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Multiple tax reductions target LNG investment

Exxon Mobil (ticker: XOM) announced last week that it will join an alliance of companies that is promoting the development of a liquefied natural gas industry in northern British Columbia, reported CBC News.

The British Columbia LNG Alliance said last Wednesday that ExxonMobil Canada Ltd., a subsidiary of the U.S.-based ExxonMobil, has become the group’s seventh member, joining key international players including Chevron Canada (ticker: CVX), Shell Canada Energy (ticker: RDSA), Petronas (ticker: PTG), and PetroleumBRUNEI.

The Alliance said ExxonMobil has a license to export as much as 30 million tons of LNG annually and the company has entered an option agreement with the City of Prince Rupert for a site at Tuck Inlet.

British Columbia reduces taxes on LNG companies

In October, the provincial government dropped its proposed goal of a 7% income tax on the province’s LNG industry to 3.5% for the next two decades.

The original plan, which was based on the February budget that was put together by Finance Minister Mike de Jong, had a two-tiered tax starting at 1.5% for the first three years, eventually rising to 7% after five years. Concerns that this tax plan might scare off potential investors caused the Ministry of Finance to reconsider, however, CBC reported.

The CEO of one of the largest potential investors, Petronas, had threatened to halt his company’s plans for a multi-billion-dollar facility if the tax regime was not favorable.

The new plan will start at 1.5% and remain at that level while LNG plants are operating at a loss and capital investments are being recouped. The rate will rise to 3.5% after four years, where it will remain for another 20 years, when a final rate increase to 5% will be instituted in 2037.

De Jong said “developing a tax framework for a promising new industry has been a complex process. We believe this overall framework strikes the right balance between a competitive economic environment and a fair return to British Columbians.”

In an attempt to encourage investment, there will also be a new B.C. corporate income tax credit. It will reduce the provincial corporate income tax rate from 11% to as low as 8%. The province says this framework is competitive with other jurisdictions, including the U.S. and Australia.

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Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. EnerCom, or its principals or employees, may have an economic interest in any of the companies covered in this report or on Oil & Gas 360®. As a result, readers of EnerCom’s reports or Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.