Natural-gas drillers awarded $120-million in provincial tax breaks

Derrick Penner

July 19, 2016 - The province has approved $120-million in tax breaks to 10 energy companies in exchange for continued spending on developing the industry’s infrastructure in northeastern British Columbia, Natural Gas Development Minister Rich Coleman said Tuesday.

Companies involved, which include Canadian Natural Resources Ltd., Chevron Canada and the Cutbank Ridge Partnership — a joint venture of Encana Corp. and Mitsubishi Corp. — are expected to spend $185 million on 15 authorized pipeline or road-building projects.

The tax breaks are awarded as deductions from natural-gas royalty payments that the companies owe the province under a program called the infrastructure royalty credit program, which was first offered in 2004.

Companies have spent $2.7 billion on 300 authorized projects under the program, which was extended by the province in its 2016-17 budget for three more years, at $120 million per year, extending to the end of 2018, Coleman said in a news release.

Coleman credited the program as having supported jobs and investment in developing the energy sector, with the expectation that tax breaks offered now will pay off in future royalty payments from drilling that is supported by new infrastructure.

“This royalty incentive has supported development in our natural gas sector for over a decade,” he said.

In the short term, however, the royalty deductions have resulted in reduced resource revenues to the province at the same time the industry suffers through downturn brought on by overproduction and a long period of low gas prices.

The province estimated natural-gas royalties, net of deductions, would total $151 million for the fiscal year ending March 31 and shrink further to $128 million next year.

And in the face of weak markets, drilling activity in B.C.’s northeast has plummeted, according to figures reported by the B.C. Oil & Gas Commission.

Companies drilled just 171 new wells to the end of June this year — the lowest mid-year figure since 1993 — compared with 280 for the same period in 2015.