Alberta revoking tax credit for oil and gas companies

Alberta is killing a tax credit for energy companies that cost the province more than $100 million last year.

After a four-month, in-house review of the Alberta Royalty Tax Credit, the province announced Tuesday that it will be eliminated at the end of this year.

Under the program, companies get a credit on their income tax returns for a percentage of the royalties paid. Started in 1974,the creditcostAlberta $113 million last year.

Energy Minister Greg Melchin said the tax credit is no longer needed in the industry, especially with higher resource prices.

Greg Stringham with the Canadian Association of Petroleum Producers, said the tax credit helped grow the industry in Alberta butis no longer necessary.

"For some of the smaller companies, it is still a substantial portion of what they use to get started," he said. "But they will look at the equity markets and other ways to get around that, I believe."

$15 billion in royalties collected

Last year, energy companies paid the province more than $15 billion in royalties, land sales and taxes.

Studies have shown that Alberta's royalty rates from energy companies are substantially lower than other jurisdictions with oil and gas resources, such as Alaska and Norway.

The Pembina Institute, a not-for-profit environmental policy research organization, has argued the province could charge higher royalties for its non-renewable resources.

"I think there is certainly a way that you can change the rules that would not scare off industry," said Amy Taylor, an economist with the institute.

"Fuel prices are much higher than they were 10 years ago when the oil sands royalty regime was established. What you do is change the rules for new projects and then you phase in, over a very gradual and known period of time, changes for existing projects."

The Pembina Institute is calling for a public review of royalties paid by companies working in the province's oil sands.

"At the end of the day, it's pretty hard to imagine industry is going to walk away from the second largest oil deposit in the world," said Taylor.

'Promises and obligations'

Melchin said energy companies making long-term, multibillion-dollar investments need cost certainty.

"We, too, make promises and obligations to industry … you just don't go and change the rules," he said.

"That would be a very destructive signal to everyone upon the promises and obligations that we made to them."

The province is going to consult with smaller companies to see if there's a business case for government assistance in the event energy prices drop substantially.