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BC government offering fresh batch of incentives
Gary Park For Petroleum News
British Columbia is winding down its current fiscal year with barely half the forecast revenues from natural gas, one of its key revenue sources.
Instead of bemoaning its fate, the government has done what has worked in the past by offering a fresh bundle of incentives to stimulate upstream investment.
But the decline in its gas revenues, at a time of shrinking exploration and development activity and stubbornly low commodity prices in a saturated North American market, is staggering.
Finance Minister Colin Hansen disclosed that the 2010-11 budget year is expected to end on March 31 with gas royalties of C$365 million, compared with the original forecast of C$698 million.
His budget predicted only a modest recovery over the next three fiscal years to C$497 million in 2011-12, then C$597 million and C$865 million — a combined total that is still short of the C$2.3 billion raked in five years ago.
Tax breaks, royalty credit The government responded as it has in the past by doing what has won it strong backing from the industry.
Energy Minister Steve Thomson rolled out C$120 million in tax breaks for companies who build extraction infrastructure, adding to a royalty credit program that was introduced in 2004 that offered credits worth half the value of pipelines and roads.
The objective is to open up remote areas in northeastern British Columbia’s prolific, but costly-to-operate gas fields by building infrastructure now for when a recovery takes place.
Thomson told the Vancouver Sun it is “more crucial than ever” to encourage industry activity by setting the stage for long-term development and generating jobs, activity and revenue.
David Pryce, vice president of operations with the Canadian Association of Petroleum Producers, endorsed the government strategy by suggesting that without incentives the revenue streams would be have been “considerably less.”
“It’s about the competitiveness of a jurisdiction,” he said.
Gary Leach, executive director of the Small Explorers and Producers Association of Canada, said the decline in royalties sends a message to policymakers about the importance of their role in ensuring “a stable, attractive investment climate” especially during a period of low commodity prices.
However, Thomson implied that the program is not a giveaway by noting that only projects offering the “highest economic benefits” will be approved.
Goal incremental gas royalties The government’s goal is to earn C$2.50 in incremental gas royalties for every C$1 in credits.
It estimated that under existing programs it has seen 76 new roads and 91 pipeline projects completed at a capital cost of C$1 billion.
But there is no denying that Canada’s second largest gas-producing province after Alberta at about 1.17 trillion cubic feet a year, or 20 percent of the national output, is facing the same tough times as its peers.
Despite the anticipated turnaround in revenues, average plant inlet gas prices are forecast to recover only gradually from C$2.71 per gigajoule in the current year to a successive C$3.02, then C$3.60 and C$4.20.
Hansen forecast B.C.’s overall budget deficit for 2010-11 will drop to C$1.3 billion, down C$400 million from the budget forecast, and continue sliding to C$925 million in the upcoming year and eventually regain a surplus in 2013-14.
While the province posted economic growth of 3.1 percent in calendar 2010, it expects only 2 percent in 2011, reflecting the Ministry of Finance’s expected slowing in global activity.
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