Ottawa grants Alberta $30M to clean up wells
But tax-deduction rules for drillers said to harm small oilpatch companies
OTTAWA Alberta is getting a $30-million payment from Ottawa to clean up “orphan wells” — and boost employment in a slowly recovering energy industry — even as higher tax rates will hit companies drilling new oil and natural gas wells.
The Liberal government’s budget released Wednesday, which projects a $28.6-billion deficit, includes a $30-million one-time payment to “support provincial actions that will stimulate economic activity and employment in Alberta’s resource sector” and its “specialized workforce.”
In a news conference in Edmonton, Premier Rachel Notley called the payout “good news” and confirmed the money will be used for remediation of abandoned wells that no longer have corporate owners.
“The idea was to focus on orphan well reclamation and find a way to kick-start getting those particular small oilfield workers and service workers back to work, while doing the work that needs to be done,” said Notley.
Alberta has more than 82,000 inactive oil and gas wells, which industry groups suggest could be cleaned up by laid-off resource workers.
The Petroleum Services Association of Canada had originally sought $500 million in loans from Ottawa for the project.
Mark Salkeld, the head of PSAC, said he wasn’t disappointed to only see a fraction of what the group wanted but did wryly note it was less than a 10th of what aerospace company Bombardier received in a loan from Ottawa.
“Ironically, those airplanes won’t fly without oil and gas,” said Salkeld.
Notley said more details of how the $30-million payment would be used will be announced in the weeks to come, but the dollars will be “leveraged” to gain additional funding.
The NDP premier, who has been closely aligned with the Trudeau government, also praised budget commitments to child care, bolstering Alberta’s plan to eventually move to $25-a-day daycare, and to First Nations drinking water and infrastructure.
The budget did not reveal the location of a planned new Canada Infrastructure Bank, which would co-ordinate projects with different levels of government and the private sector. Calgary is one of three cities seen to be in the running as the bank’s new location.
But with the announcement of a new funding formula that will see $20.1 billion spent over 11 years, Mayor Naheed Nenshi said Calgary will receive $1.15 billion for the planned Green Line expansion of the LRT system. He has also been assured Ottawa will pony up the additional $400 million to $450 million promised for the project.
“This means we will be able to move forward on the Green Line, and it also means that it will be very, very important for us to sit down with the government of Alberta to get their one-third in place,” Nenshi said of the NDP government, which has not yet committed to the proposal.
Notley said the government is “in principle” behind the funding of the Green Line through money collected from its carbon tax, but the province needs to know the “parameters” of the project.
You can’t deliver change on greenhouse gases without working with local governments.
One issue that needs to be looked at further, said the premier, is the Liberal government’s plan to fund 40 per cent of city-led infrastructure projects, where previously it had committed to half the funding.
There were other areas of consternation in Alberta. While the money for orphan wells was welcomed, tax changes around drilling new wells were condemned by the oilpatch.
While companies have previously been able to deduct expenditures for discovering previously unknown petroleum or natural gas reservoirs in the first year, Ottawa will in the future allow only 30 per cent of costs to be deducted each year on a declining basis.
That means companies will pay more tax upfront, and only get gradual deductions, only if their projects are successful. The change should bring $145 million to federal coffers between 2019 and 2022.
Tim McMillan, president of the Canadian Association of Petroleum Producers, said the move will disproportionately affect small producers and make the industry less competitive.
“It puts us at a further disadvantage to the U.S., which is talking about tax reform,” he said.
The budget notes that rising exploration costs will “influence investment decisions,” which is part of “Canada’s international commitments to phase out inefficient fossil fuel subsidies.” Focused on “clean energy” and “green jobs,” the financial plan also designates almost $1.4 billion in financing for Canadian “clean technology” firms, along with $12 million to help such companies market their services abroad.
Edmonton Mayor Don Iveson said the federal budget showed signs of working with cities on housing and transit, but little in terms of the government’s climate commitments.
“You can’t deliver change on greenhouse gases without working with local governments,” he said.
The cash-strapped federal government also slightly raised taxes on cigarettes and alcohol, and will soon tax ride-sharing services like Uber.
Wednesday’s budget includes a proposal to “ensure that ridesharing businesses are subject to the same GST/HST rules as taxis” by changing the definition of taxi under the Excise Tax Act, which will bring an estimated $20 million by 2022.
Federal taxes on cigarettes will slightly rise, from 10.5 cents to 10.7 per smoke, which should bring in $225 million over five years. Similarly, the government aims to raise $470 through higher alcohol taxes, such as an extra cent per litre of wine.
Conservative MP Michelle Rempel said in a news release the budget did nothing to address the real problems in the Alberta economy after two years of recession spurred by low oil prices.
“A strong Alberta means a strong Canada,” said the Calgary Nose Hill representative. “Albertans aren’t looking for government hand-outs. Instead, our communities need a partner in Ottawa.”
But Liberal MP Kent Hehr, Calgary’s representative at the cabinet table, said the support for transit and areas of the economy such as agri-food and clean technology will bolster the province.
“We’re making ambitious investments,” he said.