June 25, 2009 / 6:49 PM / 8 years ago

Alberta tinkers with royalties to boost drilling

CALGARY, Alberta (Reuters) - Alberta, the Canadian province that is home to the lion’s share of the country’s oil and gas production, said on Thursday it would again tinker with its royalty system to try to boost drilling and offer a cushion to a natural gas industry competing with U.S. shale plays.

The province, a major oil and gas supplier to the United Stats, will extend royalty breaks for new drilling that were first announced in March.

Those provisions, which offer credits and incentives for drilling wells, were to have expired in a year. Instead they will be kept in place until March 2011, raising the cost of the program to an estimated C$3 billion ($2.6 billion) from C$1.5 billion.

Alberta is looking to boost drilling for new reserves as it copes with an industry downturn that slashed its revenue from oil and gas production. It also wants to help local producers to compete with the massive shale gas plays in the United States that have added new supplies and helped lower natural gas prices.

Shale gas supply “came on in the last 30 months, a lot faster than many people thought it would,” Mel Knight, the province’s energy minister, said on a conference call. “But we are not, by a long shot, out of this game.”

Knight said Alberta would look to ensure the province had “the right economic climate” for producers looking to tap unconventional supplies like shale gas.

After a decade-long boom and a string of budget surpluses, Alberta, once Canada’s economic powerhouse, expects government budget deficits this year and next because of a lower take from its resource sector.

The province is tinkering with the system of how much economic rent it charges producers for the fourth time since putting a controversial new royalty structure in place at the start of the year despite opposition from the oil and gas industry.

Since that system was put in place, natural gas prices have fallen to multi-year lows because of burgeoning supplies from the shale-gas plays in the United States and falling industrial demand.

The province said it was extending the incentive program to reassure producers as they begin to set capital budgets for the next winter drilling season.

“Producers need to begin setting budgets for the upcoming drilling season, and we need to provide timely assurance that these programs will be extended,” Knight said.

($1=$1.16 Canadian)

Reporting by Scott Haggett; editing by Peter Galloway

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