Alberta Tries To Bolster Oil Sector With Incentives

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"Alberta. . .offered its battered industry up to C$1.5 billion ($1.2 billion) in royalty breaks and credits on Tuesday to boost drilling and protect jobs as oil and gas prices sag."

Alberta, Canada's top energy-producing province, offered its battered industry up to C$1.5 billion ($1.2 billion) in royalty breaks and credits on Tuesday to boost drilling and protect jobs as oil and gas prices sag.

Alberta Energy Minister Mel Knight, who championed a hike in royalty rates before prices collapsed, said the moves did not mean a softening of his stance, but rather a short-term response to the global economic crisis. Knight also refused to characterize the initiatives, including a low, 5% royalty on new oil and gas wells and a royalty credit per meter of well drilled, as a bailout.

"There is not one dollar accessed from this program without Albertans at work. This has nothing to do with splashing money around," Knight told reporters.

Industry groups have recently slashed drilling forecasts for 2009, with oil prices more than $100 a barrel lower than in July and natural gas 40% below the price of a year ago.

The groups said they were pleased with the breaks, which come two months after the higher royalties took effect.

The moves are aimed partly at convincing banks to loosen their purse strings for companies that have had to slash spending as access to capital dried up. There is no firm commitment for lenders, however.

The new low royalty rate on production from new wells, which runs for one year starting in April, could have a royalty revenue impact of up to C$1.04 billion.

With the credit per meter drilled, the smallest producers may be able to offset as much as half the royalties owed while the biggest companies would be limited to 10%.

The cost of that incentive could be as much as C$466 million, while the province has earmarked C$30 million for a fund to abandon and reclaim old well sites.

No revenue would be generated at all, however, if companies do not drill, Knight said.

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