Thursday, October 18, 2007

CAPP Incorrectly Claims "Many of the Authors Appear to No Longer Support"...the Royalty Review

Honourable people can disagree…and it happens all the time. Pierre is a knowledgeable and an accomplished spokesperson for the energy sector in Alberta. I know Pierre Alvarez the President of the Canadian Association of Petroleum Producers to be an honourable man. However, today I have to disagree with him, based on his letter to the Editor in the Edmonton Journal today.

The CAPP response is a classic example of “framing an issue” to fit a preconceived position and to be selective in presenting the facts. Mr. Alvarez takes two points and seeks to make them out to be major issues that ought to result in a conclusion that the “Our Fair Share” Royalty Review process and report is fatally flawed.

Firstly he suggests there are “revelations” from earlier comments of review panellists to be distancing themselves for the reports recommendations as they relate to elimination of deep gas and enhanced royalty programs. In fact the Panellist’s comments were that the Royalty Review was not intending to eliminate the deep well gas incentives and confirming that they ought to continue.

On page 68 of the Royalty Review this incentive is described as a lower royalty rate for deeper wells that do not achieve productions rates sufficient to compensate for the additional drilling costs. The Review notes the program is scheduled to end August 31, 2012.

On the same page the Review deals with the EUB flare management framework designed in 1996 to “reduce gas flaring volume reduction targets from 1996 base levels by 50% for 2002. This program provides a royalty waver “to natural gas that is produced from oil wells where it is uneconomic to conserve.” I for one, have to wonder if that is an appropriate policy to continue in light of the current environmental concerns and context in Alberta.

Otherwise the Review notes there are a bunch on incremental programs in the conventional gas area that are “patches on patches” designed to address specific problems and situations. The royalty regime is said to “not appropriately reflect the unique costs of certain developments or to facilitate special policy direction determined by government.”

The goal is to make the royalty regime simpler and CAPP’s Technical Review section 2.1.2 agrees with that recommendation.

The letter also deals with comparisons with Norway and Alberta and I will save that for another post.

Finally Pierre makes a huge leap in the final paragraph of his letter to conclude that “It was only three weeks ago that Albertans were asked top accept a report that many of its authors appear to no longer support.” Boy that is a stretch of the facts and a misrepresentation of the reality. The Panel has clarified one issue on its continuing support for deep well subsidies and made some minor revisions to correct some graphs in the report. That does not suggest that “many of its authors no longer support” the review recommendations.

Citizens are not going to take spin as gospel and it behoves the industry to avoid it at all costs. This is especially true if the industry wants to rehabilitate the public’s confidence and convince Albertans’ that they have the right stuff to be worthy of a continuing social license to operate their businesses on the public’s property.