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Thursday, October 25, 2007

Stelmach Finds the Balance in the Response to the Royalty Review

OK – I have to say I am very pleased with Premier Stelmach’s response to the royalty review process – for sure at the economic level. I am also very relieved and comfortable at the political level. There is an election coming up and my money is on March 2008

I have spoken with Bill Hunter tonight and he is very pleased with the government’s response to the Royalty Review Panel’s recommendations as well. There is still some devil in the details and quibbles but the former can be worked out and the latter are nothing to get worked up about. I like the January 1, 2009 start date. It gives enough time to retool the computers and create the software programs needed to calculate the new sliding scale, market price royalty rates and for government to make the necessarty legislative and regulatory amendments. It give industry time to adjust too. It is not so long as to take an sense of importance and urgency away from getting these changes made either.

One detail is that undoubtedly some pundits and politicians will accuse Stelmach of leaving ½ Billion on the table because the Panel calculated a $2B larger government take on their model and the government today said they estimate a $1.4B increase in take. I didn’t think this meant the government was leaving money on the table so and I confirmed my understanding with Hunter tonight.

The difference is that the Panel did not account for the conventional gas Deep Well and Flaring royalty holidays in their calculations and the government put them back in. The government was clear they were reaffirming both subsidies and that is the difference between the “government take” numbers. Conventional gas gets more form the government decision than the Panel recommend.

That is a policy decision to stay the course to continue the help for conventional gas they currently enjoy in these two programs. Notwithstanding, I expect Big Oil will be officially ticked and say so for the next days. Some may be reckless enough to lay off people in the next few days for dramatic effect and making their employees pawns in a tawdry political game. I hope that doesn’t happen but given recent history, I would not be surprised.

I like the fact that there is going to be a negotiation between Suncor and Syncrude now over there current agreements. Stelmach has confirmed no grandfathering but also that these contracts with these two companies are going to be honoured - unless of course they are amended by mutual agreement.

I think those companies will see that while they are in the unique position of having have a better deal right now, but in 2016 it is over. They are in the oil sands for 50 – 60 years so an extended time of more royalty certainty will no doubt be attractive.

There are lots of issues to discuss from the Stelmach royalty response today and I will do so in a series of subsequent postings. For now I can say Ed Stelmach did not get caught in the CAPP versus Review Panel game…that was never where the “balance” had to be found. There was and is so much more to consider in arriving at the right balance and Stelmach has done that.

What Premier Stelmach has taken is to take the Panel’s input, the consultation process input, the various pieces of advice (and threats and insults) since he made the “Our Fair Share” report public all into consideration. Then he applied some of his own thinking and principles and he has designed a very solid and sensible strategy that does take care of Alberta’s interests and provides fairness and firmness to the energy sector. Well done Ed…now lets get down to work and make this response well understood by Albertans and lets be sure they get accurate, timely and regular reports on how well it is working.