Oil and gas producers are hoping the B.C. government will renew its popular summer drilling royalty-rebate program.
But the government is being non-committal on the future of the incentive package that it often touts as an economic benefit to taxpayers.
"We've actually doubled the summer component, so we'll be very disappointed to see it (end)," says Mike Graham, EnCana Corp.'s executive vice-president and president of the Canadian foothills and frontier region. "But I don't think it will because, really, it's a great incentive for the industry."
Due to expire in November, the program offers rebates of up to $100,000 per well. In the past two years, it has greatly increased activities in the traditionally slow second quarter.
A B.C. government official raised questions about the program's future during a gas conference in Vancouver in early May, saying he could not confirm that it will continue.
Virtually all B.C. summer drilling occurs in the province's northeastern quarter. Most, if not all, of the exploration is for gas.
The royalty-rebate program has allowed producers to boost production, offset costs and avoid skilled-labour shortages because they've been able to employ workers year round.
"A couple of (companies) have talked about going in there and drilling more. Ourselves, we've got over 20 rigs running over the summer, which is kind of unheard of for us," says Graham.
Calgary-based EnCana, Canada's largest independent producer, controls more than four million acres of land in B.C.
Will Yakymyshyn, Devon Canada Corp.'s vice-president of exploitation, says his firm conducts limited summer drilling but would still like to see the summer rebate continue.
"If we could load level - by that, I mean balance activity throughout the year - that would benefit the whole industry," Yakymyshyn says.
Devon expects to drill five to 10 wells in the Peggo-Pesh area near Fort Nelson this summer. The company would like to drill more wells, says Yakymyshyn, but it is limited by a lack of roads and pipelines.
And even with the use of matting, which reduces the impact of trucks, the proposition for more summer drilling is too expensive.
In recent years, the oil and gas industry has explored ways to optimize the utilization of drilling rigs and other equipment and employees in order to offset lengthy downtimes.
Traditionally, winter is the busiest period of oil and gas activity. Yakymyshyn says producers often have to wait a day for equipment to arrive at a wellsite in the first quarter.
"Of course, that adds additional dollars to complete that particular well - just because the industry is going full out," he says.
Meanwhile, service companies have been able to keep their rigs in action for longer periods and minimize re-relocation costs because they can haul equipment over shorter distances.
Cheryl Knight, executive director of the Petroleum Human Resources Council of Canada, says summer drilling activity in northeastern B.C. will decline if the royalty rebate ends.
"They (the provincial government) are really trying to ramp up with the production activity," says Knight. "To interfere with that, I think, would be problematic."
By continuing the incentive, the province would help distribute activity more evenly over more months of the year, she adds.
It would also help companies retain employees - rather than lose them permanently - after they have spent money to train them.
"In Alberta here, as the drilling activity drops in summer months, you always lose some people," says Knight.
B.C.'s summer-drilling program has boosted activity in the region and created more demand for skilled workers, she says.
Most skilled workers come from Alberta, but the province and industry are proceeding with training and preparation programs for B.C. residents.
David Molinski, an assistant deputy energy minister with the oil and gas division of B.C.'s Ministry of Energy and Mines, says the province has not yet decided to extend the summer-drilling program.
Energy ministry officials are pleased with the royalty-rebate program, he adds, but it's "too early to say" whether it will continue next year.
He notes the ministry will give producers sufficient notice so that they can plan their drilling activities well in advance.
This summer's well count is expected to exceed the 2004 and 2003 totals, says Paul Wieringa, the provincial energy ministry's executive director of oil and gas policy. Last year, 319 wells were drilled between April and November, compared to 335 in 2003 and 152 in 2002.
During the last week of May, 28 drilling rigs were operating in B.C. - 19 more than the same week of 2004.
"We're getting quite an increase in the last couple of weeks over last year," says Wieringa.
Between April and May, 56 wells were drilled - a 5.7-per-cent boost over the same period last year and a 108-per-cent hike from 2002.
In 2004, summer drilling helped B.C. boost its rig-released wells to 1,277 for the whole year, up from 646 two years earlier and 331 in 1993.
Wieringa attributes the increases to continued high gas prices and the summer royalty-rebate program, adding more people have become aware of the government's incentive.
The energy ministry is not in a position to announce its decision until recently re-elected Premier Gordon Campbell swears in his new cabinet.
Richard Neufeld is expected to retain his post as energy minister.
Despite the uncertainty surrounding the summer drilling incentives, the B.C. government has earned praise from Graham and other producers for planning to introduce a net-profit royalty rebate, similar to one offered in Alberta.
The net-profit rebate would allow producers to pay a smaller royalty at a well's startup and a larger one when the well's production has covered its expenses.
Molinski says the net-profit rebate aims to offset the high risks and high costs of shale-gas and tight-gas projects that require a lot of capital up front.
If all goes according to plan, the province would still collect the same rent on a well, says Molinski, but royalty increases would be timed to coincide with cashflow.
(Monte Stewart can be reached at monte@businessedge.ca)
