Canadian budget nips drilling preferences

Current-year deductibility of exploratory drilling costs succumbs to what the Canadian government describes as a campaign against “inefficient fossil-fuel subsidies” in a federal budget proposed Mar. 22.

Current-year deductibility of exploratory drilling costs succumbs to what the Canadian government describes as a campaign against “inefficient fossil-fuel subsidies” in a federal budget proposed Mar. 22.

The budget treats costs of successful exploration as those of development wells now are treated: written down over time on a declining-balance basis.

Costs of unsuccessful exploratory wells still could be charged to expense in the year of occurrence.

The budget also ends the current ability of small producers to expense costs of development drilling as they’re incurred when the timing preference benefits flow-through investors.

“The government has a strong plan to invest in clean growth that will help create middle-class jobs and get the country on the path to a low-carbon economy,” said the introduction to the changes in a budget document. “Consistent with this plan, Canada has made a commitment with its partners in the G20 and Asia-Pacific Economic Cooperation to phase out inefficient fossil-fuel subsidies. Such subsidies can encourage wasteful consumption, impede investment in clean energy sources, and undermine efforts to combat the threat of climate change.”

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