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Friday, September 11, 2009

Energy Industry Rant on Alberta Royalties Wearing Thin

Here is a comment I put on Don Braid's column today in the Calgary Herald. First read Don's column then continue with reading this comment:


The old ways of doing politics by the Calgary Commandos under Klein is gone and these guys don't know how to respond...so they blame the royalties as it if were a made-in-Alberta NEP.

The market is what is making things tough in the patch, not the Alberta taxpayer's take from OUR energy resources. We share the risk with lower rates in tough times and take more of the pie when things are good.

We were still the second lowest tax and royalty burden on the planet AFTER the new royalty regime was initially. Premier Stelmach has rolled royalty rates back so far, as an appeasement to the Calgary Commandos, that we now collect less revenue from these NON-RENEWABLE RESOURCES than we would have generated from the original royalty scheme. Cry me a river!

Get off this royalty rant you guys; Albertans are sooner or later going to start acting like owners of their oil and gas reserves. When the do, then your social licenses will all come under serious public scrutiny. Your environmental records will be the first place the public will look to see if your enterprise is behaving appropriately to deserve a continuing social license. You are tenants on these public lands who are granted license to take a calculated business risk - not to play politics with the privilege.

You are welcome to go to Libya or Iran or Iraq or Nigeria instead of staying in Canada. And Saskatchewan is not the alternative; they are a different game with the Bakken. Their win with this great discovery is not Alberta's loss; it is win-win for Canada. That again is your independent business decision but the political games about royalties are becoming tedious. You have it really good and you know it.

I would really like to know how Albertans think about the royalties we collect on our natural resources and how the licensees who exploit them for us treat our land, air and water in the process.

Looking forward to your comments.

8 comments:

  1. Ken,
    There are many good comments in there with truth to them. The Bakken play is a different play in the fact it is a new development as is the shale gas in NE BC.
    This is where the royalty scheme comes in. In Alberta the production is on the decline with no new discoveries, therefore all infill drilling. It is not the most attractive plays to drill into declining basins.
    He is correct in the fact less royalties on gas are being collected right now with low pricing environment, the companies are losing money as well at these prices. The problem is on the upside the profits are also not there with a punitive royalty regime. This is where the investment community has decided not to invest in declining basins with an unattractive royalty regime as they base their earnings on the upside and do not drill to try and capitalize on the downside.
    We can all sit and say the producers have it good here so too bad, but they really do not care where they invest their money. It is all about profit and the country or province they deal with is irrelevent to them. Here in AB it is our economic engine, and until we have diversified to where we no longer need it, it must be treated as such.

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  2. It's not just the rate: the other big issue is the stability. This government has fiddled with the royalty regime five times since introducing it. If you were an investor, would you gamble your money in a jurisdiction that keeps changing its mind? That keeps on breaking contracts? Instead of listening to the industry when it tried to tell them that higher taxes leads to less investment, this government proceeded blindly, and all Albertans are now suffering the consequences.

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  3. "The market is what is making things tough in the patch"

    Then why did I receive a note from a Completions Supervisor who worked the deep-gas wells in Feb 2008, saying that he had relocated to Louisiana "as my 30 years of opportunity in Alberta suddenly dried up"? The Stelmachians were being soundly criticized by people in the know the minute the New Royalty Framework came out. Ed doesn't listen to the concerns of business, and THAT's a bigger problem than what the rate is on any given day.

    The fact is that the business tax environment in this province is below average in competitiveness. I'm not just pulling that out of the sky; Jack Mintz is on record on the point.

    What gets my goat the most, however, is the fact that Ed scooped ridings all over the Edmonton area claiming he was going to grab "our fair share" and then ultimately reversed himself 110%. I'm supposed to be pleased with this reversal and then some when in 2012 he can just do they same thing and promise to stick it to the corporate agenda, backtracking AFTER he gets the votes? The party that said the new royalty framework was a mistake from the get-go gets no credit such that the party that flies by the seat of its pants on policy has redeemed itself?

    You can either turn to the Wildrose Alliance, who said this was poor policy without knowing the future, or you can turn to the Liberals or NDP, who said they would hike royalties and would have presumably kept their promise, but I do not get how one sees an argument for supporting the P"Cs" in this. If the royalty hike wasn't a screw-up, why did they end up running away from it?

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  4. Thx for the comment Brian. I always learn from you. Could it be that the conventional oil and gas business in Alberta is a sunset business after all?

    INteresitng yo are ticked "Ed scooped ridings all over Edmonton." I remember when we were called "Redmonton" because we elected Liberals, a habit that Calary has not taken over and may enhance come Monday.

    If being part of the Wildrose is predicated on "knowing the future" otherwise what you will do is by definition "poor policy" you will have to have Tarot card readers as your candidates.

    The future is so uncertain because of this recession, climate change and a host of other volatile variables anyone who thinks they know wht is going to happen is in need of "professional" help.

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  5. Alberta's royalty was the lowest in the world when it was first set up. After Stelmach and company took over it was reduced to 19% Canadian. More recently it was reduced further by payment in kind of bitumen.

    By comparison Saskatchewan and BC both collect 30% US and Alberta trys to collect 19% Canadian and fails.

    It is hard to distinguish this crew from organized crime!

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  6. Anonymous10:06 am

    What's wrong with the "corporate agenda" anyways?

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  7. Buddie Dharma11:01 pm

    I remember the great capital strike in the mid-70s, when the oil rigs were lined up at the medicine line heading for Oklahoma. Same crowd, same tactics, same tantrum; except, of course, this time they are setting up their own wholly owned political subsidiary in the WRAP. If that exercise in astro-turfing doesn't work, look for more rigs at Coutts. Fact is, we would be better off without them and with NO oil development at all, because they way things are run now we'll end up with nothing but the environmental cleanup - sort of like Russia, which this province resembles in other ways too. The smart thing to do would be to develop the resource ourselves, in our own interest. Hey! We could set up a company and call it Petro-Alberta... Oh. never mind.

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  8. We continue to talk about this because we have never diversified. We get sucked in every time there is money to spend. When conditions deteriorate, we start fighting. If the energy industry was but one of several well-established economic engines, we could be more practical in balancing the demands of the energy companies and the well-being of the environment, our farms, villages, towns and cities.

    The problem is not what percent is "ours." The problem is that we still depend exclusively on petroleum to support our collective aspirations.

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