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Canada delivers blow to Alberta oil sands
By Gary Park For Petroleum News
Beset by rising costs, tougher environmental standards and royalty reviews, the Alberta oil sands have taken another hit that observers worry adds to the sector’s investment uncertainty.
The Canadian government as many had feared, decided to progressively phase-out an accelerated capital cost allowance worth about C$300 million a year to new developers, adding C$1 per barrel to new costs for the largest producers.
“With Canada’s oil sands sector now healthy and vibrant, ACCA is no longer required,” the government said in its 2007-08 budget documents released March 19.
Removing a decade-old incentive for investments in oil sands will “improve fairness and neutrality among the oil sands and other sectors, particularly other oil and gas and renewable energy sources,” the government said.
The ACCA was introduced in 1974 to benefit mining operations and extended to the oil sands in 1997 to help overcome investor resistance.
Finance Minister says some haven’t paid fair share Finance Minister Jim Flaherty upset some business leaders when he said the decision was aimed at “those who have avoided paying their fair share of taxes.”
Calgary Chamber of Commerce Chairman Hal Walker said the minister’s reference was “deplorable” and overlooked a “tremendous opportunity” to use the oil sands as the key building block in turning Canada into an energy superpower.
“We believe this budget is disastrous for the Canadian energy industry,” he said.
Removing an allowance for oil sands developers “undermines the single largest contributor to Canada’s economic prosperity. It will have a negative affect on investor confidence and capital investment.”
If removal of the tax break contributes to a downturn in oil sands development, the federal government risks paying a price.
According to the Canadian Energy Research Institute, financed by governments and industry, federal coffers stand to collect C$51 billion of the C$123 billion in projected government revenues from the oil sands over the 2000-2020 period, assuming all of the known projects go ahead.
CAPP: adds to uncertainty Greg Stringham, vice president of the Canadian Association of Petroleum Producers, agreed that losing the tax write-off will add to uncertainty facing the oil sands, which have taken a setback from the Alberta government’s decision to impose a 12 percent intensity cap on greenhouse gas emissions from the oil patch.
That will be followed later in March by the federal government’s own short-term targets for lowering greenhouse gas emissions and air pollutants and possibly late this year the Alberta government could amend its royalty regime that collected 1 percent of gross revenues until oil sands capital costs are paid off, then 25 percent of net revenues.
Stringham said the cumulative impact creates the possibility of an unstable base in a sector where break-even costs are often close to oil prices of US$50 per barrel.
Will Roach, chief executive officer of UTS Energy, a 30 percent partner in the Fort Hills project operated by Petro-Canada, said losing the tax break is “not catastrophic” to the viability of his company, but it does extend a run of negative news for the industry.
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