Oil and gas well drillers want federal funding to help industry decarbonize

CALGARY – Canada’s oil and gas well drilling sector is lobbying for a piece of the tax credit pie when it comes to decarbonization.

The Canadian Association of Energy Contractors (CAOEC) – which represents drilling rig and service rig companies across Western Canada, as well as offshore drilling rigs in Atlantic Canada – says its industry is being unfairly excluded from some of the recent programs rolled out by the federal government that are aimed at helping businesses reduce emissions.

“From our perspective, we have not identified a single federal program that we would be able to gain access to that would help us decarbonize, today,” CAOEC president Mark Scholz told reporters at an industry event in Calgary on Friday.

“We think that really needs to be reviewed, because this is truly a transition … We need to see the support from the federal government in the conventional drilling rig space to help us move forward with decarbonization.”

As the heaviest-emitting sector in the country, the oil and gas industry is under pressure to rapidly reduce its greenhouse gas emissions as part of Canada’s commitment to reaching net-zero by 2050.

The federal government has already offered support to the sector in terms of a promised tax credit for companies that deploy carbon capture – a technology that allows for the safe underground sequestration of harmful greenhouse gases from oil and gas production. Legislation to implement that tax credit is expected to be tabled within weeks.

In addition, Alberta Premier Danielle Smith said Friday her government will unveil its own funding support for carbon capture projects next week.

While these developments are good news, Scholz said, they’re aimed at oil producers themselves – not at the companies who provide contract drilling and well servicing across Western Canada’s oil-and-gas-producing regions.

The drilling sector’s emissions reduction efforts have not been as high-profile as those of the oilsands industry, which is proposing a $16.5-billion carbon capture and storage project in northern Alberta that it says will help it reach net-zero emissions from production by 2050.

But Scholz said there are many things oil and gas drillers can do to lower their carbon footprint, from rig electrification to hydrogen fuel blending to investing in battery energy storage systems for oil well drilling sites.

“We have a plan. There are ready technologies today that don’t have to be piloted, that we could introduce in a very short period of time,” Scholz said.

“All of these will have a meaningful impact on our emissions, but because of the nature of our business we’re excluded and aren’t able to access those.”

In particular, the sector wants to be included for eligibility in the Clean Technology Manufacturing Tax Credit, which was announced by the federal government in the 2023 budget.

That tax credit, which has yet to be legislated, is intended to cover 30 per cent of a company’s costs for new machinery and equipment used to manufacture or process clean technologies or extract critical minerals.

Scholz said being involved in the fossil fuel sector shouldn’t exclude drillers from this program, particularly because the same rigs that drill for oil and natural gas can be used to drill exploration wells for emerging industries such as the lithium and helium sectors.

“Ottawa needs to be more flexible and not choose one sector over another,” he said.

The CAOEC said it expects 6,229 wells to be drilled in Western Canada next year. That’s an 8.3 per cent increase from the 5,7648 wells drilled in 2023, which Scholz described as “modest growth.”

Oilpatch activity is expected to pick up in 2024 thanks in part to the recent completion of the Coastal GasLink pipeline and the anticipated completion of the Trans Mountain oil pipeline expansion.

With oil prices still at profitable levels, the drilling sector will employ more than 39,000 people in 2024, according to the CAOEC forecast. While that remains significantly below the boom times of a decade ago, the mood at Friday’s industry event was positive.

“Where the dial is changing and what people are really starting to understand is that oil and gas are going to be around for a very, very long time,” said Grant Fagerheim, CEO of Whitecap Resources, in a panel discussion.

“From my perspective, this next 12 to 24 months feels very, very good.”