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.

The move by Alberta followed by one day a package of drilling tax incentives offered by British Columbia (see Daily GPI, March 4). The new incentives also follow changes that Alberta made to its royalty scheme late last year after it was blasted by producers (see Daily GPI, Nov. 25, 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 also will 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.”

The package was put together following “consultation with representatives from the energy industry and the financial community about the current challenges facing investment and oil and gas activity in Alberta,” the province said.

Technical questions about the program may be e-mailed to response.energy@gov.ab.ca.

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