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Energy companies are in talks with Premier Jason Kenney’s government to find fixes for rock-bottom Alberta natural gas prices – including possible production cuts – in an effort to stave off corporate bankruptcies and dwindling public coffers.

On Tuesday, the government made its first move to help struggling companies, offering one-time tax relief for shallow gas wells and pipelines in 2019. In total, producers will receive about $23-million in support from the program, it said.

Canadian crude oil prices, and government moves to boost them, have dominated headlines. Now, natural gas in Alberta is selling for a fraction of what the fuel fetches in other markets, prompting industry players to consider rescue ideas to prevent more job losses in the industry, officials say.

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The industry is dealing with high fixed costs as it struggles with prices that, at times, are close to zero on the wholesale market amid ample supplies and limited capacity to move the fuel within the province to markets outside of the province.

“There’s certainly a concerted effort to fix what is going to be a pretty significant crisis showing up by the fall,” said Tristan Goodman, president of the Explorers and Producers Association (EPAC), which represents smaller oil and gas producers. EPAC and the Canadian Association of Petroleum Producers are among those in the talks.

“I get the impression the government is really interested in working with everybody to get some stability in the market and some market connectivity,” Mr. Goodman said.

Talks are being led by Dale Nally, the United Conservative Party government’s associate minister of natural gas, and follow a report on the gas industry’s predicament by market experts that was commissioned by the previous NDP government last year. It included recommendations such as making the government a long-term shipper and credit provider for producers and changing how municipal taxes are levied.

The provincial government said about 65,000 wells, located in 15 municipalities, will qualify for the tax relief.

“Our government committed to protecting Alberta’s natural gas industry and this measure is a tangible solution that will provide much-needed, short-term relief to our producers,” Mr. Nally said in a statement.

The bankruptcy in late April of Trident Resources Corp., a gas producer that left 4,700 wells in the hands of the Alberta Energy Regulator, is seen as a harbinger of more insolvency to come. It is especially worrisome for companies saddled with well cleanup liabilities that could end up in an overburdened orphan well fund. The situation is complicated by the Redwater decision this year by Canada’s Supreme Court, which ruled that any money left over in an insolvency must go to environment cleanup obligations before secured creditors are paid.

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Industry officials say they expect more companies to go bust as gas prices languish. Last week, gas at the AECO storage hub in southeastern Alberta sold for 52 US cents per million British thermal units (BTU), compared with US$2.29 a BTU at Henry Hub in southern Louisiana, the delivery point for U.S. gas futures. Prices have in recent years been hit hardest in summer, as pipeline maintenance squeezes transport.

With liquefied natural gas exports still years away, curtailment is one idea being discussed for the short term, though the complexities of the gas market, with its combination of long- and short-term supply and transport contracts, make that a thorny proposition. Hence, TC Energy Corp., which owns the NGTL pipeline network within Alberta and the cross-Canada mainline, along with other routes to U.S. markets, would play a key role in any new strategy. Mr. Nally has suggested that TC Energy could be part of a solution and has urged the company to work collaboratively with producers.

Another option would be a voluntary program, under which producers could be given incentives to reduce output, such as breaks on future royalties.

Darren Gee, chief executive officer of Peyto Exploration & Development Corp., pointed out the government will take a financial hit along with producers in the form of a severe drop in resource revenue, so it has major stake in the outcome of the discussions. “There should be alignment between the government wanting to get a fair price for the gas – a market price for the gas – and a lot of these other operators wanting to get a fair price for their gas," said Mr. Gee, who has been involved in the discussions.

Any government intervention could be contentious. Late last year, Canadian heavy oil prices tumbled compared with U.S. crude due to a combination of refinery outages and chronically tight pipeline capacity to export markets, prompting the previous Alberta government to order the industry to curtail output by 325,000 barrels a day. The move succeeded in narrowing the discount. Western Canada Select heavy oil sold for around US$10 a barrel under the benchmark West Texas Intermediate (WTI) crude early this year, compared with more than US$40 under the WTI before the cuts.

Still, the move created divisions between companies seeking quick relief from weak prices through government action and those wanting the free market to be allowed to work, a group that comprised largely those with refineries.

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Mr. Kenney was supportive of the cuts, and they remain in place – albeit eased – under his government.

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