Construction has started on the first major private-public partnership (P3) in B.C.

Upgrades to the Sierra Yoyo Desan (SYD) Resource Road, a 173-kilometre stretch of roadway in the northeastern corner of the province, will literally pave the way for future P3s as Premier Gordon Campbell’s Liberal government tries to spur business activity.

The upgrades are designed to make the SYD road an all-weather roadway that grants oil and gas companies almost year-round access, rather than just in cold winter months when frozen ground enables heavy trucks to travel the terrain.

The SYD road provides the primary access to more than 27,000 sq. km. of oil and gas territory.

The first construction phase involves a bridge over the Fort Nelson River, slated for completion in December. The bridge will enable two-lane traffic to flow between Fort Nelson and operating areas along the road for oil and gas producers, service companies, other resource users and the general public.

The remainder of the SYD road, which extends through mostly uninhabited regions, is to be completed by December 1, 2005.

Last month, Vancouver-based Ledcor Projects Inc. signed a $40-million deal to design, finance and deliver upgrades to the SYD road and operate and maintain it for 16 years.

“It transfers the risk,’’ said Brenda Manuel, a senior project engineer with Ledcor, of the P3.

Under the terms of the deal, Ledcor will pay $40 million in the first two years to upgrade and improve the road, and $2.5 million on maintenance in each of the next 14 years.

Ledcor will cover the upfront costs of final design, financing, construction and maintenance. Industrial road users will pay a toll, which B.C.’s energy ministry and industrial road users will jointly administer.

The company will then use the fees for improvements and upgrades, and maintaining the road over the term of the agreement.

“This project is a good example of an innovative public-private partnership that will create employment and economic opportunities for B.C.,” said Richard Neufeld, the province’s energy minister, in a news release.

CIT Capital Finance, a unit of CIT Group Inc. that has acted as lead arranger for the road project, has completed a $34-million senior debt facility for Ledcor. In addition to CIT, the senior debt syndicate includes The Sun Life Assurance Co. of Canada.

Calgary-based EnCana Corp., Canada’s largest oil and gas producer, is the most active player in northeastern B.C. and has been a major proponent of the road as it will be one of the main users.

The SYD road construction comes as the oil and gas industry and the B.C. government promote summer drilling activity. For the second straight year, the province will provide royalty rebates of $100,000 or 10 per cent, whichever is less, of each gas well drilled between June 30 and December 1.

As a result, several producers – including EnCana, which doubled its well count to 80 last summer and will drill a similar number this year, Anadarko and Devon Canada – have boosted their mid-year programs.

Traditionally, producers have not drilled in northeastern B.C. and other northern realms in summer months because provincial regulations prohibit access along softer seasonal roads that are prone to damage from heavy trucks. But the province has granted extended access in some areas to boost summer activity.

Mike Doyle, president of the Canadian Association of Geophysical Contractors, said more roads built through public- private partnerships, such as the one in B.C., could lead to even more summer activity.

“If we talk about infrastructure in the north, I think roads are extremely important,” said Doyle. “If there was a road all the way up to the MacKenzie Delta, I think you’d have a pipeline.”

Last year, a $70,000 study on summer drilling and seismic activity conducted by Ziff Energy Group of Calgary concluded that increased summer activity would reduce producers’ costs and help retain skilled service-company workers who leave the industry because they are not guaranteed a paycheque year-round.

“Annual load levelling of drilling activity would significantly assist the service sector, which represents a long-term benefit to the oil and gas producer by ensuring experienced and complete crews are able to complete the activity,” says the Ziff study’s report.

According to the study, access from the Canada-U.S. border up to the tree-line regions is possible every month of the year. However, seismic and drilling activities in northern B.C. and Alberta are more challenging due to muskeg, swamps, forests, river crossings and lack of roads.

But the Alberta government is not expected to provide royalty credits any time soon.

Alberta’s energy ministry has said the province’s oil and gas industry does not need a fiscal incentive to ensure infrastructure and energy development.

Alberta contends that B.C.’s oil and gas sector is in a different situation because it is less explored and less developed.

Last December, the B.C. government also announced a royalty-credit program for producers that fund road construction. Calgary-based Canadian Natural Resources Ltd. and Penn West Petroleum received $2.5 million for their 12.6-km North Petitot Access Road joint venture.

(Monte Stewart can be reached at monte@businessedge.ca)