Government Incentives to Exploration
Authors: Fulford G. , Goble K.A. 
Published: March 2010

Alberta's oil and gas resources extend over most of the province and constitute a major source of energy. The Exploratory Drilling Incentive System was designed to encourage high-risk exploratory drilling and increase the drilling activity in remote locations at a time when this type of drilling was declining in the province. The Exploratory Drilling Incentive System has progressed through several amendments and there has been a considerable increase in the number of exploratory wells drilled.

The Alberta Government implemented the Geophysical Incentive Program to stimulate the level of seismic exploratory activity in Alberta. The Geophysical Incentive Program has progressed through several modifications since inception and there has been a considerable increase in the amount of seismic activity.

The costs to the Alberta Government for credit, royalty exemptions, cash refunds and administration of the programs have increased considerably along with the increase in both types of exploratory activity.

Introduction

Alberta's oil and gas resources extend over most of the province and constitute a major source of energy (Fig. 1). To expedite the location of such resources, the Government of Alberta on July 28, 1972, approved the Natural Resource Revenue Plan. A main feature of this plan was an increase in annual revenues to the Government of about $70 million commencing in 1973. The Alberta Government felt this to be a fair and reasonable additional return to the citizens of Alberta for their ownership of a depleting and non-renewable resource. This dollar figure has increased since the initiation of the program due to the escalating price of crude oil.

To offset this increase in revenues from industry and to stimulate increased exploratory activity in Alberta, the Government implemented the Exploratory Drilling Incentive System. The program has undergone several modifications since it was introduced, but essentially consists of a monetary credit for an exploratory well drilled for oil or gas. The credit may be applied against taxes payable under the Freehold Mineral Taxation Act, royalties, rentals, fees and bonuses on petroleum and natural gas Crown mineral rights. A producing incentive exploratory well may also qualify for royalty or mineral taxation exemptions.

The Exploratory Drilling Incentive System is administered jointly by the Alberta Department of Energy and Natural Resources and the Alberta Energy Resources Conservation Board. Determination of qualifying footage on completion or abandonment of the incentive exploratory well is made by the Board. Determination of the credit to be established is made by the Department.

Due to the close relationship between geophysical and drilling activity, it was found desirable to provide incentives for geophysical exploration. It is considered vital to maintain a high level of geophysical work to ensure the continuity of the search for new oil or gas reserves.

Therefore, the Alberta Government, in taking a second step toward maintaining the necessary level of petroleum activity in the province implemented on January 1, 1975, the Geophysical Incentive Program.