Alberta fiscal details positive for the Alberta economy; regulatory
competitiveness next priority

CALGARY, May 27 /CNW/ - The Canadian Association of Petroleum Producers (CAPP) said today's Alberta government royalty announcement largely delivers on the positive direction established with the release of the competitiveness review report in March.

"The new fiscal details are particularly positive for the competitiveness of Alberta's natural gas and will enhance the industry's ability to strengthen the economy and create jobs for Albertans," said CAPP president David Collyer. "On the oil side, changes are not as significant. We are encouraged by the broader application of the lower up-front royalty rate, which will stimulate new oil drilling activity."

A review of Alberta's position as a competitive place for oil and gas investment relative to other North American jurisdictions was completed in March 2010. The review considered the role of Alberta's fiscal regime, the regulatory framework, technology and innovation and the overall business climate. As a first step to improving Alberta's oil and gas investment climate, maximum royalty rates were lowered and an existing up-front five per cent royalty rate feature was made permanent.

CAPP believes the Government of Alberta's announcement of fiscal details today will help restore investor confidence in Alberta's oil and gas industry. Increased oil and gas investment in Alberta translates to increased activity, jobs and public revenues, all of which contribute to quality of life in Alberta.

The oil and gas industry makes up about 50 per cent of the Alberta economy and employs one in six Albertans, with substantial related employment created in sectors such as hospitality, transportation, food services, consultation, construction and real estate. Each dollar invested in the oil and gas sector creates three dollars of value in Alberta's economy across the province, particularly in rural communities.

The next important step is to address the regulatory competitiveness of the province and take steps to improve the regulatory system.

"An improved regulatory framework must maintain environmental standards while improving the efficiency of the system. At the same time the oil and gas industry must continue to improve environmental performance," Collyer said. "We are encouraged by the process the government has established and the ambitious timeline adopted for addressing regulatory reform."

CAPP represents companies, large and small, that explore for, develop and produce natural gas and crude oil throughout Canada. CAPP's member companies produce about 90 per cent of Canada's natural gas and crude oil. CAPP's associate members provide a wide range of services that support the upstream crude oil and natural gas industry. Together CAPP's members and associate members are an important part of a $110-billion-a-year national industry that provides essential energy products. CAPP's mission is to enhance the economic sustainability of the Canadian upstream petroleum industry in a safe and environmentally and socially responsible manner, through constructive engagement and communication with governments, the public and stakeholders in the communities in which we operate.

Backgrounder:

Oil and gas accounts for:

    
    -   25% of private sector investment in Canada
    -   25% of value on Toronto Stock Exchange
    -   50% of the Alberta economy
    

Alberta produces 73% of the oil and 76% of the gas produced in Canada. The energy produced in Alberta heats homes and buildings, generates electricity and manufactures a variety of products, including transportation fuels, lubricants, waxes, plastics, synthetic rubber and asphalt.

Alberta Economy

Alberta's resources make up the foundation of our economy. Being competitive, stable and predictable encourages the investment that equals jobs, strong GDP and a high quality of life for all Albertans.

A recent University of Alberta study (see footnote) indicates the Canadian economy was technically in recession for the fourth quarter of 2008 and the first quarter of 2009 over which GDP growth rates were -6.6% and -8.5%, respectively. Alberta unemployment peaked in August 2009 at 7.7 per cent, a 13-year-high. At the same time investment in conventional oil and gas fell from $21 billion in 2008 to current levels of $13-14 billion, creating a negative impact of over $20 billion in the Alberta economy.

Investment

Each dollar invested in the province's oil and gas industry creates three dollars of value in Alberta's economy. The more attractive our province is for investment, the more Albertans benefit.

Restoring investor confidence does not mean instant prosperity. However, a reputation for strength and stability positions Alberta for positive and long-term economic growth and benefits.

A steep drop in business capital spending in Alberta's energy sector has had a significant direct impact on the oil and gas industry and also a depressing impact on other sectors of Alberta's economy, especially manufacturing and wholesale sales. In the Alberta oil and gas sector 19,000 jobs have been lost since July 2008. For the construction, manufacturing, wholesale trade, and professional services sectors these figures are 23,400, 34,600, 12,600, and 19,200, respectively.

Employment

In Alberta, according to the Canadian Association of Oil well Drilling Contractors (http://www.caodc.ca/) the daily average of active rigs was 277 of 550 available drilling rigs are operating in Alberta today.

    
    -   Each active drilling operation supports 138 jobs for Albertans (75
        direct).
    -   According to the provincial Alberta Energy department, one out of
        every six Albertans is directly or indirectly employed in the energy
        industry.
    -   Across Canada, some 500,000 jobs are directly or indirectly supported
        by the industry.
    

Some of the direct jobs associated with the energy industry include:

    
    -   Engineers: Petroleum (i.e. Reservoir, Production), Mechanical (i.e.
        Mechanical, Rotating Equipment and Development) and Materials

    -   Trades: Pipefitter, Ironworker, Rig Technician, Electrical and
        Instrumentation

    -   Business and Operations Support: Medical Personnel, IT Specialist,
        Specialty HR, Production Accountant, Finance, Occupational Health and
        Safety and QA Specialist

    -   Operators: Motorhand, Derrickhand, Driller, Field Operator, Well
        Services Operator (experienced) and Service Technician

    -   Field Workers: Drilling and Service Rig Work (i.e. Floorhand) and
        Seismic (i.e. Recording Crew Helper and Observer)

    -   Specialized Skills: Experienced SAGD Professional, In Situ Heavy Oil
        Technical Professional and Shale Gas Specialist

    -   Others: Mining and Construction roles (i.e. Site Superintendent and
        Construction Safety Office and Labourer)
    

Revenue

In 2008, the petroleum industry invested $54 billion in Canada, including $39 billion in Alberta. Additionally, our industry paid $8.5 billion to the federal and provincial governments in corporate income taxes and $10.7 billion in royalties to Alberta.

Historically, natural gas has been the largest source of resource development revenue for Alberta, accounting for more than $55 billion in royalties paid to the Alberta government over the last decade. This amounts to about 56 per cent of all provincial revenue from non-renewable resources over that period.

To date, 2010 Alberta land sales for conventional oil and gas leases total $739 million, already surpassing the total ($732 million) for all of last year.

Recession in Review: The Alberta Economy and Employment "Weathering the Storm," University of Alberta, February 2010.

For further information: Travis Davies, Media Relations, Canadian Association of Petroleum Producers, (P): [phone], (M): [phone], (E): [email protected]