Alberta offers incentives to boost drilling

Alberta oil and gas producers have been offered royalty incentives from a provincial government hoping to revive drilling.

By OGJ editors
HOUSTON, Mar. 4 -- Alberta oil and gas producers have been offered royalty incentives from a provincial government hoping to revive drilling.

The government has reduced royalty for conventional wells spudded between Apr. 1 and Mar. 31, 2010, and for wells coming onto production in that period.

The drilling incentive is a crown royalty credit of $200/m of hole drilled. The credit can't reduce an operator's overall royalty rate to below 5%.

Benefits will be greatest for the smallest producers, determined by a sliding scale based on production.

New wells eligible for the production incentive will receive a maximum royalty rate of 5% for 12 calendar months or until production reaches 50,000 bbl of crown production or 500 MMcf of natural gas.

A single qualifying well can receive both the drilling and production incentives.

The incentives don't apply to oil sands drilling or production.

"This program is focused on keeping drilling and service crews at work while also recognizing the enormous economic benefits this activity has in Alberta communities," the provincial energy department said in a statement.

Tristone Capital Inc., noting that drilling in Alberta is expected to decline 28% this year, greeted the incentives skeptically.

"We are long [on] supply in North America, and adding productive capacity today is not desirable," it said. "And we believe the margin of cash that is retained by the incentives will predominantly focus on debt reduction."

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