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The central Canadian government has allocated US$22.5 million (C$30 million) in financial aid for the province of Alberta in its new budget, in a bid to stimulate its economy, which is heavily reliant on the oil industry. The provincial PM, Rachel Notle,y said that most of the money will be spent on the cleanup of the so-called orphan wells – wells whose owners have gone bankrupt and are now sitting idle.
At the moment, there are 82,000 orphan wells across Alberta, and their cleanup will re-employ some of the industry workers who were laid off during the downturn.
A representative of the Petroleum Services Association of Canada said that the organization had asked Ottawa for US$375 million (C$500 million) to clean up the orphan wells, as a loan, adding that the actual amount received was 10 percent of what aerospace company Bombardier received in loans from the government. “Ironically, those airplanes won’t fly without oil and gas,” he said.
PM Notley said that the money would “leveraged” in a way that will generate more money, without going into further details.
In other budget news, Alberta drillers were disgruntled by tax changes that will increase the burden of drilling new wells. Until now, the Calgary Herald notes, drillers’ expenses related to new wells were deductible during the first year from discovery. Now, the budget stipulates that only 30 percent of new well costs will be deductible annually, on a declining basis. This is likely to affect Alberta oil producers’ competitiveness, especially among smaller ones, one industry insider said.
Related: Can Big Oil Survive A CO2 Crackdown?
The budget news comes as the province, which is Canada’s biggest supplier of oil and gas, still grapples with the fallout of the price rout and with the prospects of a “phase-out” of the oil sands industry, as pledged by federal PM Justin Trudeau. The pledge caused outrage in Alberta as many livelihoods depend on the oil industry, and there are no specific suggestions about what will replace it as a source of income.
By Irina Slav for Oilprice.com
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Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.