While the oil and gas industry in Drumheller continues to work its way out of the slump it has experienced, the verdict is out on whether the Alberta government’s plan to change royalty structures, yet again, will have any impact.
Gord MacKinnon of Blackwatch Energy Services says the slowdown was a combination of factors.
“While I think the royalty debacle was poorly timed and poorly executed, I don’t think it was solely responsible for the down time in the oil industry, but it certainly didn’t help anything,” said MacKinnon.
He says gas prices were softening throughout 2008 before the new structure came into place. This, combined with lower demand as the US fell into recession, hit the industry hard all over. There was also considerable movement towards developing shale plays in BC and other areas.
Last month the Alberta government announced changes touted as delivering on oil and gas competitiveness. The changes are expected to create 8,000 jobs in 2010-2011, and then 13,000 jobs annually.
MacKinnon is hopeful that the industry will turn around, but in the short term it may not have as much impact.
“I think long term it will affect the whole province, there is no doubt about it. In the short term, you won’t see anything really,” he said.
One of the reasons he is less optimistic about the short-term prognosis is because companies now have to reassess the latest new deal.
In 2007, the Alberta government released the new Royalty Framework and in January 2009 introduced a new royalty regime. It has since been adding incentives.
“Every time they make a change to the royalty regime, it is a trickle down effect. The oil companies get that information, and they go back, analyze it and pick it apart to see what it means to all the different segments of their drilling program, and how they are going to drill wells and how they are going to spend money. That takes time,” said MacKinnon.
“It is almost as bad making changes every three months to it, than moving it and leaving it that way… when you finally figure out what it all means they come up with a new idea.”
Miles Travis, service operations manager for Midfield Supply says there is no doubt there is a slump in the market in the Drumheller area, and he says the cause was much more than just the royalties, but he is optimistic.
“He (Stelmach) had to do something,” he said.
While the royalty rate didn’t help, the slump in prices was a big factor in the change. While it may be perceived as an exodus, he says many of the players were planning to head to areas such as Northern BC regardless of the rate structure, and Midfield is still doing major quotes and bids for some of that work.
“It’s been a bad one… but they (the larger companies) will be back,” said Travis.