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Government incentives for gas exploration

The Government of Saskatchewan announced an incentive to encourage increased natural gas exploration and production in the province.

The Government of Saskatchewan announced an incentive to encourage increased natural gas exploration and production in the province.

The new incentive will encourage application of horizontal well drilling techniques in Saskatchewan's proven and potential natural gas pools. No horizontal drilling for gas is currently done in the province.The volume-based incentive establishes a maximum Crown royalty rate of 2.5 per cent and a freehold production tax rate of zero per cent on the first 25 million cubic metres of natural gas produced from every horizontal gas well drilled between June 1 of this year and March 31, 2013.

"Saskatchewan has great potential for further development of our natural gas resources, but that potential needs to be realized through the application of newer technologies," Energy and Resources Minister Bill Boyd said. "Horizontal drilling and multi-stage fracturing are prime examples of such technologies."

Boyd said the new incentive is similar to one already in place for initial volumes of oil produced through horizontal drilling. In Saskatchewan, roughly one-third of oil wells drilled in a given year are horizontal, and more than 10,000 horizontal oil wells have been drilled since 1987. This technique is widely credited with the continued growth and development of the province's crude oil resources and more recently, the Bakken light oil play in southeast Saskatchewan.

Natural gas drilling in the province has declined over the past seven years as a result of market changes brought on by the emergence of large shale gas plays in other jurisdictions that compete with conventional natural gas. This lower drilling has resulted in a subsequent decrease in natural gas production, with softness in price over the past two years also being a factor.

"Horizontal drilling is expected to account for the bulk of natural gas wells drilled in future in North America," Boyd said. "We've been at the forefront of using this technology to drill for oil here. By encouraging it on the gas side, we are sending a signal to the industry to invest and replicate some of the success it has enjoyed with oil."

The new incentive was developed in consultation with industry associations. There will be no cost to the provincial treasury as a result of this three-year incentive.

A study released by the National Energy Board and the Ministry of Energy and Resources in November 2008 estimated Saskatchewan's remaining marketable conventional natural gas resources at just over 150 billion cubic metres. While it didn't quantify them, the study also identified unconventional gas resources in the province, including natural gas in coal and shale gas.