their residency requirements that have applied to British Columbia’s companies,” they added. “We expect Alberta to introduce new regulations within the next few weeks, and that this will provide companies with the ability to establish and expand their operations while based in British Columbia.
The ministry provided Pipeline News North with additional information on how the Province is handling the matter on Friday, Nov. 23.
“We understand there are about 35 B.C. oil and gas companies running their operation from Alberta and that some will consider moving their head office functions back to B.C. if Alberta’s investment-distorting regulations are removed,” said the ministry.
“As a result of Alberta’s trade and investment barriers that require companies to locate their so-called ‘mind and management’ there, very few companies operating in both provinces have been willing to bear the additional costs of maintaining two head office functions – one in each province,” he added, noting that about half a dozen producer companies operate solely in B.C. from head offices in B.C.
The ministry indicated that the benefits stemming from B.C.-based producers extend beyond those felt by local oil and gas service sector companies, also contributing to areas such as accounting, legal and research and development.
“Well-paying jobs are created, with corporate and employment taxes accruing for the benefit of British Columbians,” they said.
“Under the New West Partnership, all provinces agreed to avoid local presence requirements. “British Columbia and Saskatchewan are honouring our commitments and Alberta appears to be moving towards honouring its own.
“The New West Partnership was intended to increase the competitiveness of western Canada. If all provinces were to adopt local presence requirements, the additional costs on companies, investors and workers would make us all less competitive.”
Fort St. John mayor Lori Ackerman looks at the problem in terms of community.
“It’s easier to build community when you have the people doing the work here, living here, hiring locally, purchasing their goods locally, rather than buying them in Alberta and bringing them across the border,” said Ackerman.
“The major players having a presence isn’t as important as them actually hiring local companies and promoting the local service sector,” said Dawson Creek mayor Mike Bernier.
“We recognize that the major players have their head office in Calgary. I get that. The major players are actually the ones making the decisions on hiring the contractors who actually do the work. The companies don’t do the work; the contractors do the work. So, it’s how do we build those relationships and ensure that we have more guidelines in place where they are continually having to look at hiring in B.C.
“They should be… setting up and making this a long term investment and a long term [home] for their people,” he added. “That’s what we need.”
“Oil and gas companies are generally aware of the good value associated with local hires,” said the Ministry of Jobs, Tourism and Skills Training. “Once Alberta’s barriers are removed, and companies establish in British Columbia, we can assume that this will result in new business and employment opportunities.”
Ackerman admitted that major explorer and producer companies such as Shell Canada and Talisman Energy, which have both recently constructed large new offices in Fort St. John, have earnestly begun hiring local service sector companies when possible.
Shell has even endorsed an Energy Services BC (ESBC) initiative known as the BC Based Business Certificate that guarantees that a service sector company is actually located in B.C.
“Shell was recognized by Energy Services BC as one of the first supporters fully behind the program,” said Shell spokesperson Patty Richards.
“We are motivated to contract and hire in the Dawson Creek and Fort St. John communities,” she added. “Not only in the cities, but the smaller towns as well. The use of local business and suppliers is key to our ongoing operations – and to meet our really important business milestones.”
The focus of Shell’s operations in the region is their Groundbirch natural gas project west of Dawson Creek that is now linked a liquefied natural gas (LNG) project known as LNG Canada, which is a joint venture with Shell, Korea Gas Corporation (KOGAS), Mitsubishi Corporation and PetroChina Company.
“Groundbirch is a significant asset for Shell and our growth strategy,” said Richards
“It's important to have the right people and resources close to manage the business with a view to building long-term relationships,” she continued. “Our staff are involved with the municipal government, with our residents and our contractors to ensure we are doing everything we can to be a good operator.
“As an example, our operations manager lives in Fort St John, our community relations advisor lives in Dawson Creek and our aboriginal affairs lead is First Nations and is from West Moberly.”
Richards noted that Shell is an international company with decision-makers situated across the world, but that key local decisions are made locally.
“Our front line staff have to be able to make the decisions which maximize local benefits, protect local interests and keep people safe,” she said.
“Our local employees are empowered to do so.”
However, as Ackerman explained, there are still gaps to fill.
“There’s also SEPAC (Small Explorers and Producers Association of Canada),” she said. “I’ve never met with them to have this conversation.”
Hiring locally could be harder to sell to the Alberta-based companies that lack the resources of major producers like Shell.
“We have a different tax regime here,” Simpson explained. “So, when our contractors bid to these Alberta companies, they have to bid with carbon tax in mind, they have to bid with sales tax in mind.”
“I don’t think we’re asking them to move to British Columbia,” Ackerman said of the producers in the context of residency requirement regulations. “What we’re asking them to do is to provide our service sector companies with the opportunity to bid on contracts in a level playing field.
“And so that’s where TILMA comes into place. TILMA needed to level the playing field. The HST was going to level the playing field because the companies could recoup all of their GST/PST, whereas now they’re not going to be able to, on large equipment [purchases].”
“There’s still a lot of Alberta companies coming in and doing the work,” said Bernier, admitting that northeast B.C. still lags behind Alberta in terms of expertise, equipment and workforce in some areas of the service sector.
“But at what point do we say, ‘Okay, it’s gone on long enough,’” he continued. “I think a lot of that comes down to the relationships. We just need to keep knocking on the doors of these big companies – the Shells, the Encanas, the Talismans – and saying, you know, you’ve got the license to extract, now we need you to ensure that at every opportunity, when you’re hiring, there should be [an emphasis on] how do we make sure that the local people have an opportunity.
“But it also has to come down to the local people have to be competitive as well. There’s a business involved. I understand that.”
Bernier noted that the producers can play a capacity building role by hiring local contractors, which constitutes an investment in local service sector training and equipment that can save the producers money in the long run because they don’t need to import service sector crews from Alberta.
“We’re starting to see that,” he said. “Ferus is a perfect example of that. A liquid nitrogen company that was driving from Red Deer to Dawson Creek a couple times a day with their trucks.”
Ferus has since set up shop in Dawson Creek.
“The benefit to that now is smaller companies can come in and set up … because they know they can get contracts under Ferus,” said Bernier. “Trucking companies. Service companies. Mechanics. It’s a snowball effect. But we need to have these larger companies [making] commitments. And I don’t want to say we don’t see that. We definitely do. But it’s not to the magnitude that a lot of people would like to have here.”
“We believe supporting and developing local contractors, businesses and residents helps us achieve our objectives and is good for business,” said Richards.
“We provide guidance and assistance to local business to help them meet our standards and strengthen their capabilities so they can compete for contracts,” she continued. “We contribute to education and training programs, like the new drilling program at Northern Lights [College], to attract and train local staff who are interested, qualified and can meet our fitness for duty requirements.
“We are really encouraged by the quality and number of people we are able to hire in the local area.”
Still, the solution to this problem could be hard to find because of the isolated geographical and cultural position of the northeast that could be inhibiting B.C.’s ability to produce oil and gas industry decision-makers with a strong connection to the province.
For example, neither the University of British Columbia nor the University of Victoria offer petroleum engineering, programs that are popular in Alberta, where the oil and gas industry also enjoys a long and proud history.
“If you think about our history with forestry,” said Simpson, “we had one of the best forestry schools in the world bar none. We’re beginning to move in that direction a little bit around mining because we have more and more mining resources available to us. So, schools are beginning to orient themselves toward that.
“Quite frankly, we haven’t [had] that orientation necessarily for oil and gas, even though we’ve had some of that going on for some time. And a big reason for that is because the companies [are] being forced to be resident in Alberta. And so that’s where they do a lot of their development work and a lot of their strategic partnerships around human resource and workforce development with the Alberta government.”
“The interesting thing is that we have been so culturally, economically and geographically attached to Alberta for so long,” said Ackerman, recalling that she frequently heard Albertans say that Fort St. John was in their province when she lived in Calgary years ago.
“If you’re not crossing the Rockies, and if you’ve missed the border, then how would you know that you’ve left Alberta?” she continued.
“And it’s so easy to cross the border here. And we don’t have the provincial watchdogs… to say to these companies who are coming across the border, ‘You need to be contributing to British Columbia because this is our resource.’ And until we get the recognition for this industry and what we’re going through, this will just perpetuate itself if the industry moves further into British Columbia.
“Unfortunately, trees don’t vote. We have a very small population up here compared to other regions and so it’s very difficult to get the recognition on this issue that it needs.”
LNG could be a game changer.
By linking the natural gas plays of the northeast to export facilities in the northwest and the business sector in the lower mainland, LNG could turn a regional industry into a provincial industry.
“In a short amount of time, B.C. has established itself as a leader in natural gas extraction and unconventional resource prospects,” said the Ministry of Jobs, Tourism and Skills Training.
“We have pioneered the use of new technology, unlocked access to North America’s premier unconventional gas plays and continue to implement leading, sustainable natural gas practices that are highly regarded around the world.
“We are also increasing Canada’s trade opportunities with the prospect of exporting natural gas to new markets like Asia.”
That is the plan for LNG.
“It’s an entirely new industry for Canada,” the ministry said. “It is helping our natural gas sector grow and will make us a globally competitive natural gas producing province for a very long time. The expertise will develop here. Major industry players with global experience will work with our province to develop the industry. Our skills training plans and workforce strategy will ensure British Columbia’s students and businesses have the expertise to take advantage of new jobs.
“The economic prospects of B.C.’s natural gas sector will be increasingly tied to the success of operations across all areas of the province – in the northeast where gas is extracted, on the coast where the liquefaction process and shipments will occur and in the lower mainland where many legal, corporate and financial operations will be conducted.”