AJM Petroleum Consultants

AJM Petroleum Consultants

March 04, 2009 19:14 ET

Royalty Incentives Alone Won't Save Alberta's Oil and Gas Industry

CALGARY, ALBERTA--(Marketwire - March 4, 2009) - While the Energy Incentive Program announced yesterday by Alberta Energy Minister Mel Knight is a good step for Alberta's oil and gas industry, access to capital remains a major stumbling block to Alberta's economic recovery says AJM Petroleum Consultants, an evaluation firm that specializes in the economic evaluation of oil and gas reserves.

"The Alberta government deserves credit for their efforts to stimulate an industry that is in a critical state," said Ralph Glass, VP Operations of AJM Petroleum Consultants. "However, it's important to bear in mind that the current slump in the oil and gas industry wasn't caused by the introduction of the new Alberta Royalty Framework - it is a result of the capital equity freeze and the crash in the commodity prices. The government's new drilling incentive program improves the situation for companies who have 'money in the bank,' but it won't have much impact on companies who need to access capital to fund their drilling programs."

In an economic climate where oil and gas companies must make drilling decisions based on low oil and gas prices, a lack of access to capital and high drilling costs, Glass believes that while the Alberta government has taken steps to influence factors within their control, their efforts alone will not stimulate a recovery of the oil and gas industry.

"Prices and costs remain the fundamental drivers behind whether to drill or not to drill, so the royalty savings offered through the new Alberta Energy Incentive Program are relevant only to producers who are able to drill - if wells are not being drilled or the number of wells being drilled is limited, the benefit of the royalty savings will be similarly limited," says Glass. "At the end of the day, oil and gas companies are in business to make money, and if projects are not economically viable, they will not proceed with them, regardless of the attractiveness of royalty rates."

In a blog posted today, Mr. Glass expands on impacts of Alberta's new Incentive Program. He also looks at the realities of Alberta's royalties, comparing the current royalty structure to the previous royalty structure at current oil and gas prices. The blog can be viewed at www.ajmpc.com/blog.

AJM Petroleum Consultants, a privately owned Calgary-based company, has extensive experience in corporate reserve evaluations, acquisition and divestiture evaluations, and evaluations of the unconventional reserves and resources of tight gas, shale gas, coalbed methane, bitumen and heavy oil. Diverse engineering and geological capabilities combine with comprehensive research to enable AJM to provide innovative solutions to clients in the upstream sector of the oil and gas industry in Western Canada, North America and internationally. For more information visit www.ajmpc.com.

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  • AJM Petroleum Consultants
    Andrea Conway
    (403) 648-3269 or Mobile: (403) 561-8620