The Alberta government has unveiled new financial incentives for oil and gas drillers battered by the economic downturn, but the province's energy minister adamantly refused to characterize the move as a bailout for the energy sector.

"This has nothing to do with splashing money around. What this has to do with is putting Albertans to work," Mel Knight told a news conference on Tuesday.

The potential royalty impact to the province, based on drilling forecasts, would be close to $1.5 billion.

But Knight said there would be clear benefits to the province.

Each new well can support up to 120 jobs through the activity's ripple effects on local economies, he said, citing the Canadian Energy Research Institute.

"While all Albertans may not have seen a drill bit hit the ground, that doesn't mean they aren't impacted when one does or when one doesn't," Knight said.

"I have no illusions that this package will solve all of the challenges our province is facing due to the global economic crisis. What I know is that the risk of doing nothing is simply too great."

For one year, companies drilling new oil and gas wells will get a $200-per-metre royalty credit on a sliding scale based on last year's production levels.

The program will offer a maximum five per cent royalty rate for the first year of production of new wells between April 1 of this year and March 31, 2010.

Under the royalty regime announced in October 2007, which came into effect Jan. 1 with a few tweaks, the rate would have been in the range of 15 to 25 per cent, depending on the type of development.

As part of the program, the province will also invest $30 million to clean up old oil and gas well sites.

Small energy companies in particular have been hit hard by low commodity prices and the global credit crunch.

Industry expects boost in drilling

Gary Leach, executive director of the Small Explorers and Producers Association of Canada, said he expects drilling activity to ramp up the instant the changes come into effect April 1.

"I think the industry is going to respond positively to this and they'll drill more wells than they otherwise would have," he said.

Most of the junior energy sector's activity centres around natural gas drilling in Alberta.

Alberta natural gas prices have been in the $4 to $5 per 1,000 cubic feet range recently, about half of what they were a year ago and well below the level drillers need to make their projects economically viable.

Leach acknowledged that it's impossible to ignore the macroeconomic factors that lie beyond the province's control, but said the government's move still makes a big difference.

"They will have additional cash flow. And the junior sector puts 100 per cent of their money back into the ground drilling new oil and gas wells," he said.

"So any money that's available under this kind of program is going to be put back into Alberta and will put Albertans back to work, especially in rural parts of the province."

Canadian Association of Petroleum Producers president Dave Collyer also said he was pleased with Knight's announcement, but that there is still a lot of work to do down the road to make sure Alberta remains an attractive place for investment.

"I think this is a positive step that is going to stimulate activity in the near term. It does not deal with some of the more fundamental competitiveness issues that Alberta is facing over the longer term," he said.

Liberal energy critic Kevin Taft called the incentive program "a necessary evil" to preserve jobs.

"We hope Albertans get back to work. It's going to cost this treasury the better part of $500 million potentially and that means next year's getting bleaker and bleaker," he said.

Last month, a group that represents oil and gas drillers updated its 2009 industry forecast to reflect a bleaker economic outlook than it had previously expected.

The Canadian Association of Oilwell Drilling Contractors is predicting 22 per cent fewer wells will be drilled in Western Canada this year than it called for in its October forecast, which was already quite grim.

The group released a report Feb. 20 predicting 11,176 wells will be drilled in 2009, well below the 14,325 it forecast in the fall and half 2005 and 2006 levels.