B.C.'s gas sector expects an extra $600m in 2010

SCOTT SIMPSON
Vancouver Sun
December 18, 2009

British Columbia's natural gas stimulus package will generate at least $600 million in additional investment in the province next year, according to a new study.

PricewaterhouseCoopers states in a survey that the package of incentives announced Aug. 6 by provincial Energy Minister Blair Lekstrom will effectively counter the twin effects of declining North American gas demand and declining natural gas prices that emerged last year as a consequence of the global economic recession.

The survey was released Thursday by the provincial government.

PricewaterhouseCoopers surveyed 14 companies operating in B.C. and representing 75 per cent of gas production in the province, in order to determine the impact of the stimulus package.

The package includes an incentive for wells drilled from September 2009 through June 2010.

The government offered a one-year royalty rate of two per cent on those wells, compared to an average rate of about 19 or 20 per cent.

Eleven of 14 companies responded to the survey, representing 67 per cent of total B.C. natural gas production and accounting for $2.61 billion of investment in exploration and development of gas deposits in 2008.

In 2009 their investment dropped to $1.86 billion, mainly as a result of very low natural gas prices and declining demand as a consequence of the global economic recession.

The respondents said that the drops in both price and demand were expected to have an even more significant effect in 2010 and they were anticipating investments of $1.52 billion in B.C. - until the stimulus was announced.

PricewaterhouseCoopers said that as a result of the incentives, the respondents estimated they would increase their spending by $600 million for a total of $2.1 billion.

"Before stimulus, investment in B.C. in 2010 would have been 18.5-per-cent lower than 2009 investment standards," the PWC study said.

"With stimulus, investment in 2010 is expected to be 12.7-per-cent higher [estimated] than 2009 investment levels."

In a news release Lekstrom said, "B. C. continues to be one of the most competitive natural gas jurisdictions in North America and this stimulus package will further strengthen the sector while increasing provincial revenues."

"The whole intent of our royalty credit programs or our stimulus package most recently is to ensure we can attract the capital investment that is needed to maintain a competitive advantage and maintain jobs," Lekstrom said in an interview.

"We do a lot of work when we develop these packages, consultation with industry, with government looking at what we need to attract revenue and that investment and at the end of the day to see PWC verify the hard work that's gone into these is rewarding."

Lekstrom believes the royalty reduction was "one of the best moves we've made."

"Getting two per cent of something is a lot better than 19 per cent of nothing. Not only did the province generate some revenue as a result of that, but it generated jobs and economic activity here in the northeast as well."

He said B.C. was mindful of the need to keep as many rigs as possible in the province during the recession -- or risk losing them to other jurisdictions such as the United States, where a natural gas boom is under way.

"Once they make a determination that they are going to move capital or shift that capital elsewhere, or move those rigs somewhere else, it's very difficult to bring them back.

"So a big part of what we tried to do is secure the activity and the rigs that we have in place here in British Columbia. I think we've done that."

Dave Pryce, Western Canada operations vice-president of the Canadian Association of Petroleum Producers, concurred.

"We've said all along that if you set the right fiscal framework, the industry will respond favourably."

Pryce noted that B.C. also enjoyed a strong year -- third best on record
-- for natural gas exploration rights auction bids.

"It seems out of sequence with the cyclical nature of the gas price we're in -the low end," Pryce said in an interview.

"I think there are a couple of reasons. One obviously is the stimulus package. I think industry looks at that as a long-term commitment by the Crown [which is] saying, 'We want your business, we want you to come here.'"

Pryce said the stimulus package is "well positioned" with emerging major gas plays, the Horn and Montney plays where companies are looking to get in early and establish substantial land positions in expectation of a payback that could endure for several decades.

"You put those two together and I think that is why you are seeing the investment out of sequence with the cycle."

Meanwhile, the ministry announced that its December gas rights auction attracted $172 million in bonus natural gas bids.

That brought the 2009 calendar year total to $893 million.

The two best years on record are 2008, when B.C. received $2.66 billion bonus bids, and 2007 when the total was just over $1 billion.

ssimpson@vancouversun.com

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