Wednesday, November 28, 2007

Alberta Royalty Increases Discourages Another

Canadian Natural Resources (TSX: CNQ) has cut its Canadian conventional crude oil and natural gas capital budget by one-third to $1.7 billion for 2008, citing the impact of higher Alberta royalties on energy production.

"Of the reduction in capital spending, 78 per cent or $645 million is due to a reduced drilling program in Alberta largely as a result of the impact of the royalty review changes," the Calgary-based company said Tuesday.

In October, Alberta Premier Ed Stelmach said the province would go ahead with some of a royalty panel's recommendations, choosing to take $1.4 billion in additional revenues instead of the proposed $2 billion.

Several major energy companies had warned that royalty increases would discourage their investment in Alberta's resources.

"The new royalty regime introduced by the province of Alberta, effective for 2009, will take the vast majority of any increases in natural gas prices for most of our natural gas wells," John Langille, vice-chairman of Canadian Natural Resources, said in a release.

"As such, the ability to increase natural gas drilling activity with increasing gas prices is severely impacted."

He said the natural gas side of the business is faced with eroded economics due to low prices, along with a new royalty regime that reduces the returns on certain types of drilling.

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