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Alberta, British Columbia Juice Up Incentives to Entice Producers

Spurned by producers that found better business conditions in neighboring provinces, Alberta officials Tuesday made a dramatic effort to entice the energy sector to return by offering a bundle of lucrative tax credits. Alberta's efforts followed one by British Columbia (BC), which last week increased the amount of natural gas and oil royalty credits available to producers to encourage infrastructure development.

Alberta remains the leading energy province in Canada, but British Columbia's emerging gas and oil plays, which include the Horn River Basin and the Upper Montney, have drawn increasing interest from producers and pipeline developers (see NGI, March 2).

The new incentives by Alberta follow changes the province made to its royalty scheme late last year after a revamp of the program was blasted by producers (see NGI, Dec. 1, 2008). In unveiling the plan, Alberta Energy Minister Mel Knight said the government will offer producers of all sizes royalty credits for new wells drilled in the 12 months beginning April 1.

"While we cannot make up for the impact that global financial markets are having on Alberta, we are doing what we can," Knight said. "This short-term incentive program introduces innovative ways to help spur activity in our energy drilling and service sector during this economic downturn."

Alberta would levy a 5% royalty rate -- its lowest rate -- for the first year of production for any well that begins to produce during the period. For example, if a company produced 8,000 boe/d in 2008, the total value of available credits would be based on the company's cumulative measured depth of new drilling in 2009-2010. The company then would receive a credit of up to 50% of the total royalties it owed in 2009-2010. The well incentive program would provide a maximum 5% royalty rate for the first 12 months of production, up to a maximum of 50,000 bbl of oil and 500 MMcf of natural gas. For example, as long as production caps were not reached, a well producing on April 5, 2009 would be eligible through April 5, 2010; a well producing on March 25, 2010 would be eligible through March 25, 2011.

The two programs together could amount to around C$1.5 billion in royalty savings for producers in the next year, according to Knight. Besides the drilling incentives, the province also plans to invest C$30 million to begin an orphan well fund for the clean-up of inactive oil and gas wells.

Although it is set up only for one year, the province plans to monitor the program's impact and "at the end of the year, assess whether it is necessary or appropriate for it to be continued," Knight said.

Alberta Premier Ed Stelmach said the energy industry "remains the lifeblood of Alberta's economy and communities throughout the province. We cannot directly influence the global economic climate. However, we can introduce measures to encourage new investment and help keep Albertans at work."

Meanwhile, BC officials plan to increase the amount of royalty credits available to encourage infrastructure development. The program, first offered in 2004, is designed to increase competitiveness and stimulate activity in the province by opening access to new and underdeveloped areas, said Energy, Mines and Petroleum Resources Minister Blair Lekstrom.

"In these times of economic instability, it is imperative that we take action to support and encourage economic activity that will continue to provide jobs for British Columbians in BC's oil and gas industry and its key support sectors," said Lekstrom. "Expanding this already successful royalty program to C$120 million in available royalty credits will improve our competitive position for attracting investment and contribute to the ongoing growth and development of our oil and gas industry."

The amount of royalty credits in the BC province would increase this year to C$120 million from C$100 million in 2008 and C$90 million in 2007. Since its inception five years ago, the Infrastructure Royalty Credit Program is estimated to have allocated more than C$316 million in infrastructure royalty credits to oil and gas companies. The program to date has led to 72 new road-based projects and 53 new pipeline projects for a total capital investment in the province of more than C$632 million, officials said.

Companies with proposed road or pipeline infrastructure projects may apply for the BC royalty credits until April 30. As in previous years, all projects applying for credits under the program "will undergo a rigorous evaluation and ranking process, and only those that ensure the highest economic benefits for British Columbia will be approved," according to the energy ministry.

Technical questions about the Alberta program may be e-mailed to response.energy@gov.ab.ca. More information about the BC incentives is available at: www.empr.gov.bc.ca/OG/oilandgas/royalties/infdevcredit/Pages/default.aspx.

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