Written by Keely Cameron, Vivek Warrier and Brad Gilmour
In 2019, the Saskatchewan Ministry of Energy and Resources implemented the Petroleum Innovation Incentive Program (PIIP) and the Oil and Gas Processing Investment Incentive Program (OGPIIP) aimed at encouraging growth, innovation and sustainability of Saskatchewan's oil and gas industry. Earlier this week, the ministry enacted another program, the Oil Infrastructure Investment Program (OIIP) which applies to the development of certain oil pipeline projects which will:
- increase oil pipeline capacity in Saskatchewan;
- not be considered to be redundant;
- not become operational before the application for participation has been submitted; and
- involve a minimum investment of $10 million in eligible costs.
Applicable oil pipeline projects can apply for participation in the OIIP and if approved will receive royalty or tax credits equal to 20 percent of the approved eligible costs up to a maximum of $40 million. For pipelines projects that cross borders, eligible costs are limited to the proportionate costs incurred in the province of Saskatchewan. The determination of what constitutes an eligible cost will be determined pursuant to an agreement between the applicant and the minister. Guidance provided by the ministry in respect of the OGPIIP suggests that eligible costs will include costs incurred in respect of: real property and depreciable assets, land, capitalized costs of qualified professional services associated with the project (in-house or third party), equipment, intellectual property licencing costs, labour, site preparation and construction, servicing costs directly related to construction, regulatory fees, and direct costs incurred under the agreement with the minister pursuant to the program. Excluded costs include administration and overhead costs, office supplies and furnishings, land not directly related to and/or necessary for the project, marketing costs, and operating costs.
As a condition of participation, the applicant must indemnify the Government of Saskatchewan in respect of possible claims against the Government of Saskatchewan in relation to the project by persons other than the applicant.
Credits received under the program are transferrable. To be used by either the participant or transferee, the eligible costs must first be incurred and approved. In the first year that credits are claimed, a participant can only use 20 percent of the total credits held. In the second year, a participant can use up to 30 percent of the total credits held and in any subsequent year, the participant can use any unused credits. A transferee may use any amount of credits held in each year. The minister will maintain a record of credits.
As the programs are still in their early stages, it is too soon to assess the impact that they will have on the Saskatchewan energy industry and whether a market will emerge for the credits. The drafting of the initial agreements and terms of participation will be key to the success of the programs.