Recent New Brunswick agreements for oil shale and potash: unique arrangements or the beginning of a trend

CIM Bulletin, Vol. 76, No. 849, 1983

DALLAS W. DAVIS, Mineral Industry Consultant, Fredericton, N.B.

Since May 1980, New Brunswick has called separate tenders for the right to explore and develop several polish prospects, as well as areas underlain by Alberta oil shale. These tender calls had in common the provision for a basic ad-valorem royalty, combined with sharing of cash flow after exceeding a 15-20% discontinued cash flow rate-of-return threshold. In the case of potash, the bidding variable was a share of cash flow, but for oil shale it was exploration expenditures committed, with the cashflow sharing to be negotiated at the time of application for a production lease. The Millstream potash occurrence, previously discovered by government drilling, received five bids (21.1% highest), the Dorchester "grassroots area" with four surmised drill targets apparently received no bids, and in the case of oil shale there were only two bids on the one block previously subjected to the most exploration. It is concluded that New Brunswick will not be successful in awarding the potash or oil shale rights in return for a comparable level of basic royalty and cashflow share as in the case of Millstream, unless it spends money in discovering prospects or sharing the exploration risk with companies. The approach is likely to work for oil shales only if current exploration proves the existence of much high-quality material or a definite trend of real increases in the price of oil is again established. Undoubtedly, it continues to be desirable to assure an on-going stable investment climate through award of potash and oil shale rights under terms which provide for a return that the public and future governments will consider fair. This could mean that some form of risk sharing with companies would be advisable.

Keywords: Mineral economics, New Brunswick, Oil shale, Potash, Royalties, Taxation, Governments, Millstream potash deposit, Tenders, Exploration, Mineral policy.