June 15, 2009 / 9:32 PM / in 8 years

No going back on gas royalties: Alberta minister

CALGARY, Alberta (Reuters) - Alberta is standing firm on its newly changed oil and gas royalty regime but it is still willing to talk to the energy industry about ways to prevent further drops in drilling, the Canadian province’s energy minister said on Monday.

Energy Minister Mel Knight made the comments as some industry executives said the controversial royalty framework, which came into effect at the start of this year, repelled capital, even with incentives put in place since.

“I don’t have any ability to go back and we’re not going back,” Knight told reporters after speaking to an industry conference.

“What we’re going to do is we’re going to go forward, and as we go forward we will continue to work with industry players.”

Alberta, Canada’s largest producer of oil and gas and a major supplier to the United States, made a high-profile series of changes to its system of charging economic rent to energy companies, moves that won the ire of the industry that is the largest contributor of government revenue.

Those changes came into effect just as oil and gas prices tumbled amid the recession and as vast shale gas resources in locales such as Texas, Louisiana and British Columbia began to change the North American gas supply picture.

In March, Knight brought in C$1.5 billion ($1.3 billion) worth of incentives to bolster drilling and protect jobs as oil and gas prices drooped.

John Dielwart, chief executive of ARC Energy Trust, one of the country’s largest energy income funds, said he had planned to direct C$30 million more into Alberta operations after Knight announced the incentives.

But he said he scrapped the idea when the province said royalty breaks would not be based on last year’s payments, as the company had believed, but on current ones.

About 25 percent of ARC’s 2009 capital budget is aimed at Alberta, where it produces two-thirds of its oil and gas, Dielwart said.

“Pure and simple, I would be shocked if over time we don’t go back to where we were, because that’s where it has to be,” he said. “But I don’t think they’re going to do anything in the near term to get us there.”

Knight stressed the government of Premier Ed Stelmach is reviewing the impact of the incentives to determine its next moves, but said it is still gathering information as the summer drilling season proceeds.

The advent of shale gas development in other jurisdictions will likely influence future actions as it is a “game-changer” for the continent’s energy industry, he said.

“Are we aware of it? Yes, we continue to deal with our industry partners,” he said.

“If you’re asking me, do we need to be flexible? I think it would be a disadvantage for Alberta at this point in time to be inflexible,” he said.

David Collyer, president of the Canadian Association of Petroleum Producers said he agrees it is important not to dwell on the past, especially because the industry has gone from boom to bust since the royalty issue came to the fore.

“What’s important is we have the right investment climate for the times, and the times are different,” he said.

Extending the current incentives would help the industry in the short term, but the government has to consider overall competitiveness for the years ahead, Collyer said.

($1=$1.13 Canadian)

Editing by Rob Wilson

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