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City could benefit from exploratory drilling tax change

Mar 23, 2017 | 5:56 PM

 

MEDICINE HAT, AB — The impact of Wednesday’s federal budget on Alberta’s largest industry is beginning to take shape. The province will receive a one-time payment of $30 million to help with the more than 80,000 orphan wells scattered throughout Wildrose Country, but tax changes around the drilling of exploratory oil and gas wells are also on tap and the city’s new conventional oil drilling program could actually benefit from the change.

Justin Trudeau’s Liberal Government announced in its budget that companies who discover previously unknown petroleum or natural gas reserves will no longer be eligible to deduct, in full, their exploration costs of the first year. It’s a change to an existing tax program that the city doesn’t use says natural gas and petroleum resources general manager Brad Maynes.

“We’ll have potentially less competition,” said Maynes Thursday. “For the programs that we’re pursuing, these would be the types of wells junior start-ups might also be interested in pursuing.”

The Canadian Association of Petroleum Producers was disappointed by the news out of Ottawa Wednesday. President Tim McMillan says the change will affect junior start-ups ability to compete with our neighbours to the south when it comes to raising investment for exploratory projects.

“It is a challenge today to attract capital that other plays south of the border in the US are attracting a large amount of this global capital, and Canada is playing a little bit of catch up,” said McMillan over the phone. “These changes are going to exacerbate that challenge and make it even tougher.”

The federal budget says rising exploration costs will “influence influence investment decisions,” which is in line with “Canada’s international commitments to phase out inefficient fossil fuel subsidies.”

That last line from the federal government’s budget is the one that really strikes a nerve with McMillan.

“There is no subsidy of the fossil fuel industry in Canada,” he says. “We contribute about $15 billion annually to governments across the country.”

Maynes says the change could also benefit the city’s program by potentially increasing the labour pool they can draw from, but in the grand scheme of things he thinks it won’t be good for our area as a whole.

“It’s an unfortunate edge because I think the more companies that we have working the more people we have employed, and the more capital we see going into our communities and into our city,” Maynes said.

Ottawa is predicting $145 million will be generated by the tax change from 2019-2022.