CALGARY – The Alberta government’s competitiveness review will spur drilling activity and create jobs in the province, but analysts are unsure if measures designed to spur innovation will close the gap with unconventional shale gas in British Columbia and the U.S.
Government officials said one aim of Thursday’s announcement is to encourage innovation and technology as a way of increasing production and reserves, especially in relation to unconventional natural gas development that relies on complicated drilling techniques to unlock the resource.
According to government technical documents, the province is hoping to increase oilpatch jobs by 8,000 in 2011-12 and then add 13,000 more annually across the economy by putting unconventional drilling on an equal footing with other provinces and parts of the United States, where shale gas has helped reverse steep production declines in recent years.
"What we’re seeing is a product that is focused on increasing employment in the oil and gas industry and that’s a key driver for us," said Don Herring, who heads the Canadian Association of Oilwell Drilling Contractors (CAODC), an industry association that represents drilling companies.
In an interview following the announcement, Herring said there’s no reason why drilling technology used in other pats of Canada and the U.S. can’t be used in Alberta to increase production from mature fields and unconventional gas plays.
"It’s exactly the same kind of drilling rig, the kind of technology that’s being used in Western Canada today. We’re seeing it being used in B.C. on the gas side and in Saskatchewan on the oil side. There’s no reason why we can’t see that kind of technology at play here."
He agreed that communities like Drayton Valley have benefited from renewed interest in the Pembina Cardium oilfield, a mature producing region discovered 60 years ago that has been transformed by multistage horizontal drilling.
As part of the province’s review, the Stelmach government vowed to find ways of recognizing the higher cost of new technology and find ways of enhancing research and development with industry and academia.
In addition, the report said the province would consider regulatory changes to provide "greater flexibility" for upstream technology such as horizontal drilling.
Although the report lacked details, government officials said it would consider royalty breaks and research grants to encourage innovation, which Premier Ed Stelmach said will be a key to ensuring Alberta’s future competitiveness. "It’s pretty difficult to get royalty if it (oil and gas) stays in the ground," he said.
The final technical report recommended the province increase education spending and research funding, in addition to promoting measures to address the environmental impacts of oil and gas development.
"I think creating an environment where they incent technology development is important," said David Collyer, president of the Canadian Association of Petroleum Producers.
"CCS (carbon capture and storage) is a good example."
But analysts said the province didn’t go far enough to encourage unconventional drilling in Alberta’s shale gas resources, which are facing stiff competition from regions of the U.S. and Canada, including Pennsylvania and Louisiana in addition to Quebec and B.C.
Chris Theal, an oil and gas analyst for Macquarie Securities who specializes in unconventional gas, said the new rules clearly benefit shallower oil and gas drilling, but it’s not clear that deep development is helped.
He suggested those worries may be behind Wednesday’s "disappointing" Alberta land sale that was expected to reap almost $1 billion, where deep shale formations like the Duvernay got bids that were lower than prices paid in December.
"If you truly want technology to come in and untap what you have in shales in Alberta, you need a fiscal regime."
Roger Soucy, who heads the Petroleum Services Association of Canada, said the jury is still out whether the changes will spur activity for his member companies, which employed more than 60,000 people at the height of the boom.
—
Changes To Take Effect Next Year
Effective Jan. 1, 2011, royalties on all production of natural gas and conventional oil will change.
– ¦ The current five per cent royalty rate on natural gas and conventional oil wells’ first year of production will become a permanent feature.
– ¦ The maximum royalty rate for conventional oil drops to 40 per cent from 50 per cent.
– ¦ The maximum royalty rate for natural gas drops to 36 per cent from 50 per cent.
– ¦ The transitional royalty framework for oil and gas launched November 2008 will continue until Dec. 31, 2013, as planned.
– ¦ As of January 2011 the incentive program shuts down to new applicants, and wells already selected for the program can switch to the new rates.
– ¦ Details affecting the royalty rate curve, which spans the low-end and high-end price scenarios, will be announced by May 31, 2010.
– ¦ Oilsands were not included in review because they continue to attract investment dollars.
Regulatory
– ¦ Cross-ministry task force to report on regulatory enhancements, changes to support technology and a plan to review the system within 90 days.
– ¦ Regulatory bodies to coordinate better compliance inspections by this October.
– ¦ Energy Resources Conservation Board to develop new processes on well spacing and safeguarding competitive information.
Innovation
– ¦ Government to find new means to support higher cost technologies targeting production from mature oil and gas fields.
– ¦ Partnering with industry and science to develop technologies for enhanced oil and gas recovery kept on front burner.
Source: Alberta Energy
spolczer@theherald.canwest.com
Comments
Want to discuss? Please read our Commenting Policy first.