SK Incentive Programs for Oil, Gas, Helium, Chemical Fertilizer and CO2 Projects

Authors: Chad Eggerman, PMP, Kevin Mehi, Esha Saxena

In an effort to bolster the energy industry, the Government of Saskatchewan has implemented three different programs that offer incentives to specific sectors of the energy industry. These are the Saskatchewan Petroleum Innovation Incentive Program, the Oil and Gas Investment Incentive Program and the Oil Infrastructure Investment Program.

These programs offer incentives to eligible oil, gas, helium, chemical fertilizer and carbon dioxide related projects. This article explains eligibility in further detail.

Although these programs currently only exist in Saskatchewan, it is possible that the Government of Alberta may consider similar incentives in the future. Groups based in Alberta who are currently developing projects or considering new projects in Saskatchewan will also be interested in the opportunities provided by these incentive programs.

Saskatchewan Petroleum Innovation Incentive Program

In June 2019, the Government of Saskatchewan launched the Saskatchewan Petroleum Innovation Incentive Program (“SPII”). The SPII  relates to transferable oil and gas royalty/freehold production tax credits which are available to qualifying companies that can demonstrate eligible innovations in Saskatchewan’s oil, gas or helium sector.

Eligible project owners have the ability to redeem 25% of their eligible capital and operating costs relating to such projects. The credits are fully transferrable and the program encourages multi-company projects to participate. The credit caps out at $5 million per project, but project owners can use SPII alongside other incentive and grant programs available in Saskatchewan.

Eligible Projects

In order to be eligible, a project must comply with The Petroleum Innovation Incentive Regulations (June 6, 2019) and The Saskatchewan Petroleum Innovation Incentive Policy Guidelines (October 2021).

A project is eligible for approval if it fulfils each of the following four criteria:

1. Eligible Innovation

The project is an innovation that is new to Saskatchewan’s oil, gas or helium industry and does not have an equivalent in the Saskatchewan market. This means the project is either first of its kind, or it significantly advances current technology in Saskatchewan.

A project may also eligible if it has an equivalent in Saskatchewan’s oil, gas or helium industry, but is being undertaken on a different scale or under conditions that add a degree of novelty or address new technical challenges. This means that the project possesses unique features that offer significant differentiation from current competitive offerings in Saskatchewan.

The project must also be at the stage where a prototype is ready for demonstration in an appropriate operational environment.

2. Eligible Activity

The project aims to:

  • improve oil, gas or helium recovery;
  • manage adverse environmental impacts;
  • increase value-added processing capacity; or
  • commercialize oil, gas or helium production byproducts or waste.

3. Eligible Costs

The project involves a minimum investment of $1 million in eligible costs. The costs incurred must be necessary, and directly and irrefutably linked to bringing an eligible project into a commercially operable status. These costs include real property and depreciable assets, the land on which the project is built, labour costs, etc.

4. Operational Status

The project must not have entered into commercial operation before the eligible project application is submitted.

Innovative projects at both the pilot/demonstration level and at the commercial scaling level can be considered for eligibility. Applicants may either directly own the innovation or have a recognized license for the innovation. An innovation’s research and development do not need to occur within Saskatchewan in order to be eligible under the SPII.

Applications to the program will be accepted from July 8, 2019, until March 31, 2024.

Oil and Gas Processing Investment Incentive Program

In June 2019, the Government of Saskatchewan also launched the Oil and Gas Processing Investment Incentive Program (“OGPII”). The OGPII relates to transferrable oil and gas royalty/freehold production tax credits available to qualifying companies that demonstrate new or expanded value-added projects in Saskatchewan’s oil, gas, helium or chemical fertilizer sectors.

Applicants that meet the OGPII requirements will receive transferable oil and gas royalty/freehold production tax credits equal to 15% of approved eligible costs. Once the project has become commercially operational, the OGPII-eligible corporation will be eligible to earn credits (at a rate of 20% of total credits in year 1, 30% in year 2 and 50% in year 3), transfer earned credits, or apply the credits towards the remission of any oil and gas royalties/freehold production taxes owed in Saskatchewan.

There is a project-specific awarded credit cap of $75 million for oil, gas and helium projects and $70 million for chemical fertilizer projects, but OGPII can be used alongside other incentive and grant programs available in Saskatchewan.

Eligible Projects

In order to be eligible, a project must comply with The Oil and Gas Processing Investment Incentive Regulations (June 6, 2019) and The Oil and Gas Processing Investment Incentive Policy Guidelines (June 2021).

An oil, gas, associated (flare) gas, helium or chemical fertilizer project is eligible for approval if it fulfils each of the following four criteria:

1. Eligible Activity

The project is:

  • a refinery;
  • an upgrading facility;
  • a petrochemical facility;
  • an associated (flare) gas commercialization project;
  • an associated (flare) gas pipeline gathering system;
  • a carbon capture utilization and storage for enhanced oil recovery project;
  • a commercialization of oil and gas production byproducts or waste products project;
  • a helium processing or liquefaction facility; or
  • a chemical fertilizer facility.

Eligible projects can include new facilities or expansions of existing facilities, and all enabling infrastructure required to bring the project into operation. Eligible projects can also be conducted over multiple distinct phases.

Facilities that process agricultural products into higher-value products, like hydrogenation-derived renewable diesel and biofuel facilities, are not eligible projects.

2. Increase in Processing Capacity

The project will result in a significant increase in processing capacity. Factors in this consideration include whether processing is occurring to create a product at a commercial scale that was not achieved previously, whether there is a significant increase in the quantity of an existing product, or whether there is an incremental increase in the commercialization of oil and gas production byproducts.

3. Eligible Costs

The project involves a minimum investment of $10 million in eligible costs. Project costs incurred must be necessary and directly linked to bringing a new or expanded facility into a commercially operable status to be considered eligible. These costs include real property and depreciable assets, the land on which the project is built, labour costs, etc. Costs such as operating utility costs, operating labour costs, treating/maintenance, software costs, GST, PST, etc. are not considered eligible costs.

4. Operational Status

The project must not have entered into commercial operation before the eligible project application is submitted.

Applications to the program will be accepted from July 8, 2019, until March 31, 2024.

Oil Infrastructure Investment Program

Launched in April 2020, the Oil Infrastructure Investment Program (“OIIP”) relates to transferable oil and gas royalty/freehold production tax credits available to qualifying companies that demonstrate new or expanded oil or carbon dioxide pipeline projects in Saskatchewan.

Applicants that successfully meet all OIIP requirements will receive transferable oil and gas royalty/freehold production tax credits equal to 20% of approved eligible costs. Once the project has become commercially operational, the OIIP-eligible corporation will be eligible to earn credits (at a rate of 20% in year 1, 30% in year 2 and 50% in year 3), transfer earned credits, or apply the credits towards the remission of any oil and gas royalties/freehold production taxes owed in Saskatchewan.

There is a project-specific awarded credit cap of $40 million, but OGPII can be used alongside other incentive and grant programs available in Saskatchewan.

Eligible Projects

In order to be eligible, a project must comply with The Oil Infrastructure Investment Program Regulations (March 11, 2020) and The Oil Infrastructure Investment Program Policy Guidelines (October 2021).

An oil or carbon dioxide pipeline project is eligible for approval if the project fulfils all four of the following criteria:

1. Capacity

The project directly increases oil or carbon dioxide pipeline capacity in Saskatchewan. This includes the nameplate capacity as well as the utilization of existing capacity. The onus is on the applicant to provide evidence of the increase in capacity, for example, through forecasts and contractual commitments.

2. Redundancy

The project is not considered to be redundant service. A project is redundant if the pipeline service has the same terminus as an existing pipeline system and the existing pipeline operated at an average of less than 75% of nameplate capacity over the past year.

3. Operational Status

The project has not become operational before the eligible project application is submitted.

4. Eligible Costs

The project involves a minimum investment of $10 million in eligible costs. Project costs incurred must be necessary and directly linked to bringing the pipeline project into service to be considered eligible. Goods and services can be procured from vendors outside of Saskatchewan, however, components of an otherwise eligible project located in jurisdictions other than Saskatchewan will not be included. Eligible costs include real property and depreciable assets, the land on which the project is built, labour, intellectual property licensing, qualified professional services, equipment, etc. Costs like feasibility study costs, operating labour costs, promotional/marketing costs, software costs, overhead costs, GST, PST, etc. are not considered eligible.

Applications to the program will be accepted until March 31, 2025.

How Can We Help?

Our Energy group has extensive experience advising stakeholders in the energy industry on financing and funding of energy projects in Saskatchewan and across Western Canada. If you are seeking to take advantage of these incentives, we encourage you to reach out to our Energy team.

ESG for Oil and Gas Webinar | MLT Aikins

This FREE one-hour webinar is catered specifically to companies in the oil and gas industry and will be presented by our ESG team, who have extensive experience developing ESG strategies in the energy and mining sectors. Recognizing the important role oil and gas will play in Canada’s energy future, our team will provide an overview of ESG and discuss key trends, issues and considerations that will help your business navigate this complex topic, and do so successfully. Register now.