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Wednesday, September 26, 2007

A Short History of the Oil Sands Royalty Regime

The old royalty regime for oil sands was a successful public policy for its time and its stated purpose. Some 3 years ago, at a CD Howe briefing I attended, Mr. Eric Newell - the oil sands industry leader who helped negotiate the 1997 royalty regime. He put some realism and perspective into the industry intent and government policy purpose for the original oil sands royalty regime.

He said the deal, done over 10 years ago, was that industry had agreed was to invest $5B over 25 years in oil sands development in exchange for the 1% of gross revenues during construction and 25% of net profit during production as the new royalty scheme. The public policy purpose was to establish the oils sands as a commercially viable industry sector for the long term. Oil was under $20 and production costs were $18 in the 1995-97 period the deal was negotiated.

What happened according to Newell was the industry actually invested $27B over 7 years and one thought since then, until Stelmach won the PC Leadership, to revisit the reality of the regime once it had done its job. The old oil sands royalty regime was an incentive to industry not a birth right to such inducements for ever. The old royalty regime did its job and it is time to revise the royalty regime.

This is not a short term tax grab as the Wildrose Party people would like to you believe. It is a royalty – a payment for economic rents in exchange for access to our resources. It is a rent where Albertans still share the risk with industry because IT IS A ROYALTY REGIME BASED ON NET PROFITS. When do we Albertans, as the constitutionally protected owners of this natural but non-renewable resource, get optimize our revenue realization?

We took on the challenge of debt and deficit so we would not burden our children with our bad investment choices as Albertans in the 1980’s. Will you be able look the future generations in the eye if we don’t optimize the revenues from the oil sands now? This is a resource that is definitely THEIR birthright.