What's New in Alberta: Fall 2009

Survey results on businesses and energy, plus a well-incentive program extension

In this section, we’ll bring you the news and issues relevant to companies doing business in Alberta. In this edition, we have results from four of our major business and energy surveys as well as information on the province’s extension of two incentive programs to help boost Alberta’s energy sector.

Ready? Set? Go?: Taking part in the IFRS race

Most Canadian energy companies – both public and private – will make the shift to International Financial Reporting Standards (IFRS), according to a joint survey conducted by PricewaterhouseCoopers and JuneWarren-Nickle’s Energy Group.

However, the 2009 Energy Survey Q2 Update finds that 83% of those adopting the new standards say they haven’t reached the halfway point in their conversion projects. This is significant as companies will need to provide comparable financial reports by Jan. 1, 2010, which is less than three months away.

Many IFRS conversion projects will move to the next stage of the transition process on Jan. 1, 2010. This new phase will require the adoption of new processes, controls and information management systems across the organization.

“Energy companies following the full-cost method of accounting are likely to experience significant changes to their business processes during the shift to IFRS,” says John Williamson, partner and leader of PwC Canada’s Energy Group. “Companies following the ‘successful effort method’ of accounting will have changes, but to a lesser extent.”

Private companies' growth prospects exceeds expectations

Results from PricewaterhouseCoopers' (PwC) Business Insights® survey shows that almost 60% of Canadian private companies are striving for growth in the next year, up from 55% in October 2008.

Furthermore, 61% of all respondents expect their business to perform better in the next 12 months. That’s a significant increase from 44% in October of last year.

The previously highly optimistic West is now more in line with the rest of the country, with the percentage of companies striving for growth in Alberta dropping to 57% from 85%.

"While the economy certainly tops the list of challenges that private companies are facing, our survey results are showing that the impact the economy has had on private companies is not nearly as severe as some may have thought," says Eric Andrew, leader of the PwC Canada Private Company Services practice.

The full PwC Business Insights® report is now available.

Regaining confidence

Alberta businesses and consumers are confident about the economy, according to the Business and Consumer Confidence Indices survey from PricewaterhouseCoopers and Leger Marketing.

The Business Confidence Index rose slightly to 103 in July, up from May’s level of 101 and 91 in March. Any number above 100 is considered an optimistic sentiment.

“These figures are promising and likely indicate that many Alberta businesses are seeing and expecting more improvements in Alberta’s economic conditions in the coming year,” says Ian Gunn, a partner and leader of PwC’s Private Company Services (PCS) practice in Calgary.

Meanwhile, the Consumer Confidence Index increased to 117 in July from 116 in May and 110 in March.

“As consumer confidence continues to rise,” explains David J. Bryan, an Advisory partner and leader of the PCS practice in Edmonton, “it reflects an increased expectation among consumers that both the housing and retail markets are more favourable.”

A total of 246 business leaders and 900 Alberta residents participated in the survey.

Performance under pressure

Seventy percent of Canadian oil and gas producers expect crude prices to rise in the next year, according to a survey conducted by PricewaterhouseCoopers and JuneWarren-Nickle’s Energy Group.

The 2009 Canadian Energy Survey also finds that 11% of respondents believe the price will increase substantially while the rest expect the price to stay the same in the year ahead.

Most respondents say oil prices will have to increase to at least US$70 to $80 before they would consider increasing conventional drilling programs. For unconventional oil players, a majority say prices would have to reach between $80 and $90 before boosting their programs.

The price of crude has bounced around from US$34 a barrel to $74 in the first eight months of the year but it’s still down from a record high of $147 in July 2008.

And 72% of natural gas producers believe prices will recover within the next two years to a level where they will increase their drilling programs. But 28% think it might take more than three years for prices to recover to levels that will result in an increase in their programs.

Natural gas prices dropped to a seven-year low in September and have dropped by more than half this year as of mid-September.

Additional incentives

The Alberta government will extend a drilling royalty credit for new wells and a new well incentive program by one year to March 2011.

Both programs, introduced this past winter, were set to expire in early 2010.

The drilling royalty credit for new conventional oil and natural gas wells provides a $200-per-metre credit to companies on a sliding scale based on their 2008 production levels. This is intended to help small- and mid-sized producers while freeing up capital for all companies.

And the new well incentive program offers a maximum 5% royalty rate for the first year of production from new oil or gas wells. This program aims to boost cash flow and provide access to capital needed for reinvestment.

"This extension responds to market challenges facing oil and gas exploration in Alberta," Mel Knight, Alberta's energy minister, said in a news release. "In these tough economic times and low-price environment, government needs to ensure the industry remains healthy and robust."