HANSARD

Printed and Published by Nova Scotia Hansard Reporting Services

ECONOMIC DEVELOPMENT COMMITTEE

Mr. Michel Samson (Chairman)

Mr. Brooke Taylor

Mr. William Dooks

Mr. Mark Parent

Mr. Howard Epstein

Mr. Charles Parker

Ms. Marilyn More

Mr. Wayne Gaudet

Mr. Harold Theriault

IN ATTENDANCE:

Mrs. Darlene Henry

Legislative Committee Clerk

WITNESSES

Department of Energy

Ms. Alison Scott, Deputy Minister

Mr. Chris Spencer, Manager of Royalties

Mr. Bruce Cameron, Director, Energy Strategy Implementation

Mr. Sandy MacMullin, Director, Resources Assessment and Royalties

Department of Finance

Mr. Dan Troke, Director, Taxation and Fiscal Policy

Department of Justice

Mr. Jim Isnor, Solicitor, Legal Services Division

HALIFAX, TUESDAY, MARCH 8, 2005

STANDING COMMITTEE ON ECONOMIC DEVELOPMENT

9:00 A.M.

CHAIRMAN

Mr. Michel Samson

MR. CHAIRMAN: Good morning, ladies and gentlemen, I would like to call this meeting of the Economic Development Committee to order. My name is Michel Samson, Chairman, and the MLA for Richmond County. It's my understanding that a few of our colleagues may be joining us this morning but rather than wait, we will start the committee meeting right away. As a means of starting I would ask if committee members would introduce themselves and their particular riding so that our presenters know exactly who we have here. Mr. Epstein, if you want to begin.

[The committee members introduced themselves.]

MR. CHAIRMAN: It is my understanding that Mr. Brooke Taylor, for Colchester-Musquodoboit Valley will be joining us shortly. So, deputy, if you want to introduce the staff with you, and it's my understanding that you want to do a brief presentation as a means of starting this meeting, and then we'll follow that with questions from individual committee members. The floor is yours.

MS. ALISON SCOTT: I gathered from our discussion last week that you were familiar with the presentation, so I just have opening remarks and you can refer to the presentation for some of the source information.

It's a pleasure to be here today, a second opportunity to talk to you. With me today is what I would call the all-star offshore accord negotiating team. We have Chris Spencer, the Manger of the Royalties Division in the Department Energy, and Dan Troke, the Director of Taxation & Fiscal Policy. Also with me is Jim Isnor, a solicitor with the Department of Justice, who is assigned to the offshore accord deal file and other energy related issues.

Also joining me today is Bruce Cameron from Intergovernmental Affairs and Strategic Initiatives in the Department of Energy. Bruce was a part of the core team that developed Nova Scotia's energy strategy in 2001 and he also leads many of our department's initiatives with respect to the Atlantic Energy Roundtable. I'm also joined by Sandy MacMullin, I didn't see Sandy come in. Sandy is the Director of Resource Assessment and Royalties and is responsible for the upstream end of our business, exploration and development. He takes care of the department's energy, oil and gas interests.

Now, I will speak for a moment about the offshore accord deal. I was asked to speak to it and I have left you with the slide deck, I won't go into it a great deal but I will outline in general terms the very broad strokes of the deal. As you know, our offshore resources give us a once in a lifetime opportunity and our new agreement will turn that opportunity, we believe, into a sound economic foundation for generations to come.

The deal allows us to keep 100 per cent of our offshore revenues for 16 years and it includes a prepayment of $830 million for the first eight years. That's an absolute minimum that the province will receive in the first eight years. The deal also sees us pay $830 million directly on Nova Scotia's $12.5 billion debt resulting in annual interest savings of about $50 million. The savings will be reinvested into education, health care, infrastructure and other services to the benefit of all Nova Scotians.

We have, under the deal, guaranteed transition payments if Nova Scotia comes off equalization during the 16-year period. Finally, we have a commitment from the federal government to a legislative review of the agreement in 2020. We believe it's a good deal for Nova Scotia and a good deal for Canadians. It's a deal that will help Nova Scotia move forward towards financial self-sufficiency, which is good for all of Canada.

Of course, the deal hadn't been inked for very long before people were asking, what next? In fact, it was within minutes of signing the deal when the Premier appeared at a press conference with the Prime Minister and Mr. Williams when I think perhaps the second question he faced from reporters was, what are you going to do with the money? He didn't hesitate and suggested that we would place that money directly on the debt. His decision to do that was one which we believe is consistent with the direction that the government has taken for a number of years and is consistent with the Nova Scotia Energy Strategy.

We refer you to Volume 2 of the strategy which states that, "Over time, the new Department of Energy will work with the Department of Finance to identify specific government initiatives that are of an enduring nature and can be undertaken with offshore revenues. Examples include: . . .", and the document goes on to list three different things that can be addressed but I'm going to refer you to one here, ". . . adding to the provincial budget surplus to enable permanent reductions in provincial debt and annual interest payments, thus improving government's ability to fund programs."

The clear and continuing intent of the Energy Strategy was to ensure that Nova Scotians today and in the future benefit from its non-renewable resources or as our Premier said, the gas won't last so the benefits must. We believe that if using the cash to make the $830 debt payment and $50 million freed up annually to reinvest in services is a benefit to all Nova Scotians, which meets the spirit and intent of the Energy Strategy.

We know that OTANS has shown their support for the deal. They have also supported the notion of placing $830 million on our debt. OTANS has also suggested that a portion of the $50 million that we save and future royalties be put into initiatives such as education, training and capacity development - strategic initiatives that are intended to reinvigorate a climate of exploration for our province.

There are initiatives ongoing in our department which we currently support in our work and we're looking forward to new initiatives in our 2005-06 budget and in our business plan. We are not in a position at the moment to go into a great indication and detail about what those plans might be, but I can assure you that we are looking at these issues in light of our offshore revenue deal. We'll be happy to listen to OTANS and others as to advice as to how to structure those programs.

Through the Atlantic Energy Roundtable we have been involved in many discussions with OTANS and others about how to foster offshore exploration and development. We have made significant progress, which I'll touch upon in a moment, and we look forward to more success at the Atlantic Energy Roundtable.

In a recent Ocean Resources article, OTANS' Tim Brownlow said that the barriers to exploration offshore should be geologic, not man-made, and we couldn't agree more. So what are the barriers? Obviously, in Nova Scotia, we face competition from other regions. Operators will go first where they believe the return on investment is the highest. So how does Nova Scotia compare as a place to do business for the oil and gas industry? Well, it will come as no surprise to you that deepwater drilling is expensive; it can cost up to $100 million to drill a deepwater well off Nova Scotia. This is a lot higher than the cost in competing jurisdictions like the North Sea or the Gulf of Mexico and it's considerably higher than the cost of drilling in Africa or in the Persian Gulf.

Because these jurisdictions have had more exploration history their success rate is also higher. In some cases the rewards are phenomenal and I refer you to the experience in the small country of Qatar, where discovered - not potential - reserves amount to 600 trillion cubic feet of gas, which would be equivalent to approximately 350 Sable projects, so we do face stiff competition in jurisdictions that are better understood than our own.

Nova Scotia has 900 kilometres of offshore, that has some of the best petroleum geology anywhere; most of it is not yet explored. With the current world energy demand we do know that operators will eventually turn to harder to reach areas for our resources. Our

job is to encourage them to do that sooner rather than later. Of course, we will always face competition from regions where the return on investment might be better, but what we need to do is focus on the things that we can do to improve our competitiveness.

Aside from the cost of drilling, the two most commonly cited barriers for exploration affecting the competitiveness in Nova Scotia and in Atlantic Canada - I believe that Newfoundland faces the same challenges that we do - are regulatory inefficiency and complex geology. On the regulatory efficiency side, operators want a predictable and competitive business environment, one in which they can reasonably anticipate costs and approval times.

Only a week after we signed our offshore revenue deal we, once again, joined our federal partners at the Atlantic Energy Roundtable, to sign a memorandum of understanding to improve the regulation of new offshore development projects. Simply put, these reforms mean that a developer needs to complete only one set of documents to begin the development permitting process and that all reviews will happen at the same time, rather than one after another, as was the case before.

Approval of large-scale projects now are expected to take between nine to 13 months. This compares with the 16 months that it took to approve Sable and the 21 months that it took to approve White Rose, the last project in Newfoundland, which was approved under the fully regulated regime that the memorandum of understanding was intended to address. We hope this will go a long way to meeting industry's expectations and concerns about the time and length of the approval process. We believe it puts us competitively in a position with other jurisdictions with which we are competing, with those reduced permitting processing times.

The memorandum of understanding specifically addresses improving production approvals and we believe that Deep Panuke will benefit from this regime and possibly, as well, the Sable tie-in such as Onondaga, in the event that those operators decide to proceed with those projects. Though the memorandum of understanding is aimed at the development stage, it will help on the exploration side, we believe. Anything we can do to improve the length of time it takes to get a project from exploration through to development and operation, improves the cost of the project and the competitiveness of our regime, and operators will pay attention to that.

During the round table last month, government also released a new seismic code of practice to help standardize the process for seismic approvals in mitigation across Canada. That was work that was led in large measure by Nova Scotia in which Mr. Cameron had considerable involvement, which we believe will assist operators and other stakeholders in our country understand the issues that have to be considered in any seismic process. We believe this code of practice will provide operators with greater certainty when they make decisions to explore and allow the general public a better understanding of what will happen.

Finally, on the regulatory reform, the round table is also discussing another issue raised by Mr. Brownlow, that our regulations should stress performance and results, not just paper and process. Government is now in the process of systematically reviewing its outstanding legislation and regulations, to ensure that it meets more modern technological standards and worldwide best practices for the offshore sector. It will take the coordinated efforts of many to be involved, particularly the federal government, to deliver the next set of regulations. We will continue to work with our partners at the round table to make sure that this happens.

While it takes time to work through these issues, because they involve several levels of governments, numerous departments and numerous stakeholders, in the meantime it's important for us to remember that Nova Scotia's offshore is very young and an emerging area on the world energy market. Which brings me back to the other commonly mentioned barrier, complex geology.

As I said before, Nova Scotia has over 900 kilometres of offshore that has some of the best petroleum geology anywhere, most of it not yet explored. The theme of last Fall's CORE conference was Unlocking the Puzzle and I believe that says it all. There simply hasn't been enough drilling and analysis yet to piece together all of the pieces of the puzzle. While people may view the geology barriers as beyond our control - we can't change what the geology is in our offshore - there are things we believe we can do to improve the understanding of that complex geology.

[9:15 a.m.]

We want to invest more in research and development, particularly in geological studies that will analyze existing data to give us a fresh perspective and ideas for new offshore plays. We also want to develop easy to access resources so geologists and decision makers can have all seismic and geological data that exists in the public domain at their fingertips. These new tools will be integrated into our marketing plans as we continue to seek out new opportunities through our meetings with operators and participation in worldwide industry events.

These are just a few of the highlights of what we've been doing and plan to do to encourage exploration and development. As you can appreciate, it takes time to work through these issues and it involves in our case, in Canada, many partners. It's a slow-moving industry with many years from an expression of interest in our offshore through seismic testing, through exploratory drilling, to development.

This coming year, we'll be watching those activities closely to see what we can do to ensure we are being as competitive and efficient as possible. There are still 33 active exploration licences in our offshore with a commitment of $1.15 billion in work commitments from the operators.

The CNSOPB projects that there will be three seismic programs this year and two to three exploratory wells drilled in Nova Scotia's offshore. That's EnCana's Marauder; Canadian Superior, we believe, may as well undertake drilling; and BEPCo is currently undergoing an environmental review. Though it could take years to see the results of some of our day-to-day work, we remain focused on our goals.

The Department of Energy has a broad mandate and many diverse areas of business. In 2005-06, improving the climate for offshore/onshore exploration and development is one of the two overreaching priorities for our department. The offshore revenue deal we are here to discuss today, certainly gives us more incentive to succeed. The more we succeed in our offshore, the more royalty revenues we are able to encourage, the better the deal becomes, so there is every reason and incentive for us to want to encourage that to happen.

Those are my comments. I would be happy to entertain questions.

MR. CHAIRMAN: Thank you, deputy. Members, I suggest maybe we go in 10-minute rounds. Mr. Epstein, then Mr. Dooks.

MR. HOWARD EPSTEIN: Can you tell us, please, deputy, what formal steps are required by the federal government to implement the revenue agreement?

MS. ALISON SCOTT: They require legislation.

MR. EPSTEIN: I didn't go looking for it but was it announced as part of the federal budget?

MS. ALISON SCOTT: Not as yet. The budget hasn't been tabled as a bill, as I understand it, yet.

MR. EPSTEIN: Is that where you expect to see it?

MS. ALISON SCOTT: It's possible but they've suggested to us, telling us all of the details that they have planned for our bill, wherever it sits, is something that they choose to keep to themselves, although they assure us there will be a bill.

MR. EPSTEIN: Is the proposed legislation or what you see as the necessary federal amendments, would that take the form of being an amendment to equalization legislation?

MS. ALISON SCOTT: There's no need for a change to the equalization Act as a result of our deal.

MR. EPSTEIN: What legislation do you expect to be amended, or do you expect stand-alone legislation?

MS. ALISON SCOTT: It could well be stand-alone legislation.

MR. EPSTEIN: Would it affect the federal offshore agreement legislation? Is that where we would expect it?

MS. ALISON SCOTT: It's not necessary that it do that. It may be simpler for the federal government to create the obligations that they have assumed through the agreement by stand-alone legislation, rather than attempt to amend the existing sections of the accord, which primarily are spent in relation to the revenue benefits that Nova Scotia had seen.

MR. EPSTEIN: There, of course, is a minority government situation in Ottawa. Have you any indication from enough of the Opposition Parties to indicate that such legislation would pass?

MS. ALISON SCOTT: Certainly, my minister is engaged in that kind of reconnaissance and I believe he is making an effort to contact Opposition Parties to encourage passage of the bill.

MR. EPSTEIN: Some other provinces have expressed some criticism of the accords that have been reached with Nova Scotia and Newfoundland. There has been a variety of criticisms made from some provinces indicating that they would like similar deals, themselves, others simply suggesting that it changes the basic nature of equalization in the country. I'm wondering if you're aware of any provinces that are going so far as to oppose the federal legislation?

MS. ALISON SCOTT: Certainly, some Premiers have been more vocal than others. There is a separation of responsibility, legislatively, between governments, and provincial Premiers won't have a voice in Parliament. I can't say that I'm aware of any efforts that they have been making to lobby members of the governing Party not to support our bill, but I suppose that's a possibility.

MR. EPSTEIN: Since this does seem to have to do with equalization, can you help us understand why it is that you suggested just a minute ago that it is not really an amendment to the equalization formula?

MS. ALISON SCOTT: People have often looked at our accord issue as an equalization issue. The perspective of the province consistently, since 1982, is that it is not an equalization issue, that it is a bilateral agreement between Canada and Nova Scotia, not unlike other bilateral agreements between Canada and other jurisdictions for other purposes. We've always taken the position, since 1982, that it's a matter of fiscal arrangements but not necessarily equalization. It's not an argument that has always been accepted by other provinces, but it's one that we have consistently maintained and I think the proof, so to

speak, is somewhat in the pudding, in that they don't have to amend the equalization Act, in fact, to accomplish this deal.

MR. EPSTEIN: If the agreement that has just been negotiated had been in place for a longer period, that is a period co-extensive with our offshore production, can you tell us an amount that Nova Scotia would have received in revenues that we didn't receive?

MS. ALISON SCOTT: We have looked at that.

MR. CHRIS SPENCER: Yes, it would be a total of $60 million.

MR. EPSTEIN: Are you calculating since the start-up of SOEP or are you also going back including oil production from before?

MR. SPENCER: We're going right back, yes.

MR. EPSTEIN: That's fine, thank you. I heard some comments, deputy, that you were talking about the possibility of reinvigorating exploration here. I'm not sure that I heard correctly the numbers, I heard you mention the possibility of two or three wells that might be drilled this year and you mentioned EnCana, Canadian Superior and a third company that was?

MS. ALISON SCOTT: Marauder. They bought up the NSRL deals as discovery licenses. They had another name first, it's a company name change in any event.

MR. EPSTEIN: But then you mentioned also a dollar figure as to what you said were outstanding commitments for . . .

MS. ALISON SCOTT: It is $1.15 billion, in terms of work commitments.

MR. EPSTEIN: Is that co-extensive with those three projects or is that a larger number of projects?

MS. ALISON SCOTT: I believe that would include them.

MR. EPSTEIN: Well, it certainly would include them, the question is whether that's the extent of it?

MS. ALISON SCOTT: No, it's not co-extensive. More work will have to be done to consume that $1.15 billion than the work on those three wells, yes. That comes from the work commitments that companies make when they make their bid, they have to perform a certain amount of exploration and drilling in order to keep their property, so to speak.

MR. EPSTEIN: I understand how it works, so on the other hand a number of the companies have abandoned their commitments and given up on that. I'm wondering just how new those commitments are that you're talking about, the $1.15 billion. Are these ones that are just about to expire? Is it a five-year term?

MS. ALISON SCOTT: There haven't been any new commitments in the offshore for - when was the last time, Sandy, that they . . .

MR. SANDY MACMULLIN: Approximately two years ago Canadian Superior had two licences just to the east of Sable Island that were awarded.

MR. EPSTEIN: The companies that chose to abandon their commitments, did they make those choices close to the end of the five-year period, is that what happened?

MS. ALISON SCOTT: They don't typically tell us what they're going to do until we're close to the end of the period. When exactly they make their decisions is not something we're privy to.

MR. EPSTEIN: But it would be logical, of course, for them to wait during the course of most of their time to see whether it's feasible for them to continue, wouldn't that be right?

MR. MACMULLIN: Yes, and it's a mix. For example, one of the licences that came back to Crown at Christmastime was Adamant and the reason why that came back to Crown is it reached the end of its nine-year term. There was one licence that EnCana had actually drilled and were entitled to keep it for the full nine years but they returned it to Crown, rather than pay rentals on it, so there's a combination. Some companies abandon it at the end of the fifth year, some companies purchase a sixth year and drill in the sixth year, so there's a mix.

MR. EPSTEIN: As I recall, when a number of the companies chose to abandon their drilling rights, an issue arose about the financial penalties or forfeiture of deposits that went along with this. There was some suggestion that this money should accrue to the Treasury of the province, rather than to the federal Treasury. Is this still an outstanding issue or has it been resolved as part of the revenue agreement?

MS. ALISON SCOTT: I'm happy to say it's ours, so it was resolved as part of the revenue agreement.

MR. EPSTEIN: So are you saying that, in fact, these funds are part of the $830 million?

MS. ALISON SCOTT: Yes.

MR. EPSTEIN: Okay. So there's no prospect of any additional sums associated with the giving up of drilling rights?

MS. ALISON SCOTT: With respect to the previous forfeitures?

MR. EPSTEIN: Yes.

MS. ALISON SCOTT: No.

MR. EPSTEIN: Thank you.

MR. CHAIRMAN: Mr. Dooks.

MR. WILLIAM DOOKS: I would like to welcome you here this morning, thank you for coming. We would like to congratulate you on the success you had in being a part of signing the offshore accord.

Listening carefully to Howard's comments about the federal legislation, I would not want those comments to sort of cloud the good news for Nova Scotians. I believe all Nova Scotians are pleased and happy with the signing of this offshore accord.

I had the opportunity to be in the presence of our Prime Minister and Premier when the official papers were signed and although, Mr. Chairman, I don't necessarily always agree with the Prime Minister's political viewpoints, I do, however, consider him a man of his word, I consider him a man who understands the plight of Nova Scotians and the Maritime Provinces. In saying that, I believe his promise is carved in stone. I believe that he'll be working with his colleagues in Ottawa to make sure this goes through and the Members of Parliament from our area would be up there lobbying their colleagues to make sure that everything is smooth. So I just wanted to remove that, Howard, and to tell you that I believe this accord will be successful and that Nova Scotians will benefit from this in the future.

However, getting back to some figures. You talked about $830 million over 16 years, but then you said today, $830 million within the first eight years. I would think that $830 million would be allotted from the federal government through the process. What's taking place between the latter part of the eight years and the next eight years to reach the 16 years? Is there another payment?

MS. ALISON SCOTT: The $830 million is attributable to the first eight years, but it was based on an estimate of what production would produce for us in terms of royalties, with the acceptance on the part of the federal government that if, in fact, production exceeded that expectation, Nova Scotia would keep the royalties in that first eight years that exceeded $830 million. So it's all dependent on what production is. Then in the second eight-year

period, we keep 100 per cent of the royalties without an up front payment. The $830 million was just an up front payment estimating how much . . .

MR. DOOKS: So we're going to do our accounting at the end of the first eight years and . . .

MS. ALISON SCOTT: After we accomplish $830 million in royalty revenues, we start collecting whatever royalties are over and above that immediately.

MR. DOOKS: Up to the first eight years?

MS. ALISON SCOTT: Yes, and in the second eight years it's 100 per cent . . .

MR. DOOKS: So whatever comes, it could be $200 million, it could be $2 billion for that matter, it could be whatever.

When you talk about exploration off our coast being quite difficult and having greater difficulties than in other parts of the world, what are those difficulties? Why should it cost more to drill off our coast than it would off the coast of some other country or province or whatever?

[9:30 a.m.]

MS. ALISON SCOTT: That's a technical question, I think I'll let Mr. MacMullin take the lead.

MR. MACMULLIN: There are a number of different reasons. We have a pretty harsh climate, high waves, high sea states, high winds. There are only a handful of rigs in the world that can drill year-round in our deep waters. It's a little different matter for the shelf areas, the sea states are not as bad. So these rigs are quite busy and they can name their price and that's not necessarily the case in the Gulf of Mexico where you can use other rigs, other alternatives, they don't have the harsh winters down there. They don't have to design for those conditions. The largest component of the cost is associated with the actual lease on the rig. There are other factors but that's the big one.

MR. DOOKS: What about the quality of gas? Do we have good gas? Is it gas that's equal to gas that would be extracted from other parts of the world? Gas is gas, is it? I don't know.

MR. MACMULLIN: Well, it's a little of both. Methane is methane, it depends on what comes along with it. The more larger, heavier molecules you have, the more liquid you tend to have associated with it and you get into your propanes and your pentanes and these kinds of things. Generally speaking, the quality of the Sable product is choice, just the natural

gas, the condensate is good quality condensate, that attracts a premium. But on the other hand, the Deep Panuke gas is an abnormality, it has some sourness associated with it, it's H₂S gas, 2,000 parts per million, and that's something you don't want. It can kill but all gas can kill in enough quantities. So that's an exception. But to put it into perspective, in Alberta they produce gas at 300,000 parts per million and this is 2,000 parts per million, so it's not unmanageable, that's for sure.

MR. DOOKS: Opposition to drilling off our coast, where are you getting the opposition at this particular time or do we have opposition? Is there a movement to stop drilling? I know from time to time we have different groups that probably would have certain interests but would there be a major movement afoot to stop drilling in the offshore?

MS. ALISON SCOTT: We have a moratorium area, the Georges Bank, which is a sensitive environmental area and there certainly is support for maintaining that moratorium. There are stakeholders who take different perspectives with respect to the approach to the offshore. Certainly the fishing community has a vested interest in ensuring that that resource is maintained appropriately and protected. They're very vigorous in their representation about the need to do appropriate environmental due diligence before a project proceeds. There are others who have concerns about the oceans as well, but I wouldn't necessarily say that they want to stop drilling per se, they are interested in seeing that appropriate development occurs and sometimes there may be disagreement on what appropriate development is.

MR. DOOKS: Thank you, Mr. Chairman. That's it for now.

MR. CHAIRMAN: On behalf of our caucus, I have a few questions that I wanted to raise. Deputy, when you started your comments, you did refer to the challenges in Nova Scotia compared to other jurisdictions and you referred to the North Sea, I believe, Qatar and other places. Interestingly enough, when talking about competing jurisdictions, you never mentioned Newfoundland.

You've described the challenges, you and your colleagues, with exploration off the coast of Nova Scotia. I believe Mr. MacMullin used the term high seas, high waves as a deterrent, but I don't see that being much different in Newfoundland, as far as high seas and high waves. I would probably go so far as to say as that they probably have worse conditions than we do, yet for some reason their industry seems to be rolling along quite nicely with new explorations taking place. I'm curious, how do you justify what's taking place in Newfoundland as compared to the lack of activity taking place in Nova Scotia?

MS. ALISON SCOTT: Some of it is a different product. It's oil in Newfoundland and it's a more marketable commodity, and it's gas in Nova Scotia. So the two areas aren't necessarily competing with each other, the gas in Newfoundland that they have discovered is stranded gas and they're not able to bring it ashore yet. They're relying on new technology and investment in R&D to try to get at that problem. But they aren't able to bring their gas

ashore at all at the moment. So in terms of a competitive advantage, we've got geography on our side on that, for sure. The size of the projects in Newfoundland, with respect to their oil reserves, has been significantly higher than ours. What's the ratio in terms of their reserves to ours?

MR. MACMULLIN: Newfoundland probably has something like 4 trillion cubic feet of stranded gas as compared to - and that's in lumps of probably a tcf in White Rose, probably a quarter of a tcf in Terra Nova, a better part of a tcf in Hibernia. Those are three producing projects and at least a couple up on the Labrador Shelf. So it's all lumped into a large field. Ours is lumped into the SOE Project but the rest is outside and Deep Panuke is spread among maybe sixteen other significant discoveries.

MR. CHAIRMAN: So is it your position that Nova Scotia is now pretty much exclusively focused on gas, whereas Newfoundland you're saying is more primarily focused on oil with gas as a sub-component of their offshore?

MS. ALISON SCOTT: That's what has been discovered in the two jurisdictions. I don't think it's necessarily something that exploration off Nova Scotia is going to exclusively always be gas.

MR. MACMULLIN: What's been discovered to date, with the exception of Cohasset and Panuke, has been gas. But there are areas in the offshore that are believed to have some oil potential as well as gas potential. In the Laurentian Sub-basin it could be both, various areas along the Shelburne Basin, well, directly off Shelburne, but say 100 to 115 miles out, it could be oil prone there. We won't really know until more wells are drilled whether or not there is real significant realizable oil potential in offshore Nova Scotia.

MR. CHAIRMAN: Here's what I find most interesting, Nova Scotians are sitting at home, they're watching the news every day and watching the price of a barrel of oil go through the roof, the price of natural gas is at an all-time high, and yet development in our offshore is not taking place nearly at a rate that would be acceptable that Nova Scotians would say, we can understand because of the demand why there is increased activity in our offshore. The price is going that way and our exploration is going the other way. That seems to be something that Nova Scotians and myself are having a hard time to justify. Something is not right here. You can't have the price of a barrel of oil going through the roof and natural gas at an all-time high and yet our offshore certainly has not seen the exploration that's needed.

One of the questions, if I'm not mistaken, the decision on the Laurentian Sub-basin was approximately three years ago. How many permits have been issued since that decision for exploration off Nova Scotia's small portion of that sub-basin?

MS. ALISON SCOTT: There is a dispute over the ownership of one portion that has been let at the moment, which caused ConocoPhillip to back off planned seismic this year. The dispute is between them and ExxonMobil, so that has slowed things down a bit. It goes back to the historic program under COGLA, which has to be sorted out before we can proceed.

MR. CHAIRMAN: So in other words, Nova Scotians shouldn't expect to see any activity on the Laurentian Sub-basin as far as Nova Scotians' interests for 2005?

MS. ALISON SCOTT: Not in 2005.

MR. CHAIRMAN: So that will be four years since the decision, yet still no activity on that important parcel of our offshore.

MR. MACMULLIN: There will be no activity under an existing exploration licence but there has been seismic activity in the Laurentian Sub-basin recently.

MR. CHAIRMAN: In answering Mr. Epstein's question, you seemed to have indicated that the parcels that have been abandoned are included in the $830 million payment that is coming to the province. Did I understand that correctly?

MS. ALISON SCOTT: Yes.

MR. CHAIRMAN: Last year, we remember where parcels were abandoned in 2003 and then in the budget of 2004, basically, the Minister of Finance said he was going to balance the budget based on the revenues that were received due to the abandoning of those permits. That figure used in the budget, is that also included in the $830 million, that being money that has already been received by the province?

MS. ALISON SCOTT: No.

MR. CHAIRMAN: So what you're referring to is the 19 permits that were abandoned in 2004 have been included in the $830 million?

MS. ALISON SCOTT: What we received prior to this was a portion of the forfeitures, the federal government would have clawed back through equalization 70 per cent of the value of those forfeitures. Our deal doesn't count that 30 per cent that we got to keep.

MR. CHAIRMAN: So we now get to keep 100 per cent of the forfeitures?

MS. ALISON SCOTT: That's right.

MR. CHAIRMAN: Those 19 permits abandoned in 2004, what is the value that will come to the province as a result of those forfeitures?

MS. ALISON SCOTT: I don't actually recall.

MR. SPENCER: Associated with those 19 parcels, $40 million is our current estimate on the forfeiture amount.

MR. CHAIRMAN: What will be done with that $40 million? Will that also be going towards the debt of this province as the $830 million?

MS. ALISON SCOTT: It's part of the $830 million, yes.

MR. CHAIRMAN: So it will not be used in this budgetary process in this coming budget?

MS. ALISON SCOTT: Yes, 30 per cent already has.

MR. CHAIRMAN: It already has?

MS. ALISON SCOTT: Well, 30 per cent already has, as you identified in your opening remarks there.

MR. CHAIRMAN: I'll move on. Ms. More.

MS. MARILYN MORE: Mr. Chairman, this is a relatively new area for me and I just wanted to ask, I think you mentioned that it's going to be a bilateral agreement, confirmed in legislation.

MS. ALISON SCOTT: It is a bilateral agreement now. It will be confirmed by legislation.

MS. MORE: Will it have the same level of accountability as some of the other accords and agreements?

MS. ALISON SCOTT: I'm not sure I understand your question.

MS. MORE: I know a concern about some of the bilateral agreements has been the lack of accountability at either level of government and I'm just wondering, is the fact that this will be confirmed in legislation, federally, going to provide accountability, for example, to the provincial Legislature as well as to the federal Parliament?

MS. ALISON SCOTT: I see what you mean. The accountability for the flow of the money, so to speak, under our accord arrangement exists in the accord Acts. So that piece will be carried forward and applied to this deal. The deal applies to offshore revenues, Nova Scotia's provincial own source offshore revenues. Those revenues flow through an account with the CNSOPB, our offshore board. That board makes reports to us and we have the ability to audit the information that goes into the board to make sure that all of the money that we're due is, in fact, there. We are, Chris in particular, accountable to the government for keeping track of that. So, yes, there will be accountability.

MS. MORE: Is there anything in the accord that allows either level of government to back away from it or is it firmed up for the eight and then 16 years?

MS. ALISON SCOTT: The first eight-year period and the $830 million, and floating with markets in that period, is secure. There is a debt test that you have to meet in order to enter into the second eight-year period.

MS. MORE: I'm interested in the enhancement of the infrastructure in anticipation of increased production. I'm just wondering, is your department planning ahead in terms of preserving water access for any of the companies that require it in terms of their support for the offshore?

MS. ALISON SCOTT: Are you talking about the waterfront development issue?

MS. MORE: Partly and also the coastline. Are you in active discussions with the municipal level of government, in particular, or looking at buying up lands along the coast to ensure that there is always going to be water access for those companies?

MS. ALISON SCOTT: In terms of the work of the Waterfront Development Corporation and HRM, our department takes a keen interest in the work of a committee of officials that is working on that issue. So we believe industry's concerns, insofar as they exist, will be addressed through that committee structure. With respect to the rest of Nova Scotia, we really haven't had a great deal of concern expressed about access to waterfront facilities in other communities in Nova Scotia. Halifax seems to be unique in that respect.

[9:45 a.m.]

MS. MORE: So you're not taking a proactive stance to actually decentralize some of that activity into other ports along the coast?

MS. ALISON SCOTT: I believe the Premier has made commitments, particularly with the Laurentian Sub-basin in Cape Breton and I'm sure there are ongoing activities in the Strait of Canso area, related to oil and gas infrastructure. So it's not that we're trying to keep

it all here in Halifax, industry will go where it considers its competitive advantage to be. So far it has led to communities outside Halifax and we're pleased to see that happen.

MS. MORE: There's no overall provincial plan to help that process, though, it depends more or less on the individual municipalities to take a lead?

MS. ALISON SCOTT: I wouldn't say that it depends necessarily only on municipalities. The companies, themselves, have a fair idea about where their competitive advantage is best and work hard to maximize that. We're certainly willing to open our door, as we have with the Anadarko project in Port Hawkesbury, to work with municipalities to ensure that projects happen in a timely way.

MS. MORE: I'm just wondering if you've had an opportunity to study what has developed in other parts of the world in terms of developing the offshore and the infrastructure, and have you been able to incorporate any of their best practices and their findings into how that's evolving here in Nova Scotia?

MS. ALISON SCOTT: Certainly, it's an ongoing concern and I know some of the members in this room have participated in some of our efforts to examine the systems in other jurisdictions. Norway, United Kingdom, we've been around the world in terms of study initiatives, for certain, and physically, in some cases, to other jurisdictions, so it's something that we're keenly aware of.

The Atlantic Energy Roundtable allowed us to have a focus on best practices through pre-structured committees and officials tasked with the research to bring forward best practices whenever possible. The work that the round table has assigned to officials over the coming months - as I made reference to in my remarks with respect to renewal of our regulatory regime - will require them to examine regimes in other jurisdictions. We fully intend to carry out that work and we have the assistance of the federal government and the Province of Newfoundland, and the keen interest of Quebec and British Columbia as well, to help us on our way. We think we have pretty good momentum towards ensuring that whatever we come up with in the end with our regulatory practices, will be the result of examination of best practices.

MS. MORE: Can you or your staff give me any other examples of best practices that have been incorporated into what we're doing here in Nova Scotia?

MS. ALISON SCOTT: Bruce has been working most closely with the Atlantic Energy Roundtable. It's probably best if he answers that question.

MR. BRUCE CAMERON: We also looked at that very extensively when we were doing the Energy Strategy. The Energy Strategy makes the specific commitment to look at opportunities to engage other communities broadly in Nova Scotia for offshore oil and gas.

You have to put it in the context of what we've been looking at largely is a natural gas offshore, which is anchored to the onshore by a pipeline and the pipeline landing point is obviously outside HRM, and around the Strait area is where the facilities have led industry to go, in terms of developing communities.

In many respects, there are only a number of landing points in Nova Scotia that have the geophysical qualities that are appropriate for a pipeline to be coming ashore. The strategy also looked at making commitments to see that they were aligned in a way that did not preclude the development of a petrochemical industry. So when you look at a number of communities, in many respects it depends on where the gas is found. If you make discoveries that are to the north in the Laurentian Sub-basin, you could then look at opportunities to see where communities in Cape Breton may become a landing point, a supply base and so on and so forth. If they are further down south, there were expressions and still are, a live Blue Atlantic Project, which should see things happening in the southwestern part of the province.

The government has taken the position through the Energy Strategy of saying, we will respond when discoveries start happening. It may be very premature to go out there and start buying up public lands and using taxpayers money to bank lands when nothing ever happens in that area. So it really is a matter of being able to respond quickly as those discoveries are made.

MS. MORE: Thank you.

MR. CHAIRMAN: Mr. Parker.

MR. CHARLES PARKER: Good morning, folks. My apologies for being late but there's heavy traffic out there this morning.

I want to talk about the offshore accord in relation to the royalty structure. I think we agree that it's generally much better than we had, most Nova Scotians have welcomed it as being an improvement over where we were, but we're to get 100 per cent of royalties for eight years or 16 years, but it's 100 per cent of what?

MS. ALISON SCOTT: Well, we've got the architect of the regime here with us and perhaps I would ask Chris to walk you through how our royalties are structured and what the percentages are at various points in time.

MR. SPENCER: First of all, I want to clarify one thing. It's 100 per cent of our offshore revenues, our provincial source offshore revenues, so that includes not just royalties but also provincial corporate income tax and the other primary source that we've seen lately from the offshore forfeiture payments, as well. There are some other sources that are mentioned in our offshore accord but those are of less significance, so we've focused on

generally the two areas of tax and royalties, with forfeitures being administered on certain occasions.

Mr. Parker, are you looking for a better understanding of the royalty regime, itself?

MR. PARKER: I'm just wondering, is it a uniform percentage with each company that's out there or is it negotiated on a one-to-one basis, or does it fluctuate over the term of the contract? Is it 1 per cent? Is it 5 per cent? Just how does it work?

MR. SPENCER: The royalty regime, we have a separate stand-alone agreement with the Sable owners. However, that agreement has much in common with what we refer to as our generic royalty regime. Our generic royalty regime would apply to any future projects and the Sable agreement incorporates much of that generic regime into its own terms, with some differences.

Generally, the fundamentals of our royalties, it is a two-tier royalty structure with royalties calculated based on gross revenues associated with the project earlier in the life of that project, ultimately, stepping up to higher royalty tiers which are calculated based on the project's net revenues. In both of those tiers, the gross revenue tier and the net revenue tier, there are different rates that would apply. As the project progresses in its cumulative profitability and it achieves first of all what we refer to as being simple payout, where its cumulative revenues first outstrip its cumulative costs, at that point it has reached a significant milestone toward stepping up to those exceedingly higher royalty tiers.

One of the things that they have to accomplish - not just covering their costs - is they have to outstrip a return allowance that we allow the project. That return allowance recognizes generally the risks associated with the offshore activity. So for each of those step ups to the higher royalty tiers, they have to not only surpass those cumulative costs, but also, get past that return allowance that grows throughout the project life. We're giving them a modest return before we will step them up to the higher royalty tiers.

MR. PARKER: It sounds complicated. Are we getting a fair deal for Nova Scotians? Are we getting as good a deal as Alberta, for example?

MS. ALISON SCOTT: For clarity, perhaps Chris can walk you through the steps that have happened on Sable and where we think it's going to go and assign percentages to the various . . .

MR. SPENCER: In terms of the fairness question, there was an independent study that was undertaken and this was three or four years ago and this was by a recognized expert in petroleum fiscal systems. That independent study found that our royalty regime struck the right balance between a fair return to Nova Scotia and being competitive to industry. We've seen that as a very solid affirmation that we have achieved the proper outcome.

The rate structure, itself, the Sable Offshore Energy Project is currently paying royalties at a rate of 2 per cent of gross revenues. The initial royalty tier for the first three years of production was 1 per cent of gross revenue. We are anticipating a step up, first to a 5 per cent gross revenue tier and then to a net revenue-based tier at 30 per cent. We're expecting those step ups to occur within the next few years, certainly within this decade.

When you step up from a gross revenue tier to a net revenue tier, you're moving from royalties that are in the tens of millions annually, to royalties that are in the hundreds of millions, potentially.

MR. PARKER: So compared to the Province of Alberta - I think whose rates are much higher, that's land-based exploration and production - how do we compare? Are we getting a fair deal for Nova Scotians?

MR. SPENCER: If we were to compare to Alberta, we would want to compare to activity that is more of the similar risk that we see offshore Nova Scotia. So we wouldn't necessarily look to the conventional areas of western Canada as a comparison, we would look to perhaps some of the unconventional activity; oil sands, for example.

The oil sands royalty regime is very similar to our royalty regime structure in that it has that gross revenue/net revenue tier structure with step ups based on covering your costs and achieving that return allowance. The rates are not entirely dissimilar. The royalty burden, the competitiveness, is really driven by the risk profile of a particular area and that is one of the concerns that is foremost in industry's mind, when they are deciding whether or not to, first of all, drill an exploratory well and then whether or not to develop a discovery. So we have to design the appropriate regime to address that risk profile.

MR. PARKER: So we're getting 100 per cent then of something that fluctuates and moves over time and for the next 16 years, I guess, we're getting 100 per cent of whatever that fluctuating amount is. In spite of that, is the federal government also getting something or is 100 per cent, 100 per cent, or are there other streams that they can tap into?

MS. ALISON SCOTT: What we get 100 per cent of is provincial source revenues. There is federal corporate income tax, excise tax, duties, other sorts of things, so they're still making money on the offshore.

MR. PARKER: So there are other streams of revenue for the federal government over and above our 100 per cent?

MS. ALISON SCOTT: Yes.

MR. SPENCER: For a typical project, if we had to break down the revenue stream between provincial royalties, provincial corporate income tax and federal corporate income tax, royalties would be perhaps 50 per cent of that pot, federal corporate income tax 30 per cent of that pot, and Nova Scotia corporate income tax 20 per cent of that pot. We will now keep all of our share, we will retain our 70 per cent of the pie. The federal government has always and will continue to always keep their 30 per cent of that pie, their federal corporate tax.

MR. PARKER: So out of the whole pie that is generated out there in revenues, what is the percentage that Nova Scotia gets and what's the percentage that Ottawa would get, counting all these factors?

MR. SPENCER: On that very broad-brush stroke that I presented to you, we would keep 70 per cent of that pie, just focusing on the primary revenue sources of corporate income tax and royalties. There are other - as I've mentioned - revenue sources out there but they're more peripheral.

MR. PARKER: This whole deal still hinges on the federal government through Parliament passing the legislation. What happens if that doesn't happen?

MS. ALISON SCOTT: That's a contingency which we believe at this point in time is speculative. We believe there is sufficient support to, in fact, see the bill through. In the last federal election we had the support of both the Conservative Party and the New Democratic Party for initiatives with respect to our accords, to ensure that we were kept whole. We're hopeful that those Parties will follow through with the spirit and commitment that they made during the election to support the federal Liberals, to ensure that the bill clears the House.

MR. PARKER: This is the most important hinge at the moment that it depends upon?

MS. ALISON SCOTT: Absolutely.

MR. PARKER: Do I have some more time, Mr. Chairman? I'll come back in the second round on some others.

[10:00 a.m.]

MR. CHAIRMAN: Mr. Theriault.

MR. HAROLD THERIAULT: Thank you, panel, it's very interesting. I haven't followed the offshore too much but I have followed the fishery well all my life. You spoke of exploration leaving here and going to the Gulf of Mexico for shallower water and cheaper ways to find oil and gas. Seismic testing was done in our gulf, the Gulf of St. Lawrence. Do

you have the results of that seismic testing or will you receive the results of that seismic testing in the future?

MS. ALISON SCOTT: We have the results, I believe.

MR. CAMERON: Are you referring to the environmental impact or the actual geophysical data?

MR. THERIAULT: Of the full seismic testing, whatever came out of the seismic testing. What was found?

MR. MACMULLIN: From the geoscience standpoint in the Gulf of St. Lawrence - and what I can speak to is the activity that took place in offshore Cape Breton - most of the seismic that was acquired was acquired in the early 1970s, about 4,000 miles or so of it. There has been a small program that was recently completed in conjunction with a study with Corridor and DFO and a company called GSI.

The results of that seismic have shown, by the operator of that licence, that there are some prospects in that area. This is certainly a matter of public domain because they're talking in public about potentially looking to try to take it to a next step. Again, we won't really know what will be there until somebody decides to either acquire a little more seismic or to drill a well. There are very preliminary results so far that suggests there may be some reason to do some more work. That's all we really have at this point.

The data, itself, is available to government, it is collected by the Offshore Petroleum Board, our regulator, and we have complete access to that data, even though it is confidential to the public at this point.

MR. THERIAULT: We know there is oil and gas on Georges Bank, I believe that was found many years ago. It has been quite a controversial subject down there with the fishermen. Fishermen are getting scarcer, as we know. Do you believe that once the fishermen get scarce and the opposition diminishes that there will be oil wells drilled on the Canadian side of Georges Bank?

MR. CAMERON: Let me take that for a second. The moratorium continues well into the next decade. I don't believe that there has been drilling on the Canadian side of Georges Bank, there has been seismic shot, so nobody has discovered anything at all, so there's nothing there. There is simply, through the geophysical data, the seismic data, there's geology that somebody says, you know, when that kind of geology turns up elsewhere we think there might be some oil or gas there.

I think it's fair to say the current thinking is - if there are hydrocarbons there - it's probably more likely to be a gas, that's what the companies tell me - there's a government decision that needs to be taken to lift that moratorium. There was a review panel and a commitment that there would be another review undertaken before a moratorium is lifted. When the review panel was undertaken in the late 1990s, there was also a commitment for further science research and evaluation of some of the issues and concerns on the environmental issues on Georges before another moratorium decision is taken.

I can say, generally, that the technology and the ability to go into more sensitive areas has been developed in the offshore over the last 10 to 15 years. There are parts of the Barents Sea which they're looking at very carefully in Norway now and there are very high environmental standards with zero harmful discharge requirements and so on and so forth. But in those areas they are not light decisions taken, they are ones that are taken fully transparently, through very public processes and Nova Scotia is committed to do that as well. It takes two to lift a moratorium, it's both a federal and provincial decision, as it was to put it in place in the first place.

MR. MACMULLIN: Maybe I can add what's going to happen over the next six, seven years, worldwide, which will have an impact on all moratorium areas in North America. Moratorium areas are now in for exploration in offshore California, the eastern Gulf of Mexico, the whole Eastern Seaboard, including Georges Bank, Western Seaboard, basically, there are a lot of areas off limits to oil and gas exploration.

One of the things that's happening now is that North America is projected to run out of its own natural gas, which is why you're seeing a lot of LNG proposed to be brought in. I think that the interest in looking at opening up moratorium areas, government decisions - whether it's in Mexico, United States, or Canada - are going to be predicated on the security of supply of bringing in, for example, offshore LNG from other parts of the world. As the deputy said a little while ago, there's at least 600 tcf in the small country of Qatar. There is lots of natural gas in the world that could come to North America in an LNG form and to the extent that that could make it in, it would take pressure off places like Georges Bank potentially and the Eastern Seaboard and the eastern Gulf of Mexico to open those sensitive fishing areas up.

So it's going to be something that we'll all have to watch as governments over the next three, four, five, six years, to see how the supply and demand picture evolves and to see what appetite any government is going to have, in terms of wanting to shore up the security of its own supply instead of depending more on foreign sources of hydrocarbons. Throw that together with a resource conservation alternative, green energy, it's going to be a mixed bag over the next while until that sorts itself out.

MR. THERIAULT: Are there any plans for seismic testing or exploration on the inner Bay of Fundy?

MR. MACMULLIN: No.

MR. THERIAULT: Do we have wells offshore that are drilled and gas or oil is there that the people don't know about?

MR. MACMULLIN: The only well that I'm aware of in the Bay of Fundy is on the New Brunswick side, it's very close to Saint John, I believe. It has some potential, there are some geoscientists who think it has some significant potential but there has been nobody who has approached us since I've been here, for over 10 years, who expressed any interest in exploring the Bay of Fundy.

MR. CAMERON: When you talk generally about discoveries out there that companies have made that the people don't know about, I think it's fair to say that all the well data, whether it's seismic data or results from the drilling, all of that information comes to the offshore board. All of that information is available and accessible by the Department of Energy in Sandy's group. This idea that somewhere people have made all of these discoveries that they're sitting on, I think Sandy would be able to say, not true.

By and large, in general terms, what is out there in the domain about our potential and our resource, is based on all the information we have. Now, there may be a particular well that is drilled that is still in that commercial protection from disclosure but when you're talking about the general picture, no.

MR. THERIAULT: Thank you.

MR. CHAIRMAN: Mr. Epstein.

MR. EPSTEIN: In fact, that's exactly the point I would like to take up, which has to do with the geological data and what access we have and how much we do know. I wonder if you could just briefly summarize for us how this system works? It has just been suggested to us that the data comes from the companies as a result of any research that they do goes through the CNSOPB and ends up in the hands of the Department of Energy. But surely some of it is, as you've said, before the public domain but some of it is private proprietary data, so first I wonder, is there a delay at all in the flow through of data from the companies to the CNSOPB to the Department of Energy?

MR. MACMULLIN: The only delay that would exist is if we decided that we could wait awhile to see some of the seismic data. There's a lot of it that's acquired and we may say well, look, we don't have the time to look at this particular area right now, so we may not acquire it. In terms of the information that's sent to the Offshore Petroleum Board, they're generally of two natures. One nature is information related to the seismic itself. Now, what typically happens is if I acquired a program in January, you get raw data, what has to happen to that is that it has to be processed, in other words, put through a bunch of algorithms and

put in an interpretable form. That usually takes about a year's worth of work and at about that point in time it is then useful to the regulators as well as government. So it's about a year's delay or so between the acquisition of the data in its raw form and being submitted to the Offshore Petroleum Board. We have access to that immediately.

If the data is associated with an exploration parcel and acquired under contract by ExxonMobil, EnCana or a company like that, that information will be proprietary for five years and then it goes in the public domain. If it's acquired by a company on what they call a speculative nature, which is like Geophysical Service Incorporated or some other company like that, who acquire the information with the purpose of trying to sell it to interested investors, that stays in the private domain for 10 years. It's confidential for 10 years and then it goes into the public domain.

If it's well information, it is turned around virtually overnight. For example, there is daily well drilling information that's submitted to the Offshore Petroleum Board, they complete the drilling of their well and then they take some information associated with it, called well logs, and the boards get that immediately. If there is a zone of interest that should or should not be tested, that is discussed with the Offshore Petroleum Board. So the long answer is that there are no real delays.

MR. EPSTEIN: The reason I'm asking, of course, is I'm curious as to the department's current estimate of reserves. You're talking here about natural gas reserves on the whole of the Nova Scotia offshore and I heard you discussing a little earlier what you characterized as being the total volume of Newfoundland reserves; you gave a figure of about 4 tcf but I didn't hear a figure for Nova Scotia. My recollection is that the Geological Survey of Canada at one point put it as high as 40 tcf off Nova Scotia but has scaled back on that at some point - I don't remember the number, I see Mr. Cameron shaking his head no.

What I'm wondering is - although I would be happy to hear what the Geological Survey currently has to say, I'm particularly interested in what you have to say - whether you carry a general number around in your head about what you think are the potential offshore reserves in Nova Scotia at the moment and just to be clear, I'm not asking of course for any proprietary data. I'm not asking about any particular ExxonMobil wells or anyone's particular wells or seismic or any other research, I'm asking about a global figure.

MR. MACMULLIN: I have two numbers for you. The number in terms of discovered gas is in excess of 6 tcf but an exact number I don't have, it's probably in the range of 6 tcf or 7 tcf, which would include Deep Panuke and the SOE reserves. In terms of ultimate potential, in excess of 40 tcf and the 6 tcf would be part of that. So, roughly, 34 tcf yet to be found, the difference between the two.

[10:15 a.m.]

MR. EPSTEIN: Just to nail down the Geological Survey, have I been misinformed about this? Did I get the wrong impression at some point? I thought they had scaled back their estimate.

MR. MACMULLIN: The Geological Survey's most recent analysis, Mr. Epstein, I think probably in the mid-1980s or so was the most recent work they've done. There have been various committees that had done some work, the National Energy Board has done some work in various basins as has the Canadian Gas Potential Committee, which is an ad hoc committee, as has the Offshore Petroleum Board done some work, each in their own specific areas of basins. What hasn't been done is that nobody has pulled it all together in a most recent up-to-date all of offshore Nova Scotia study. So there is a mix of different numbers out there. There is no one number that is the most recent number. So that's why I say in excess of 40 tcf.

MR. CAMERON: What you would normally expect is the Geological Survey of Canada, by its name, would suggest that it's currently up to date and the authority on resources in Canada. But in general terms, the answer is they're not.

MR. EPSTEIN: I understand that a lot of the data is old, or older, but my recollection is that 40 tcf was their original number and if we're still talking 40 tcf then we really haven't moved off that.

MR. MACMULLIN: I don't recall ever seeing a 40 tcf number associated with a GSC in recent years. I can tell you that the Offshore Petroleum Board's most recent estimate in deepwater is anywhere from 15 tcf to 41 tcf potential. There have been some numbers thrown around about the Magdalen Basin potential, which is off Cape Breton in the Magdalen area. There are various numbers in the Sydney Basin, various numbers in Georges Basin are thrown around of various vintages, but there is no study that we're aware of that is an up-to-date number of the offshore.

MR. EPSTEIN: I'm wondering if anyone could tell me about the current life expectancy of the SOE Project.

MR. MACMULLIN: Right now I would expect to see without any additional gas being added to that infrastructure, which I think is an unlikely scenario, around 2015 to stop production from the five fields currently producing.

MS. ALISON SCOTT: We have a lot of reason to believe, in fact, that there will be additional tie-ins and that Sable will have a number of tiers, so to speak.

MR. EPSTEIN: Given the six SDLs that make it up at the moment and what they have on tap and I take it are built into your assumption of a 15- or 16-year current life expectancy is also the pressurization of the line, is that right?

MR. MACMULLIN: The adding of the compression?

MR. EPSTEIN: Yes.

MR. MACMULLIN: Which is the pressurization of the line but the creation of a vacuum effect on the wells to pull more out, that includes that.

MR. EPSTEIN: It hasn't gone below 15 or 16 years? I have to say, I thought at some point they were projecting a shorter lifespan.

MR. MACMULLIN: It could happen. It depends on the performance of the reservoirs under compression. But it's not unreasonable to carry a number of 2015 or so, maybe a year more or a year less.

MR. EPSTEIN: Earlier when you were asked about likely spots for pipelines or other facilities coming ashore there was a suggestion that there's a limited number of appropriate sites; clearly Country Harbour and Shelburne, I guess, are two that have been identified. Would Sydney be on that list or some area around Sydney?

MR. CAMERON: We had a meeting with about 30 or 40 people shortly after the Energy Strategy to look at issues of corridors and the utility corridors and the issue of whether we could have fibre optic cables and pipelines, just to try to ensure that there was less seabed clutter. I remember that they looked at from the tip of Cape Breton down to the other tip around Yarmouth at landing points. But I don't think we actually looked at going up Sydney Bight and coming into Sydney Harbour. There certainly would be fewer issues in the Gulf of St. Lawrence where it's a much muddier bottom rather than this hard granite. The issue really is how you can bury it and how you can find - and Sandy can probably talk about it. I've seen these images of our offshore and it's huge canyons and craters and it's just not a great place to put a pipeline. You're just continually crossing gullies.

MR. EPSTEIN: Not the Gully.

MR. CAMERON: Not the Gully, little gullies. So when you're doing that, it's very, very expensive, so you want to find a path through that and that's the limitation.

MR. EPSTEIN: Yes, but there have been, I think, a variety of times in which the prospect of something coming ashore in Sydney has been discussed, are you saying that this isn't feasible or it's too expensive?

MR. CAMERON: I'm just saying that I don't remember looking at the issue of Sydney, per se.

MR. EPSTEIN: Are there Atlantic shore sites in Cape Breton then?

MR. MACMULLIN: We, Mr. Epstein, would have to speculate on that right now. I think it's reasonable to assume that you can find some place that would be a candidate for landing any gas, be it coming from the Laurentian Sub-basin, the Sydney Basin or even offshore Newfoundland.

MR. EPSTEIN: Thank you, I have more questions but I don't have more time, so thank you.

MR. CHAIRMAN: If I could ask a few questions on behalf of our caucus. Deputy, you've indicated, and I think your staff in answering Ms. More's questions, that you don't control where industry goes here in the province. Would you agree with me that for the most part where there is production taking place that industry is mainly located in the Strait area?

MS. ALISON SCOTT: Production of the oil and gas?

MR. CHAIRMAN: Yes.

MS. ALISON SCOTT: Yes, well, Goldboro is in Guysborough, but yes.

MR. CHAIRMAN: How many staff from the Department of Energy do you have located in the Strait area?

MS. ALISON SCOTT: Everyone in the Department of Energy is located in Halifax.

MR. CHAIRMAN: Why is that? If your industry is down in the Strait area, why are you sitting here in Halifax if you say you don't control where industry goes and you look to work with industry; why do you have absolutely no presence in the Strait area?

MS. ALISON SCOTT: We're engaged in the effort of promoting our offshore, we're engaged in the effort of encouraging the development of projects. We don't actually regulate the industry itself once it's up and running. The Department of Environment and Labour has primary responsibility for the public safety regulation of the industry, both from an occupational health and safety point of view and from an environmental point of view. So once the industry is in situ there's very little for us to do on a day-to-day basis with them. So there isn't a need to interact in the way that the Department of Environment and Labour might.

MR. CHAIRMAN: So you don't work with the Sable Offshore Project and encourage them for future projects or future development; now that they're here, you've stopped talking to them?

MS. ALISON SCOTT: They're all in Halifax.

MR. CHAIRMAN: Well, they have no choice, because that's where you are.

MS. ALISON SCOTT: They were kind of here even before there was a Department of Energy.

MR. CHAIRMAN: You still today have no presence in the Strait area, yet we have Keltic Petrochemicals that is looking to settle in that area. You have the Andarko facility that's looking to settle in that area, and yet you still have no presence in that area. So come to our province, go where you have to to set up, but come to Halifax to talk to us.

MS. ALISON SCOTT: Well, Keltic Petrochemicals is in a suite of offices the floor above ours. I'm not aware that they have an office in the Strait area either.

MR. CHAIRMAN: Do you have any intentions of having any of your staff located in the Strait area?

MS. ALISON SCOTT: At this point in time, I have no intention to, no.

MR. CHAIRMAN: I think one of your staff made the statement that you had said that there is lots of natural gas available in the world, is that still your statement today, that there is lots of natural gas . . .

MS. ALISON SCOTT: There is lots of natural gas in Russia and Qatar, mostly regarded as stranded, or there are stranded pockets of gas which haven't been able to make it to market. The problem is getting it to North America, from our point of view.

MR. CHAIRMAN: Do you have any of your staff participating in the North American Natural Gas Conference that's taking place in Calgary either right now or in the next few days?

MS. ALISON SCOTT: We had a look at it and actually the program that we saw was one which was geared much more to a western basin.

MR. CHAIRMAN: Are you aware that one of the major talks at this conference is, in fact, a prediction that there is not nearly as much available natural gas in the world as what was previously thought and that, in fact, the construction of these LNG facilities in North

America may be premature based on the fact that there may have been overinflated predictions of natural gas? Are you aware of that?

MS. ALISON SCOTT: I did see that on the agenda, yes.

MR. CHAIRMAN: Yet, it's still your position today, as the Deputy Minister of Energy Nova Scotia, that there's lots of natural gas available in the world.

MS. ALISON SCOTT: Yes.

MR. CHAIRMAN: Okay, interesting. Going back to the offshore accord, we move from the initial figure of $640 million to $830 million. We've since found out, through freedom of information through the media that the crux of that change was a change in the price of gas. Would you agree with that?

MS. ALISON SCOTT: That was one factor.

MR. CHAIRMAN: How much of a factor?

MS. ALISON SCOTT: Let me begin by reviewing the offer which was originally on the table. In September, we received an offer from the federal government, which was an offer for $640 million, a one-time payment that would be made incrementally, however we wanted to take it over an eight-year period, and that would be it for the eight years and there was no second eight-year period offered. That $640 million was a number that the federal government suggested was adequate to address the needs of Nova Scotia in light of what our offshore was going to produce. We never accepted that number. We did not accept that number and went back to the negotiating table and suggested to them that price variance was one of the factors that they should consider and that, ultimately, did result in a change in the deal structure, which saw the number of the lump payments, so to speak, move to $830 million being payable up front as opposed to over an eight-year period and the commitment to float within market for that first eight-year period, plus a second eight-year period which would allow us to float with the market during that entire period of time.

MR. CHAIRMAN: Why didn't you just tell Nova Scotians, we don't accept the $640 million because we think our offshore, the value should be $830 million, so we disagree with the price, why didn't you just indicate that as part of your negotiations?

MS. ALISON SCOTT: We certainly indicated it to the federal government but our approach throughout the negotiations was to negotiate with the federal government not through the media, not through any other means.

MR. CHAIRMAN: It was 100 per cent when it was $640 million and it's still 100 per cent when it was $830 million, basically it was 100 per cent of what? It was agreed that the value would change, but it was still $100 per cent. Do you not agree with that?

MS. ALISON SCOTT: The offer of $640 million was a fixed number and it was responsive to a certain price assumption and if you accepted that price assumption, it was 100 per cent of that price assumption based on reserves. But we didn't think that it necessarily was reflective of either the price or the likelihood of our future in the offshore, so we went back to the negotiating table and said it's not enough.

MR. CHAIRMAN: So, it's still 100 per cent, you changed the price. It was agreed to change the value of what was coming in our offshore, so that's basically where you got the $830 million?

MS. ALISON SCOTT: It's a question of 100 per cent of what? It was 100 per cent if you made a certain price assumption, it was not an assumption we were prepared to make. So if you accepted that assumption as correct, you might have accepted the deal. But we didn't accept the assumption as correct.

MR. CHAIRMAN: I'm curious, at what point did you indicate to the federal government this new figure that you figured was more appropriate?

MS. ALISON SCOTT: We indicated from the beginning that . . .

MR. CHAIRMAN: So $830 million is what you went to the table with to start?

MS. ALISON SCOTT: No, we didn't put that number on the table initially. You're asking when we indicated to the federal government that the $640 million wasn't acceptable. We indicated that from the very first day.

MR. CHAIRMAN: So, when did you bring the $830 million figure?

MS. ALISON SCOTT: It was a process of negotiation that evolved.

MR. CHAIRMAN: So when you first started, you didn't have that $830 million figure in mind?

MS. ALISON SCOTT: Naturally, we were trying to accomplish the best possible result for Nova Scotians and that was our target.

MR. CHAIRMAN: Since you've become deputy, and I guess I'm curious, you were Intergovernmental Affairs before coming over to Energy?

MS. ALISON SCOTT: That's right.

MR. CHAIRMAN: So you would have had familiarity with the other deputy ministers within the Civil Service?

MS. ALISON SCOTT: Yes.

MR. CHAIRMAN: You'll recall that the government underwent quite a significant search for Mr. Dan McFadyen, who was our first Deputy Minister of Energy. Do you have personal knowledge as to why Mr. McFadyen left his position as quickly as he did?

MS. ALISON SCOTT: His explanation to me was that he had considerable family pressure. I'm not sure I really want to go into it.

MR. CHAIRMAN: Okay. Are you aware of any sort of difficulties that Mr. McFadyen had with the minister or with the direction the government was going in with the Department of Energy and did he express any of those concerns to you in your position?

MS. ALISON SCOTT: Not at all.

MR. CHAIRMAN: I'm curious, when you moved over from Intergovernmental Affairs to Energy, salary-wise, was there any change for you at all?

[10:30 a.m.]

MS. ALISON SCOTT: None.

MR. CHAIRMAN: When the Premier announced Mr. McFadyen, he sent out a press release which was quite extensive on his background and his previous experience in the offshore. I guess I'm curious, what do you see your role as deputy minister and the experience you bring to seeing increased development taking place in our offshore?

MS. ALISON SCOTT: Well, I believe, in some measure I was moved from Intergovernmental Affairs to the Department of Energy to address the very issue that we came here to speak about, which is the offshore accord. I had been working on that file for about four years, during which time I acquired considerable understanding of the accord, how it operated, its history, how the board operated and its place in the Nova Scotia economy. I believe that that was of relevance to the government in its decision to bring me across the street from Joe Howe to the Bank of Montreal Building.

Also, I think my background as a lawyer with the Nova Scotia Department of Justice, which for a number of years allowed me to participate in litigation in the development of Statutes and regulations about the regulatory process. As you can see from our presentation

today, one of the issues that we face as a province is a question about the regulatory regime we have in our offshore. My background as a lawyer certainly allows me to bring to the table experience and understanding about other regulatory regimes, an appreciation of how delegated authority, which the CNSOPB does operate, ought to operate in a system like our offshore. So I think that there were reasons that the government had for wanting to move me from Intergovernmental Affairs to the Energy portfolio.

MR. CHAIRMAN: Were you considered in the search that brought Dan McFadyen to this province?

MS. ALISON SCOTT: I didn't apply.

MR. CHAIRMAN: Did you apply for this position this time?

MS. ALISON SCOTT: As I understand the process, this time around it was simply a shuffling of deputies.

MR. CHAIRMAN: So we went for a search for the first deputy, but no search for the replacement deputy?

MS. ALISON SCOTT: I gather the government was satisfied with my credentials to move me across the street.

MR. CHAIRMAN: That's all my time for this round.

Mr. Parker.

MR. PARKER: I had one quick question, I guess, left over around the accord and then I want to move on to something else. But I read in the original documents about the accord that there was a ceiling tied to the Ontario economy. Is that still true or not?

MS. ALISON SCOTT: No, that's gone. That was part of the original $640 million offer. We could either take the $640 million cash in the first eight-year period over the eight years or we could float with market, as long as we didn't run up to the ceiling of the Ontario cap.

MR. PARKER: Why would it be tied to another province's economy? I'm just trying to figure out the relationship. It's not a part of the accord I understand but it was considered to be . . .

MS. ALISON SCOTT: That was the federal government's position. We never accepted it as legitimate either.

MR. PARKER: I want to move on. I think Mr. Cameron had mentioned the words, seaboard clutter. That has been a topic of conversation particularly around the company called EnCana and I guess the leftovers, the garbage left on the ocean floor, of pipeline and concrete and some other products. Originally, I believe the agreement they had was that it would be taken away when they abandoned their position but since then there has been a new agreement that they're allowed to just leave it. Now, EnCana, as we know, is a very profitable company and certainly were capable of doing that, so why were they allowed to leave it there? There's concern about our marine environment, about our fishery, and is this now government policy that when wells are abandoned that they leave their garbage behind?

MS. ALISON SCOTT: That was a decision of the CNSOPB, which is the regulatory body set up to consider applications of this nature. They did that after requiring the corporation to satisfy them that environmental considerations were considered and that the board itself was satisfied that there was at least as much risk from the prospect of taking the material up as there was from leaving it on the floor of the ocean. By the time the application had been made for permission to vary the development plan to allow them to leave it on the ground, the material itself had been silted over, so that it was no longer exposed on the ocean floor. The risk to human life as a result of requiring divers to go down to collect and arrange the collection of the material was seen as greater than the risk to sea life as a result of leaving it in the ground. As you are aware, we do create man-made reefs in our oceans as it is now.

MR. PARKER: Originally though, they had agreed that if at the point they were going to withdraw that it would happen at some point when they abandoned . . .

MS. ALISON SCOTT: The original development plan did include a plan to take it up, that's correct.

MR. PARKER: So does this set a precedent now that other companies will say, well, one company has gotten away with not having to clean up their leftovers, their garbage, now are other companies going to be allowed to do the same thing?

MS. ALISON SCOTT: The reason it was an issue for EnCana was because it did include this in their development plan. It is my understanding that most of the development plans that we have in place now in the offshore don't include a requirement that the debris be removed prior to . . .

MR. PARKER: It doesn't include an agreement that it be taken away, you say?

MS. ALISON SCOTT: That's not the standard, no.

MR. CAMERON: There are two contexts here that are perhaps important. One is that under Canadian law, the Canadian Environmental Assessment Act, an issue of abandonment has to be addressed for the environmental concerns and then determination has to be made

through that system and ultimately signed off by the Minister of Environment, federally, as to whether it's environmentally acceptable to do that.

There is the second issue which is how does it impact in terms of the fishing industry and other ocean users? Worldwide practice and understanding of how to deal with structures that are creating natural reefs because they're staying on the ocean floor, what impact they will have on fisheries, how you can make those structures fishing-friendly and so on, people are looking at that around the world and trying to make a decision as to which way to go. My understanding is in this particular case, the decision to allow some of the structures to remain buried, includes a provision to monitor that to ensure that there still is no issue with the fishing industry and it's then project-specific rather than a generic policy, take everything up, leave everything down. You look at the situation that's occurred over the life of a project and the natural environment at that time.

MR. PARKER: Can I just clarify with the deputy, did you say that it's now not normal policy to ask companies to clean up after abandoning their well?

MS. ALISON SCOTT: In each development permitting process the companies are required to submit their plan around decommissioning. The CNSOPB approves the plan and it's my understanding that the EnCana undertaking in its development plan, which was approved by the board, was not consistent with the other plans that are in place, approved by the board, with respect to decommissioning.

MR. MACMULLIN: Maybe I can add another point. Since the Cohasset project has come along, the Offshore Petroleum Board has assessed the development plan for the Sable Offshore Energy Project which included the proposal to abandon in-place - which is the terminology they use - flow lines, buried flow lines, between some of the structures. That was approved. Nevertheless, there remains the perception that industry could file for one thing and then refile to do something different later on. In the minister's response to the fundamental decision that the Offshore Petroleum Board made on that matter, he strongly encouraged them to make sure that any future projects proposed by any developer fully address the prospect of partial or full in situ abandonment of certain facilities so that the public knows, up front, the prospect of in situ abandonment and have an opportunity through the public panel process to be able to comment on it.

MR. PARKER: It does sound like there has been a change in policy here. Originally, with our offshore, the plan was the companies had to clean up everything they left behind when they abandoned their well. Now you're saying it is possible up front they can say no, you're not going to have to abandon it and we'll take that as acceptable?

MS. ALISON SCOTT: It's not a policy. Each development permitting process is unique to itself. The company will file a plan with the board and the question of abandonment on decommissioning will be addressed. If the board is satisfied that the plan

meets environmental standards that are appropriate to the area, they'll approve the plan, so there is no policy, per se. It could be different if there was an environmentally sensitive area that had peculiar attributes that abandonment wasn't appropriate. The system is flexible enough to allow an appropriate plan to require decommissioning there.

MR. CAMERON: As you can well imagine, you would have to deal with it to a certain extent on a case-by-case basis because if there are certain environmental conditions where somebody buries something quite deeply, you may, in fact, cause a greater disturbance to the environment by trying to remove it later on. The point is that we will try to make those determinations in advance of a project.

In the case of the Sable project, there was an independent panel review which looked at these issues and came to a determination on the project.

MR. PARKER: Well, it's a real concern, that's for sure.

MR. CAMERON: Absolutely, and it's a concern everywhere in the world.

MS. ALISON SCOTT: We're hopeful that the minister's letter will ensure that the public at least is aware, in future development permitting processes, about what decisions are being taken.

MR. CHAIRMAN: Thank you, Mr. Parker. Mr. Taylor.

MR. BROOKE TAYLOR: Mr. Chairman, a goodly number of Nova Scotians are quite puzzled and perplexed as to why Nova Scotia Power is not burning, if you will, more natural gas. I'm wondering if our guests can tell us how many thermal generating stations have actually been retrofitted, so they can burn what is essentially a Nova Scotia product?

MR. CAMERON: I believe that they've now converted all three burners at Nova Scotia Power's Tufts Cove Plant and they have also installed a peak power natural gas turbine. The answer, I think, generally, is that from time to time over the last number of years they have used a fair bit of their natural gas supply, but it is well known that on most of the occasions, they've used the opportunity to sell the gas to other markets and used the profits from that to offset some of their other fuel costs.

They had a five-year fixed price contract for their natural gas which was signed prior to the Sable project going into commission. At that time, the natural gas prices were relatively low, so they had a five-year term where - the price was for five years, the contract is for 10. They are now into the second part of their contract to take that gas and we're not privy to what their new terms and conditions are on price, but I cannot imagine for a moment that they've re-signed at the original price.

Market prices are much higher today, so the opportunity for them to be able to sell into the market and use the profits there to offset other fuel costs is probably, certainly, significantly diminished. Therefore, there would be every incentive in the world for them to look at the fuel and use it themselves, particularly with the new environmental requirements with respect to sulphur that have gone into play. So the conditions under which it makes sense to burn natural gas have changed and they have changed in favour of natural gas.

MR. TAYLOR: That's kind of confirmation as to the response we were given from Nova Scotia Power, that it's more a business decision than it is one to do with burning a much more environmentally cleaner product. Regarding the other stations that Nova Scotia Power has, Mr. Cameron, what efforts are being made to retrofit those other stations, or are there any plans in place?

[10:45 a.m.]

MR. CAMERON: My understanding, when we examined this in the Energy Strategy is that, generally speaking, to retrofit a coal plant for natural gas, while it is technologically possible to do so - you have a burner - it is not economic to do so.

I actually had a personal experience recently where I actually had in my home a coal hot-water boiler that had been converted to oil and then got turned over now to a very ultra high-efficiency oil, but it can be used for natural gas as well. The whole boiler technology is much more efficient today than it was before, so it makes a lot more sense to start with a new plant and have it designed to be used for natural gas, preferably in a combined cycle way, which would allow you to burn the gas and then also, recirculate the exhaust and burn it again. The first time you run it as a gas turbine, like a jet engine and the second time you use the heat to drive another source of power. You use it brand new, rather than trying to retrofit, or even better, you would have a cogeneration plant where you use the heat as waste and circulate it and use it as heat. So it just makes a whole lot more sense to start from scratch in most cases.

MR. TAYLOR: I'm sure it does make a lot more sense to start from scratch. I would just conclude by making a comment that the NDP caucus can rest comfortably, go to bed tonight knowing that the new Conservative Party of Canada is, in fact, going to support that legislation when it comes forward. Obviously, I can't speak for your federal colleagues, but Stephen Harper and the Conservatives will be supporting the legislation. The hard work of our Energy Minister, the Premier and Newfoundland's Premier, and Finance Minister will pay off in spades for Nova Scotia and Newfoundland. I'll yield, Mr. Chairman.

MR. CHAIRMAN: Thank you, Mr. Taylor. We were told that you were on a phone call prior to arriving at the meeting. I guess it's clear now who you were speaking with, so I certainly appreciate you providing us with that.

Just as a closing question in the few minutes left, deputy, with the Atlantic Roundtable and the improvements to the regulatory process, can Nova Scotians expect to see any activity in 2005 on either Deep Panuke or Annapolis as a result of these regulatory changes?

MS. ALISON SCOTT: The regulatory changes have to do with the development plan approval. EnCana has suggested that they do plan to do drilling offshore. Whether that leads to a development plan approval process, they're not really connected questions. EnCana will continue to try to understand the geology of the Deep Panuke but it's a separate question as to whether or not they proceed with a development plan.

MR. CHAIRMAN: Have they given any indication of proceeding with that development plan in 2005?

MS. ALISON SCOTT: We're hopeful that they will.

MR. CHAIRMAN: Earlier in your presentation you indicated that the second question to the Premier after signing the offshore deal was, what's next? I think you felt it was, what's next, in terms of the $830 million. Our question is - we asked the same thing, what's next, but it wasn't with the $830 million, it was - what's next for our offshore?

You indicated that you spent quite a bit of time dealing with this accord and now that it is done, I think all Nova Scotians are asking, now that that is out of the way, what's next for our offshore? Should Nova Scotians still be thinking that there is a viable offshore industry in Nova Scotia or should we be coming to the reality that based on the last three or four years, maybe it's not such a viable option for the development of this province after all? I would be curious to hear what you would say to Nova Scotians in that regard of whether it's time to focus on other elements of resources for the development of our province, or what faith should we still have that there is a viable offshore industry available to Nova Scotians in the near future?

MS. ALISON SCOTT: Things haven't been as robust in the past as we would like, I'll grant you that, but are we optimistic about potential? Yes, we are. As you heard Mr. MacMullin say, we have the potential of 40 tcf of gas out there, why wouldn't we chase it? In terms of what opportunities it will provide Nova Scotians, we have the best opportunity we ever had with the offshore deal with have in place at the moment, to ensure maximum benefit.

It's our job - and I think I tried to outline that in my remarks - at the Department of Energy, to try to create a competitive environment for the operators in our offshore, to ensure that our regime in Nova Scotia is as friendly as we can possibly make it. There are certain things about development decisions that we can't control, like the geology, but what we can control is the opportunity for operators to understand that geology with our assistance.

You have heard Mr. MacMullin refer to the seismic data and the examination of it. Every time there's a well drilled, we understand just a little bit better what the offshore is all about and what the promise for future developments might be. So, what would I say to Nova Scotians? I would say we have a young basin, it's not necessarily a well understood basin, but do I believe it has promise, absolutely.

MR. CHAIRMAN: Have you set any targets that you can tell Nova Scotians that, we have a Department of Energy and here is where we expect to be in 2005-06 forward and here's what we expect to happen? I guess we're getting two different messages. In one sense, I think you're saying your department plays a pivotal role in being able to see the development of our offshore taking place, yet when that doesn't happen you sit back and say, it's a cyclical industry and we can't control that and there are ups and downs and don't blame us if there's no development taking place. There are mixed messages going on here.

You are saying, why wouldn't we chase the gas and again, I come to my original point, why aren't companies chasing our gas when the price is at an all-time high, yet they're not chasing it? That leads to the question, is there something we're not doing right or why would they leave that out there when there are no better conditions right now, price-wise, than to be going after our gas? There's something wrong with the argument that you're making.

MS. ALISON SCOTT: It's a competitive environment. We're in a worldwide industry and we have to ensure that whatever opportunities there are to improve that competitiveness, we take full advantage of. I think that there are things we can do, but it's not going to change the fact that at this moment in time, we are an immature basin. Our geology is not well understood. There is potential, we have to work hard to make sure that we maximize it and we have to make sure that we remain competitive with other jurisdictions. That's what our job is. I don't think there's a mixed message in that.

MR. CHAIRMAN: Out of the 33 active exploration permits, how many could potentially be abandoned in 2005?

MR. MACMULLIN: I don't have that number offhand for you because a lot of them could renew for an extra year or two.

MR. CHAIRMAN: One last one. Out of those remaining ones, if any are abandoned in 2005, will it result in additional revenue to the province or has that been incorporated in your $830 million?

MS. ALISON SCOTT: No, we didn't anticipate future abandonments in the $830 million.

MR. CHAIRMAN: So, any future abandonments would result in a benefit to the province, financially?

MS. ALISON SCOTT: Ultimately, but you have to remember, the way the deal works, if they're abandoned next year, we're not going to see that cash next year, it will go into the accumulation towards the $830 million. It may push us reaching that $830 million target closer, but we won't see it until that target is met, in cash terms.

MR. CAMERON: It's important, in cash terms.

MR. CHAIRMAN: Deputy, do you have any wrap-up comments that you or your staff would like to make? There are about five minutes remaining.

MS. ALISON SCOTT: We appreciate the opportunity to be here. We hope that we've answered your questions, I know it's a complex industry. If I have any message I want to leave with you it is that we believe there is potential. We believe that the future of Nova Scotia is going to be significantly improved as a result of having an offshore gas and oil industry in our province. We look forward to working hard to try to make sure that we maximize the opportunity to ensure that Nova Scotians take full advantage of that offshore resource, particularly at this time when we have the new revenue agreement, which will ensure that so much more of the benefits of the offshore stay in our own province.

MR. CHAIRMAN: Thank you. With that, committee members, you do see that the next meeting date we have, ironically, OTANS coming in and I'm sure many of the same issues will be explored. That is on Tuesday, March 22, 2005, from 9:00 a.m. to 11:00 a.m. After that, I believe we have ACTRA and the Screen Directors Guild coming in on April 5^th. Until then, thank you, again, to our presenters.

The meeting is now adjourned.

[The committee adjourned at 10:56 a.m.]