DJ UPDATE: Alberta Govt Extends Incentive Programs To March 2011

(Recasts lead and rewrites throughout to include analyst commentary.)

DOW JONES NEWSWIRES

The Alberta government extended two energy incentive programs by one year in an effort to keep the province's energy industry competitive in the face of challenging conditions, a move analysts said will help producers as they firm up their near-term capital-spending plans.

The extension, to March 2011, affects the drilling royalty credit for qualifying wells as well as the province's new-well incentive program.

The former provides a C$200-a-meter-drilled royalty credit to companies on a sliding scale based on their production levels from 2008. The latter offers a maximum 5% royalty rate for the first year of production from new oil or gas wells. The province said the extension "provides the certainty needed for oil and gas producers to plan new drilling programs."

Analysts at Scotia Capital said in a report that the move will benefit companies that are smaller, since the new drilling credit is available on a sliding scale with the maximum benefit going to smaller producers.

They also said the move will most help companies with financial flexibility, noting that the current state of the sector's balance sheets leaves many energy trusts and junior producers without the ability to take advantage of the programs.

Among those companies which could benefit most are Iteration Energy Ltd. (ITX.T), NAL Oil & Gas Trust (NAE.UN.T) and Progress Energy Resources Corp. (PRQ.T), Scotia said.

Paradigm Capital analyst Dan Payne expects well-capitalized, low-cost operators like Birchliff Energy Ltd. (BIR.T) and Vero Energy Inc. (VRO.T) to benefit most. But he added in a report that a material rebound in commodity prices is needed to fully realize the intended stimulus.

The province of Alberta said on its Web site that its review of overall competitiveness is expected to be completed by this fall and will look at all components of conventional operations, including regulatory efficiency, fiscal aspects, all aspects of taxation, availability of labor, and other costs.

Several analysts said they believe Alberta will have to make long-term adjustments to address its energy sector's fiscal competitiveness compared to that of other jurisdictions both in Canada and elsewhere.

Scotia has an investment-banking relationship with Iteration, NAL and Progress but the authors of the report don't own shares of these companies. Paradigm has an investment-banking relationship with Vero but the analyst doesn't own Birchliff or Vero shares.

-Carolyn King; 416-306-2100; AskNewswires@dowjones.com

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(END) Dow Jones Newswires

June 26, 2009 10:13 ET (14:13 GMT)

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