Alberta royalty changes, federal tax relief aim to unlock billions in oil sands investment

CALGARY — Alberta royalty changes and federal tax relief are forthcoming as federal and provincial governments, along with industry, attempt to unlock billions of dollars in new oil-sands investment.On Wednesday, Alberta Premier Danielle Smith said her government will announce a revised oil and gas royalty framework in November in the hope of encouraging oil and gas companies to invest in new production.According to Bloomberg, the new framework will be similar to the preferential royalty environment that Alberta has employed in the past.Smith said the changes are needed because the industry has been told for the past decade that it would be winding down operations instead of ramping them up.“You can imagine getting shareholders and companies to be in a different mindset has taken a little bit of time,” Smith said.The premier’s comments come after Prime Minister Mark Carney announced a “productivity mega deduction” at the Canada Investment Summit in Toronto earlier this week.The measure would reduce taxes on capital investments and extend to the oil industry..ANALYSIS: Saudi disruption, European demand highlight need for East Coast oil pipeline.“The effect is straightforward,” Carney told investors.“When you invest in Canada, you can deduct substantially more of that investment immediately.”The federal government says the measure will lower Canada’s marginal effective tax rate on new business investment from approximately 13% to 6.4%.The Liberal government is presenting the deduction as a central part of Carney’s plan to attract $1 trillion in investment over five years.Currently, Alberta’s royalty framework is covered by a provincial government commitment not to change the rules during the 10-year period beginning in 2019.Smith did not explain whether the proposed changes would take effect before that commitment expires or how much revenue Alberta could forgo under the new system.The premier did, however, predict that the incentives would generate interest in producing enough oil to fill the proposed BC coast pipeline.“Once the new royalty framework is announced, I suspect that you’re going to see a lot of interest in being able to fill that pipeline,” she said.“But there is a little more work we need to do.”.Enbridge's Houston terminal opens new gateway for Canadian oil exports.The pipeline proposal — which would largely follow the existing Trans Mountain pipeline corridor before terminating at a deepwater port south of Vancouver — is expected to receive a formal endorsement from the federal Major Projects Office (MPO) in October, followed by final regulatory approval by September 2027.However, constructing a new pipeline and increasing oil-sands production are closely connected to the industry’s willingness to move forward with the Pathways carbon capture project.Speaking at the Carbon Capture Canada Conference in Edmonton on Tuesday, Oil Sands Alliance president Kendall Dilling said Ottawa’s tax relief could help overcome one of the largest financial barriers facing the Pathways project.Energy Now reports that Dilling said oil-sands development faces a major investment challenge because it requires enormous amounts of capital before producing any return.“The hardest investor to find is the first one,” Dilling said.“Once you get through that valley of death, as we call it, the oil sands are incredibly resilient resources.”.Hodgson believes Pathways carbon capture costs can be 'readily absorbed’ by oil sands companies.Carney’s new initiative could now allow companies participating in the Pathways project to recover a larger share of their initial investment through the tax system more quickly than under previous depreciation schedules.Dilling said the initiative addresses one of the key issues the Oil Sands Alliance has been raising with Ottawa, although the deduction alone will still not be enough to move the project forward.“Our value proposition is not a standalone carbon capture and storage proposition,” he stated, adding that the Pathways project forms part of a “grand bargain” involving carbon capture, expanded oil production, new pipeline capacity, government support, and improved access to international markets.Energy and Minerals Minister Brian Jean said this week that Alberta, Ottawa and the five Oil Sands Alliance producers — Canadian Natural Resources, Imperial Oil, Suncor Energy, Cenovus Energy and ConocoPhillips Canada — are working toward final agreements by mid-November.

Alberta royalty changes, federal tax relief aim to unlock billions in oil sands investment

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