Tax policy discourages offshore exploration, study finds
University of Calgary report criticizes 'disincentive' for drilling unsuccessful wells
A new report out of Alberta says that Newfoundland and Labrador's tax policies are discouraging offshore oil exploration.
It costs tens of millions of dollars to drill a well in the Newfoundland offshore.
If companies find oil, they can deduct the exploration costs. That's not the case, however, if the well turns out to be dry.
"By not allowing unsuccessful exploration costs to be deductible, it actually creates a disincentive for exploration," said the study's author, Jack Mintz of the School of Public Policy at the University of Calgary.
The provincial government has been reviewing what it can do to encourage more oil prospecting since the release of its 2007 energy plan.
"Without new exploration, there can be no new developments other than those already discovered," that 2007 plan noted.
"The keys to advancing our oil and gas sector are to encourage additional exploration activity and to manage the development of these resources so that investors can earn a fair return while the province maximizes the benefits it receives from these resources."
Last year, then-natural resources minister Shawn Skinner indicated that action was imminent to provide further incentives for the industry to explore.
But this June, Skinner's successor in the portfolio, Jerome Kennedy, said that talks with the industry had reverted back to the "discussions" stage.
A month after that, Premier Kathy Dunderdale said the government has found it unnecessary to sweeten the pot to encourage more exploration.
"We haven't been at a place yet that we've felt we've had to incentivize companies to drill," she told reporters in July.