UPDATE 1-Alberta royalty break fails to halt oil stock skid
(Adds oil stocks at lowest since September 2004)
CALGARY, Alberta, Nov 20 (Reuters) - Alberta's 11th-hour concession to the oil industry on royalties failed on Thursday to prevent a 15 percent drop in Canadian energy stocks, which hit their lowest level in more than four years due to tumbling oil and gas prices.
Canada's biggest energy-producing province, fearing a major drop in drilling and a loss of jobs, moved on Wednesday to offer companies a lower transitional royalty rate for new wells drilled after Jan. 1.
That's the date the Alberta government's hard-fought new royalty regime takes effect. The energy industry had recently increased its pleas for respite from paying the new, higher rates as it faced a deepening credit crisis and falling commodity prices.
But the Toronto Stock Exchange's oil and gas subindex .SPTTEN, which includes shares of oil explorers, integrated companies and oil field service provides, skidded nearly 30 points to 176.40. That was its lowest level since September 2004, and down 62 percent from the record high set in June.
The drop in the oils was a big factor behind a 9 percent drop in the broad TSX composite index.
"Unfortunately for many of the Alberta-based drillers, they're going to be cash-strapped looking into 2009," Tristone Capital analyst Chris Feltin said.
"While the new government incentive looks like it does open up some opportunity ... many operators aren't going to be able to act on those opportunities due to the lower revenue outlook."
U.S. crude oil fell 7 percent to a 3-1/2-year low of $49.62 a barrel and natural gas sank more than 6 percent to $6.316 per million British thermal units. Oil was pressured by concerns about a long global recession and gas was hit hard after a U.S. data showed an unexpected build in inventories.
Among big names taking hits on Thursday, Canadian Natural Resources Ltd (CNQ.TO) fell 22 percent to C$35.43, Suncor Energy Inc (SU.TO) fell 15 percent to C$18.83, and Talisman Energy Inc (TLM.TO) fell 16 percent to C$8.58.
Numerous oil and gas producers have announced more miserly capital spending for 2009 due to weak commodity prices. Feltin said it is unlikely that Alberta Premier Ed Stelmach's softening on royalties will mean a quick rethink on budgets.
"This may not be something that would see a huge reallocation of capital in terms of Western Canadian drilling," he said. "But should prices firm up any time over the next five years, I think it does open up a new suite of drilling opportunities."
The five-year incentive, which could mean a total of C$1.8 billion ($1.4 billion) in forgone government revenue, targets medium-depth conventional oil and gas drilling, one segment of the business that the industry complained would suffer under Stelmach's new royalty framework.
Existing production of oil, natural gas and oil sands will still be charged the new-regime rates on Jan. 1 as planned.
Oil companies railed against the C$1.4 billion royalty hike when Stelmach announced it in 2007 amid a wave of moves by governments around the world to garner a bigger slice of the energy pie as prices surged. Companies threatened to chop spending in the province and concentrate operations elsewhere. Continued...
