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Vol. 15, No. 34 Week of August 22, 2010
Providing coverage of Alaska and northern Canada's oil and gas industry

Rolling with the rollback

Alberta royalty reduction starts to show up in corporate bottom lines, drilling

Gary Park

For Petroleum News

The jury is not quite done with its work, but the early verdict is a happy one all-round.

It shapes up like a win-win for the Alberta government and the petroleum industry as the trickledown from the province’s latest attempt to get its royalty changes sorted out starts to show up in corporate bottom lines as well as upstream activity.

Consider one company — PetroBakken. The net value of its Alberta wells has been raised by C$1 million apiece, enough, according to analysts, to pay for about half of the company’s recent C$1 billion buying binge.

The reduction in Alberta royalties has also allowed Vero Energy to pump the value of its wells by C$937,500 each, or an increase of 20-30 percent, while junior E&P Anderson Energy is selling off its surplus drilling incentives.

Drilling up

Of more direct importance to the government, the number of drilling rigs at work in Western Canada — where Alberta dominates activity — is 378 compared with 157 at the same time last year. In Alberta, the active rig count has soared to 242 from 84.

Don Herring, president of the Canadian Association of Oilwell Drilling Contractors, said the numbers are approaching a level his sector is much happier with.

The spring royalty changes lowered the top crude royalty rate to 40 percent from 50 percent, locked in an initial 5 percent rate and dangled new incentives for deep and complex wells.

Second-quarter results show PetroBakken has increased the value of its wells in the sizzling Cardium play by 20 percent, and persuaded the company to shift some spending back to Alberta, which will claim 35 percent of the company’s spending this year, compared with 10 percent last year.

PetroBakken President Gregg Smith said the royalty rollback is putting Alberta “back to work. … By making the changes, the pie is actually getting bigger.”



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