B.C. to extend royalty credit for natural gas industry

Announcement of $360 million of credits over three years comes on same day Encana announces 20% workforce reduction

An Encana workcamp in Northeastern B.C. | Jonny Wakefield, Alaska Highway News

The oil and gas sector, which has had a slowdown in activity in Northeastern B.C. over the past six months in response to a prolonged oil and gas price downturn, will be getting some help from the B.C. government in the form of an extended royalty credit.

The B.C. government announced February 24 that it will extend a one-year Infrastructure Royalty Credit Program for the oil and gas sector – renewed on a yearly basis – to a three-year program.

It will provide a total of $360 million – $120 million per year – in royalty deductions for gas industry related investments in things like roads and pipelines between 2016 and 2018.

There is no increase in the amount that the government is providing. The key change is that it was previously administered year-to-year, and will now be a three-year program. Extending it to three years is intended to give companies planning to make capital investments in B.C. more certainty.

"By offering our infrastructure program in three-year installments, we are able to support longer-term planning and attract the investments we still need to help our natural-resource sector grow at the very same time companies are carefully managing their capital,” said Natural Gas Minister Rich Coleman.

The announcement came on the same day that Encana Corp. (TSX:ECA) announced it will reduce its workforce by 20% in 2016. The company did not specify where the cuts will come.

Encana has been making significant investments in the Montney in Northeastern B.C. – one of its four core assets.

The company is building a new gas processing plant near Dawson – the $860 million Sunrise Creek plant – and also plans to build a $715-million gas plant near fort St. John, starting this year.

According to its year-end financials, Encana has $4.5 billion in unsecured credit facilities out to 2020.

The company announced that, in 2016, it will focus all of its capital spending on its four core assets, which include the Montney.

“Under our new plan, we will invest virtually all of our capital in our core four assets and our cost structure will be about $550 million lower than in 2015,” Encana CEO Doug Suttles in a year-end financials press release.

Northeastern B.C. has seen a dramatic slowdown in well drilling in recent months, but work continues on gas infrastructure, such as pipelines and gas processing plants.