Claudia Cattaneo, Financial Post Published: Wednesday, June 24, 2009

CALGARY -- Alberta will restore the competitiveness of its natural gas sector Thursday with a new incentive program, Premier Ed Stelmach pledged in Calgary Wednesday.

After watching drilling activity collapse because of low natural gas prices, competition from new shale discoveries elsewhere in North America, and its own regime of higher royalties that became effective in January, Mr. Stelmach said he wants to see people get back to work.

"The world has changed dramatically," Mr. Stelmach told reporters after meeting with oilpatch leaders in Calgary. "Nobody was talking about shale gas two years ago when we were going through the (royalty) review, and also nobody predicted the world economic situation."

Details of the new incentives will be announced by Alberta's Energy Minister, Mel Knight.

The change will be the province's fifth to the controversial regime that collects higher royalties from oil and gas projects as prices increase. Unveiled almost two years ago amid an industry outcry, it caused a slowdown in investment a year before the global downturn, while benefiting neighboring provinces that lured new activity by making their fiscal terms more attractive. Drilling activity is so slack only 69 rigs are working in the province this week, out of a fleet of 602.

According to an international survey of petroleum executives made public Wednesday by the Vancouver-based Fraser Institute, Alberta now trails seven other Canadian provinces – Manitoba, Saskatchewan, Nova Scotia, Ontario, Quebec, British Columbia, and Newfoundland and Labrador -- as an attractive place to invest in oil and gas.

"The survey results clearly show the industry's dissatisfaction with the Alberta government's misguided policies. Punitive royalty rates, a lack of consultation, and a growing anti-energy bias are common complaints about the Stelmach government," said Gerry Angevine, Fraser Institute senior economist and coordinator of the annual petroleum survey.

"Meanwhile, Manitoba has quietly encouraged oil and gas investment with low royalties and an easy to understand regulatory framework."

Mr. Stelmach said the Fraser Institute study will be outdated as of Thursday.

Alberta's investment climate "will change after (Thursday's) announcement," he said.