The latest economic stimulus package in British Columbia (BC) has taken the form of slashed royalties on new natural gas wells, according to an announcement Thursday by the provincial government. The move is seen as a way to compete with rival Alberta, which has its own stimulus package for drillers.
“BC is one of the most competitive oil and gas jurisdictions in North America, and this stimulus package will further strengthen the sector while increasing provincial revenues,” said Blair Lekstrom, minister of Energy, Mines and Petroleum Resources. “In this day and age capital investment is very fluid and we want to encourage the oil and gas sector to invest in British Columbia.”
The package includes four royalty initiatives:
Regulatory initiatives also included in the package are:
Northeastern BC is the location of the Montney and Horn River gas plays, which have been attracting a lot of industry attention. Some speculate that the Horn River could hold Canada’s largest-ever natural gas discovery. ExxonMobil Corp. recently spent more than $100 million to acquire land in the area (see Daily GPI, July 13).
The industry is embarking on nothing short of a “gas renaissance” and in Canada, BC is at the forefront, EnCana Corp. Vice President Richard Dunn told an industry conference held in June in Calgary by the Canadian Institute. “I’ve been working on gas for 30 years. We’ve never seen such a change.” Dunn recited a new consensus forecast that by 2020, shale development will double or triple BC production into a range of 6-9 Bcf/d, and he speculated that BC could one day surpass Alberta as Canada’s leading gas bread basket (see Daily GPI, June 8).
The royalty reduction announced Thursday is seen as a way for BC to compete with rival Alberta, which in June extended by 12 months its own incentive program for drillers (see Daily GPI, June 26). The announcement of the Alberta incentive extension was timed to give gas producers a chance to incorporate the incentives into budgets for the 2009-10 drilling season and possibly increase numbers of wells planned. In Canada, field activity peaks during the coldest months because the industry relies on frozen ground for moving and operating heavy equipment.
According to the BC ministry, the stimulus package is advantaged by not requiring direct government spending, while generating positive revenue to the Crown. “In a conservative scenario, after three years the program will generate C$2.50 in net incremental revenues for every C$1 of royalty credit provided,” the ministry said. “Since these are royalty credits and not expenditures, the Crown benefits from the activity in addition to royalty revenue generated from wells that would likely not have been drilled.”
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