Sunday, October 07, 2007

Debunking Some So-Called Truths on the Royalty Review Report.

So here is the link to Charles Frank, the Business Editor of the Calgary Herald that some anonymous commenters on this Blog think is the most balanced informed and intelligent print voice on the issues surrounding royalties. Well he is definitely more balanced and informed than Lorne Gunter of the National Post but he is no more thoughtful or intelligent than Thomson and Pratt – or Lamphier on the issues and implications of past and future royalty issues in Alberta.

I would like to explore and agree with some observations and take issue with some of Mr. Frank’s other “Truths.”

Oil Industry Strategy at Royalty Public Hearings Badly Flawed:
1 Mr. Frank is right the oil industry strategy going into the province-wide hearings was flawed. They were not used to having to make their case to government in public and they are proving that they are not used to not having their way. The presentations they made were intentionally misleading. They were based on outdated information like a 10 year old expert consultant’s report. The Review Panel used the same expert consultant to update his report and he found the situation on the Alberta royalties was not longer amongst the most expensive, the just opposite now. The industry was caught with its pants down, and this was not the only time they were found to be misleading and embarrassing to themselves in this process.

2 Some oil industry presenters represented there businesses were in serious trouble but when asked to submit their Annual Reports they were showing record profits and describing the future in glowing optimist language. Again there were some in the oil and gas sector who were intentionally misleading and disingenuous. There are other examples showing that attitude continues to this day from some of the players in the patch. That was (and is) definitely a bad strategy especially when everyone is watching and you have qualified and knowledgeable Review Panel who are prepared to verify representations.

Review Panel Had Its Own Agenda:
3 No sir it didn’t. It had a mandate from the Premier with specific terms of reference and timelines. In fact the only “own agenda” the Panel had was actually discussed by them in the “Our Fair Share” Report. It noted that most of the public’s presentations were on growth, infrastructure and environmental problems with the oil industry. That was outside the Panel’s terms of references and they said that exclusion was an unfortunate limitation on the Royalty Review Panel’s work. If they had “their own agenda, it was also the Premier’s agenda and, based on presentations form citizens, it was the publics agenda too. If Big Oil doesn’t see that they are making another strategic error.

The Panel’s Expectation That Their Report Be Adopted in Total:
4 Mr. Frank takes exception to this representation. However he fails to put this representation in context. The Panel was to look at the entire current and future fossil-fuel energy sector from conventional oil and gas and oils sands but also including Coal Bed Methane, Syngas and even biomass to some degree. The various elements form and integrated systemic energy industry. The Panel dealt with it as an integrated systemic whole in its Report. That balancing and integration of interests is well represented in the final Report. To politically cherry pick and prefer one sector without looking at the implications for the rest is dangerous. We have just sent the disastrous impact of such selective politically driven ideological decision making in the Affordable Housing Task Force. Again we have all the interests and an expert panel provides an integrated whole-system solution that needed to be seen as in entirely. Politicians picked parts and pieces and the result was no real solution – just throw more money at the problem. The Royalty Panel’s approaches are a take it or leave it systemic option for the policy makers. It is complex stuff but the Panel brings clarity to the issues and concerns. Cherry picking recommendations based on politics is not going to resole the complexity or solve the problems. It will only make it worse.

5 To suggest the Panel “may not have considered all the relevant financial and economic data is obfuscation of the worst kind. They had full unedited access to all the data on the energy sector in the hands of the government and the regulators, except of course for individual corporate proprietary information. They had full unfettered access to the senior government administrators and all the third party consultant reports commissioned and provided to government. They were able to hire their own outside consultants without political interference. To see those industry titans and their hired hands now revising their stance using different data and different methodologies in an attempt to discredit the Panel’s work is not surprising but it is disappointing – and again a flawed strategy. If the industry had this better information and methodology, why did they not present it at the hearings? Are they holding back critical information from government? Are they making it up as they go along? None of this adds to the credibility of the industry or enhances the confidence of the public that they have anything except their own interests at heart as they exploit OUR resources.

Finally I agree with Mr. Frank hat the Alberta economy is not bullet proof. Much of investor confidence is based on mass psychology so we must be careful. That said we also have the current negative mass psychology that we are growing too fast, without a plan and no defined end targets or objectives other that to go as fast and furious as possible at any cost – so long and the oil prices can handle it. The Calgary Belt-liners live in this latter logic bubble and they have lost touch with the rest of Alberta. The bullet that can do in the Alberta economy can be not enough growth but it can also be too much growth too fast.

I have more observations on Mr. Frank’s “Truths” but this posting is already too long. I can assure you I will definitely be an avid reader of his from now on.