A Critique of the Energy Sector's Oppostion to the Royalty Review

Another energy based organization has issues a news release with the same language and issues as previous announcements for CAPP, drilling contractors and EnCana. The lobbying has begun and that is a good thing in a free, open, transparent and democratic society.

I think it would be helpful to do some analysis of the news releases and the issue framing and positioning of the energy industry as they try to tell us and our government that “Our Fair Share” of resource royalties’ recommendations are “draconian.”

Let’s deal with some facts and context on the representations of the Canadian Association of Geophysical Contractors in their news release of Sept 27, 2007. In the news release they say the “wholesale changes to the process and structures of royalties in Alberta, jeopardizes investment and employment in the Canadian energy industry.”

The day after the release of the “Our Fair Share” Royalty Report, PetroCanada increased its investment in their Fort Hills project. The same day Dubai – one of the lowest cost oil production centres on the planet - bought a significant amount of our oil sands leases. What does Dubai know that the Canadian Association of Geophysical Contractors don't know abut the future of Alberta?

Also the "Our Fair Share" report does not recommend "wholesale changes to the process and structures of royalties in Alberta." They in fact recommend continuation of the 1% project development stage payment. They suggested post-development rates go from 25% to 33% but still only based on NET Profits. None of that that is either structural or a process change to royalties...and they should know that!

“Natural gas drilling accounts for 65% of drilling activity in Alberta” they say. Sure when prices are high enough and costs are in line…neither of which is true of the marketplace for natural gas today. That is not the fault of the owners of the resource – that is the marketplace. Record profits have been made in the past number of years when prices were high and royalties low. But when the market shifts and the cash flow that hid a lot of poor management choices drys up, the private sector always comes to government to bail them out.

We have also have very poor government oversight and conduct of of its responsibility in the energy sector for a decade catches up - industry and government has to adapt to the new realities in Alberta today.

“One in six Albertans work directly or indirectly in the oil and gas industry. The seismic industry reinvests the majority of its service and supply dollars in the communities of Alberta. The impact of economic downturns in our industry in this province has grave implications for the rural communities that have so strongly supported this government.”

This statement is pure political positioning and imprudent strategic posturing to boot. Ask any of those small towns about the energy sector’s level of real commitment to their communities. Calgary as a community gets big donations from Big Oil as a result of the Boardroom decisions. Look at the $1B Encana head office building project. The small rural towns I talk too, and there is lots of them, get a relative "squat" in terms of community supports from Big Oil and related operators. The energy industry tears up the local roads. They increase traffic and noise at all hours. They monopolize the hotels and motels so that communities can’t even stage regional hockey tournaments because they can’t get rooms.

Those communities see industry activity around them but no real enduring energy sector commitment in the local communities. The energy industry in small towns are the transient and “shadow" populations with demands on community services but without enough serious investments being put back into those towns by good corporate citizens.

"The people of Alberta whose 'fair share' this report professes to defend are our employees, their friends and families." This one slays me. Note to Energy Sector, this is not just about your employees, their friends and families…it is about all of us. So what about the rest of us who are not benefiting but instead suffering from the growth pressures? We can’t get our schools fixed, we can’t afford housing, our health care system is not catching up and crime and homelessness is increasing.

Our municipal infrastructure is now costing us an arm and a leg now because of the inflation you have caused and the competition for skills and materials you dominate and control. Wages have not gone up of ordinary Albertans outside the energy sector but every Albertan has seen their costs of living skyrocket.

At $80 oil you guys just absorb cost increases and foster inflation by writing the bigger cheque...because YOU CAN. AND on top of that, with the 1% royalty regime you get to charge all that increase cost back to the rest of us as differed royalties in the 1% phase. And you have the gall to complain!

Finally the last straw! They say: "Removing two billion dollars from the industry that employs so many Albertans and placing it in government coffers, as this report proposes to do, is an odd way to help people. It is Albertans' hard work and investor capital, not some government program that created Alberta's prosperity.”

This is revising history and misrepresenting the facts. IT WAS A GOVERNMENT PROGRAM THAT CREATED ALBERTA’S ENERGY SECTOR BASED PROSPERITY. Getting rid of debt and deficit in order to keep taxes low started the "Alberta Advantage." But more importantly it was the 1997 government royalty regime of 1% and the 25% rte on net profits that created the investment climate that resulted in this "prosperity."

That prosperity is not being shared on any fair basis throughout Alberta and the Hunter Royalty Review Report proves it. The Auditor General in tomorrows report will once again show the Government of Alberta's lax accountability and absence of transparency in royalty collection and calculations. Hunter underscored the incompetence and incapacity of our government to meet it TRUSTEE obligations to its citizens.

Where are these guys who are sending out these statements about draconian changes in royalties coming? One can only conclude that they are continuing to think only about themselves and only with a very short term myopic perspective. The EUB is about to change,the government is about to change and Albertans are mad as hell and not going to take it anymore. Albertans will be demanding these changes as well as more transparency, accountability in the industry-government relationship. They will be demanding a more integrated, responsible, sustainable and long view approach to our energy sector development too.

If industry thinks paying a fair share is draconian, wait until they see land, air and water policy demands. They are not too far off in the future for the emerging and changing public policy agenda for the Alberta energy sector too.

Neil Waugh and I Agree on EnCana's Bullying Over Royalties

Neil Waugh of the Edmonton Sun and I are agreeing again. This time we agree on the very inappropriate and bullying intimidation tactics of Encana on the “Out Fair Share” Royalty Review Report. Blaming a proposed 8% increase in royalties from 25% to 33% and based on net profits only. That means Encana shares with Albertans as owners of the resource after ALL capital and operating cost are deducted. And the 8% increase is being touted by Encana as the stated reason to pull back on $1B of capital investment in Alberta! That is ludicrous. See my post on Saturday the 29th to get a sense of just how well Encana is doing.

Stelmach said he would not be intimidated by Big Oil. Encana should have listened.

This is twice Neil and I are on the same page in less than a month this has happened.
I must check tonight to see if it is a blue moon. Something strange is happening…like maybe power is shifting back to the citizens of Alberta. Both Neil and I obviously see that as a good thing. I am sure we are not alone. It is our oil and we deserve a fair share.

The Stelmach government is our trustee to get this done for all Albertans now, and in the future.

EnCana Agrees with Premier Stelmach and Calls for "Cooler Heads"

Isn’t this precious…EnCana is now saying Premier Stelmach is right and “cooler heads” should prevail. Apparently there is room for some royalty increase now and the issue is actually a question of balance. The unmitigated gall and hubris behind the $1B cheap shot intimidation tactics of Encana last week was breathe taking. I am glad to see them reconsidering their attitude and tactics in responding to the “Our Fair Share” report.

Well, I agree, cooler heads and balance are good things and necessary under these circumstances. I suggest they, and the rest of the energy sector, consider that there is already balance in what is being proposed by the Royalty Review Panel for royalty and taxes.

The recommendations in the “Our Fair Share Royalty Report” are also the result of cooler heads…and some pretty competent and experienced head on good people too. They recommended a “balance” that would put Alberta just below the average for all other competitive oil and gas producer markets. How about reconsidering your strategy EnCana and considering that there already is a balance in the “Our Fair Share Report” recommendations?

Consider some other aspects that bring about balance in doing business in Alberta, like the “side benefits” of a stable government that is obviously somewhat incompetent – but it is not corrupt. That governance incompetence has played in your favour in the past too, don’t you think? You can’t ignore the sweetheart relationships the energy sector seems to have had with regulators but that is about to change - big time.

Then there is the minor advantage of an independent judiciary that is there to settle disputes using the Rule of Law. Then we have the helpful facts that Alberta has an abundant, healthy, young and skilled workforce and a pretty stable and strong currency. Those elements provide for some certainty in a risky business.

And the real kicker – we charge a mere 1% royalty until you recover all your cost – regardless of how outrageous they may be – and you even get to unilaterally decide what and who you will pay for such project costs. In fact you can even fix your own prices for bitumen between your producer side and your upgrader operations without any need to worry about how it might impact the owners of the resources.

Where else on the planet can you get that kind of certainty, a positive business environment and risk sharing for the energy sector with a such a vast amount of known deposits all in one place? The Middle East offers you the political benefits of Iraq, Iran and Saudi Arabia. Eastern Europe is a good place – if you don’t mind the political instability and the business “culture.” How about Africa or perhaps Russia is more attractive for you? They are well known entities for how they do business, if you don't mind kidnappings.

Don’t rule out the serious alternative of Hugo Chavez’s Venezuela is your first alternate choice to do business. Apparently some in your industry think Alberta and Venezuela have a lot in common so they must be a legitimate alternative. The USA is more expensive and past its peak and do you think Norway is going to treat you as well as Alberta’s 1% risk share royalty rate? Get serious!

Cooler head are definitely needed coupled with a big dose of realism and a serious focus on the bigger picture. That bigger picture includes all of us Albertans and people all over Canada actually. So when you think about balance don’t just think about benefiting yourselves. Also think about how well you have been meeting your other legally required and oft ignored related duties and responsibilities. That also has to factor into what we define as balance.

A more considered and reflective analysis of what you could and should be doing to meet your obligations for restoration and reclamation of sites, roads and seismic lines in order to continue to justify your social license to operate as tenants in the public realm of Alberta’s non-renewable resources would be in order. Remember, the way you have been doing business means you actually cut down more trees than the entire Alberta forest industry.

Balance those elements into your equation as to balance and fairness too as you cool down and think seriously about how to move forward. It is time to start thinking about how you can adapt to get along better with Albertans as your partner as we work out this complex and critical issue together. Name calling, cheap shots and silly tactics and intimidations and unfounded allegations all must be a thing of the past or else they will backfire on you big time.

EnCana Cash Flow up 55% to over $2.5B at June 2007

A quick check on Google Finance shows EnCana (ECA) reported in the 2ndQtr2007 it had a cash flow of $2.5B or $3.33 per share up 55%. At the same time it was enjoying a Net Profit Margin or 25.76%, an Operating Margin of 32.25% and an Average Return on Equity of 32.85% Very impressive. Third Qtr results are scheduled to be released on October 25. I can't wait how much more they are hurting that they can't take a mere 8% royalty increase on that 25.76% NET PROFIT MARGIN.

EnCana saber rattled this past week about reducing investment in Alberta by $1B in 2008 because of the “Our Fair Share” Royalty Review Report. Ironically the management at EnCana was telling a different story at a Peters and Co investor’s conference in Toronto a week earlier. Here is an EnCana quote from Mr. Graham president of EnCana's Foothills division in a September 11, 2007 National Post story:

"Our budget will probably be very similar to what it was in 2007, maybe a little bit higher…" "Costs have been moving down in Canada, probably flat or even better than that,"…"The rig fleet is probably only 40% busy today. We are happy to see where costs are going."

Now I wonder how EnCana can square that circle of impressive performance in the face of low gas prices and higher operating costs already in place and accounted for in their impressive results with the sudden need to cut $1B from their 2008 capital budget a week later. Can this threat be interpreted in any other way except to say it is posturing and intimidation.

The Editorial Board of the Calgary Herald from a city that is smack dab in the eye of the Alberta economic storm, is the voice or reason and responsibility today too. Slowing down Alberta a bit is a necessity and the marketplace is doing it but that is no reason not to increase the citizens fair share of their resource revenues now too.

Could it be the drilling contractors woes outlined in their recent news release on the “Our Fair Share Royalty Review” are self induced and market driven and not really about possible government policy at all?

For the record it was someone at Peters and Co. who sent an email to their client’s in response to the “Our Fair Share Royalty Review” suggesting Alberta was like Venezuela. A comment that was kindly considered as “over the top.”

Harper on "Nation" - Quebec Style!

In the past week I have been concentrating on the Alberta Royalty Review Report. That attention to the issues and concerns will continue here and on Policy Channel for awhile I am sure.

In the meantime I have neglected to post our regular op-ed for LaPresse in Montreal. We can see Dion is having his challenges in Quebec and Harper is trying to pander to soft nationalists…with some success I might add. So here is what we said about Steve’s musings in Australia a few weeks ago about Quebec and Canadian politics. Strange he didn’t say this at home!

La Presse septembre 2007 Ken Chapman and Satya Das

Only the insular deny the distinction of Quebec, and only extremists would posit that Quebec constitutes anything other than a distinct society within Canada.

Yet there is certain unease at Prime Minister Stephen Harper’s proclamation this month in Australia, regarding what he calls the Quebecois nation.

It is unprecedented that a Canadian prime minister would make such a reference in a foreign country. And it is all the more satisfying that it comes from an Albertan prime minister, given the unjustified reputation our province suffers as a hotbed of bigotry. Our Albertan and Canadian capacity for accommodation manifests itself in Harper’s affirmation of a societal reality. It is pleasing that this should come as Quebec itself is conducting a brave dialogue with citizens about accommodating its own minorities.

So why our unease? Because “nation” means different things in English and in French. One worries whether the Prime Minister leaves himself open to interpretations that may raise unrealistic expectations, particularly among Quebecois who might view Harper’s declaration as a prelude to sovereignty-association.

Consider what he said in the Australian parliament, in French:
« Le Canada est né en français, à Québec, il y aura 400 ans l’année prochaine, et cela se reflète jusqu’à ce jour par la présence des francophones et de la nation québécoise au sein de notre pays uni»

In English, in the presence of Australian Prime Minister John Howard, he also used the phrase « the Quebecois nation. »

There is an enormous gulf between the implications of the word, in the two languages. The French and English begin with the same core meaning, using “nation” as an evocation of shared culture, history and values; implying a certain homogeneity of experience.

Then comes the gulf. The French use of the word “nation” is more appropriately translated as the English word “polity.” Polity in English means a process of society organising itself into civil government, a political entity that evolves a constitution or charter or other codes of law to perpetuate its being. And within that there is an unspoken “next level” that such a nation must of course be the master of its own destiny.

Yet the English sense of the word nation, as in “the Quebecois nation” of Harper’s usage, is closer the word “people” as in “the Quebecois people.” It is understood as one might mean “the Latino people” while referring to a socio-cultural description, rather than any specific Hispanic country. In the sense that Harper uses it in English, “nation” is much closer to “people”, without the French overtone of a polity that merits autonomy or even sovereignty by its very existence.

This is why we can speak in English of a Quebecois nation, in a way that we cannot speak of the Albertan nation. In Anglophone and Allophone Canada, the province that could most aptly bear the designation of “nation” would be “the Newfoundland nation”, particularly because of an established history of cultural and ethnic homogeneity.

And it is why we can understand, despite the brutal rhetoric of some of the intervenors, why it is necessary for the Quebecois nation to have its dialogue about minorities.

It seems quaint and even archaic to those of us in heterogenous Alberta, but we recognise that it is a good and useful thing for Quebec to discuss the boundaries of pluralism, because it may lead to a better understanding of the virtues of embracing otherness. This accommodation is the vital precondition to flourishing in the borderless world, and we must respect the sentiments of those Quebecois who are impelled to cling to the past, even as we disagree fundamentally and vigorously with their retrograde perspective.

As Quebec continues its internal dialogue, though, it might be unwise and even misleading to expect that a Canadian Prime Minister who uses the word “nation” in both English and French would knowingly promote secession or separation.

With the advent of the Clarity Act we have a process to establish nationhood and to leave the Canadian nation. Thus when Harper uses the word “nation” in both official languages we do not really need to pick one meaning over the other. But we must understand the difference — and live with it in our uniquely Canadian accommodation.

EnCana Says It Will Lower Investment If Royalties Rise.

In the face of paying more royalties EnCana is threatening to cut $1B of capital spending in Alberta next year? This is sounding a lot like a latter-day Peter Pocklington Oiler Hockey Team gambit to me. “If you don’t submit to my demands I am taking the team out of Edmonton” what his mantra. He "left town" (sic) and nobody in Edmonton misses him.

Very low natural gas prices and the extremely high cost of drilling would not be a factor at play at all here would it? In any event given the market factor realities perhaps prudent business management practices would suggest such a strategic move is wise in any event; royalties notwithstanding.

Besides, this pull back and slowdown would help the overall Alberta economy to catch up to the growth pressures. We would have more trades, labour, material and other services available for all the projects that our municipalities so desperately need. They have money too. Right now the prices the municipalities have to pay for these projects are way out of line because of this over heated economy. This EnCana's move may be a blessing in the bigger picture.

Premier Stelmach is telling everybody in the patch to slow down and catch their breath. I would also add – if you have alternatives then bring forth some sound arguments with verifiable evidence to support them. If you have a better idea on how to get Albertans a fair share for their resources, that also shows a way towards more responsible sustainable development with enhanced resource stewardship – I will be the first to support it. We are looking for win-win here so be sure your ideas deliver on that goal too.

In the meantime don’t try to use intimidation tactics with either my government or with the citizens of Alberta - who are your landlords. Besides it's bad PR and it sucks as an example of Corporate Social Responsibility too.

Drilling Contractors Complain Business is Down - Its the Marketplace Not the Royalties

Drilling contractors issued a news release today saying their business is down. Why? Because of the market price of natural gas…and I dare suggest they have priced themselves out of the market right now. The commodity prices they drill for are too low for the rates they are charging. So the work dries up. Pretty normal supply and demand economics 101 stuff I’d say. Sounds to me we have a perfect example here of competitive the marketplace of supply and demand working as it should.
Don’t complain adapt and adjust.

Check the record of this sector and you will see this sector has enjoyed record profits for three successive years. They are showing that they are paying excellent wages and benefits and pulling workers from all other sectors of the Alberta economy. Those other sectors suffer because they can’t afford to pay those wages and they lose staff to the energy sector. No one blames the employees and many of these other suffering sectors are actually closing their businesses….because they can’t find staff.

My read of this news release is that these contractors – who have done extraordinarily well as of late - are now complaining because they are wanting to keep their good times rolling. Fair enough but they want the government and the rest of Albertans to ensure they prosper and we don’t get our fair share of our resource rents. The need for a fare share for the rest of Alberta is not on their radar screen at all.

They seem to only like the magic marketplace when it generates sufficient cash flows that they don’t have to worry, plan or - heaven forbid…manage.

Premier Stelmach's Next Week Will Just as "Interesting" as His Last Week

Ed Stelmach has had a busy couple of weeks and next week will not see any slack in his pace with the stuff that is known to be coming up.

The next shoe that is going to fall on the Alberta government is when the Auditor General releases his report next Monday morning at 10 am. That report will deal with the tepid (to put it politely) responses accountability and record keeping for energy royalties by the Alberta government. My guess is that it will not be any kinder than the independent expert panel lead by Bill Hunter was on the Alberta government in its role as stewards and trustees of our non-renewable natural resources.

This will not be the first time Fred Dunn has brought this issue up. What makes it different this time is the Hunter Royalty Review Panel’s Report that reinforces the messages to the powers that be.

Another interesting issue that will be in the Auditor General’s Annual Report will be an update on what progress the EUB has made since the 2005 recommendation that they strengthen the controls for verifying the accuracy and completeness of oil and gas volumetric data and for enforcing measuring standards.

Big oil is complaining that the Royalty Review Panel got its numbers wrong in its analysis and the Panel says they merely used the data supplied by industry to the government…and no doubt some of those numbers come from EUB. Funny how all this stuff networks and connects together as between government and the energy sector. Nothing wrong with that as long as the information is complete, accurate, timely and verifiable…and we have to wonder if any of those tests are being met.

.

Gary Mar Goes to Washinton - That is a Good Thing for Alberta.

The appointment of Gary Mar to the Alberta Washington Office is a great one. Yes there will be the cries of partisanship from the opposition but they are hollow and pale when measured beside the experience and capabilities of Gary. Kudos to Premier Stelmach for this choice.

Mar has served in a number of Alberta ministerial portfolios since he entered Alberta politics in 1993. His quick mind, quick wit and analytical capacity plus a well honed BS detector will serve him (and Alberta) well in this new position.

For a policy wonk like Gary going to Washington, the centre of the political universe of the planet has to be a treat for him too. This is going to be especially true given the enormous changes that will be happening in American politics between now and the Presidential elections of 2008.

The Alberta-US-Canada triangulation of issues and jurisdictions will benefit from Gary's education as Alberta's Minister of Intergovernmental and International Relations. Having a strong background in law will be a core talent that he brings to the new position too.

Talk about a politician's next dream job and particularly for a young guy who bleeds policy issues. Who knows Gary maybe one day you will find yourself as the Secretary General of the UN. It would be a good thing for a Canadian to be in that role some time soon.

The Pembina Institute Website Has a Royalty Tracker

The Pembina Institute has a Royalty Reform Tracker on their website. It tracks how much royalties Albertans would have earned if the Alberta Government had accepted the Review Panel Recommendations when presented.


That is unrealistic because the need time to review the review and be sure they understand all the implications of the recommendations...including the political ramifications after all.

Check out what not accepting the Review Panel recommendations is costing you in continuing forgone royalty payments. ths link is Albertans' Fair Share Minimizing Environmental Impacts of Oil Sands Development in Canada The Pembina Institute



The fact the Royalty Review Report was made public at the same time the government received it is a step towards more open democracy for sure. Usually these report go on the shelf or into the back rooms for "discussion."


So far this has been a pretty open process. We shall see how the Minister of Justice and Attorney General handles his "industry liaison role" in the "further consultation" they are engaged in. I know and trust Ron Stevens to be totally open, transparent and accountable in all his discussion with industry pending a government decision on recommendations.


Albertans will be wondering and watching.

Contact Premier Stelmach to Let Your Royalty Concerns Be Known

I have been harping about getting your views on how much rent Albertans should change for access to the oil sands and other energy reserves. The way to do that is to contact the Premier’s office by phone or email or seeing what events he is at and show up and share your thoughts.

This works! He is forthright enough to say so. Check out this story on the test for EUB restored confidence for some straight from the Premier’s mouth proof.

If this knd of information is good enough for measuring public confidence in the EUB, it ought to be good enough to tell him if you believe the oil companies or the independent review panel's analysis about what is a reasonable royalty rate for your resources.

You Can't Handle The Truth

I think this scene from "A Few Good Men" is one of the best of all time.

Any Albertan who reads the Royalty Reviw Report "wants answers" and we can "handle the truth."

We are questioning the manner of how decisions are being made.

"We use words like honour code and loyalty" reminds me governments use words like Integrity Transparency and Accountability. They better become meaningful and evident to Albertans.

This further consideration of this Royalty Review Report is a great place to start making those governance values self-evident.

Albertans Are Sending Messages on the Royalty Review to the Government

Here is an example of an email I received from a citizen of Alberta who is concerned about the long term future of this province. This is what she sent to the Premier on the Royalty Review Report.


"I applaud the government for reviewing oil and gas royalties. The subject
matter is beyond my realm of understanding of the oil and gas industry.
However, I do believe that there is a need to rebalance the distribution of
wealth generated from oil and gas development. The oil and gas industry
and its allies (i.e. FirstEnergy) responses to the report are predictable and
demonstrate the arrogance and opulence of Calgary's corporate elite.

The resource belongs to Albertans and it is often rural Albertans
(where resources are developed) that bear the brunt of development, and not
necessarily the enormous benefits. I am hopeful the government will
stand-up to the oil and gas industry and implement a royalty structure that is
current and reflects today's marketplace. I am also hopeful, that an
increase in royalties will be invested into the Heritage Trust Fund. I
believe Alberta should follow the lead of jurisdictions such as Alaska and
Norway who have significant investment funds as a result of their oil and gas
development. These funds benefit all residents of the jurisdictions, today
and into the future.

Finally, as a resident of rural Alberta (who does business with corporate Calgary) I am completely unsympathetic to the complaints of corporate Calgary. This small interest group is obviously focused on themselves. They are ignorant and inconsiderate of the
hinterland and its residents who play an enormous part in fueling the economic
engine of this province.


I would argue rural Alberta will support a restructuring of the royalty review and is willing to have its economies and communities slow down if oil and gas investment is dampened."

We need thousand more like her to take up this issue for a fair share of royalties.


Exercise your citizenship rights Alberta. Use it or lose it!

TD Reports on the Alberta Economy - More Boom - No Bust

The Toronto Dominion Bank has issued a new report on the Alberta economy today (10 days after the release of the Royalty Review Report) saying the “Alberta Boom Will Not Go Bust.” They predict another “solid advance in real GDP of 4.3% in 2007 after accounting for lower gas prices and activity. The reasons are based on “…the massive surge in oil sands investments and related activities as a key driver in the province’s ongoing expansion.

The Edmonton Calgary Corridor is going to grow even faster at an estimated 5% in 2007. They also predict the growth in 2008-09 will moderate to 2.5-3% “…because of dampening forces on demand stemming from rising labour costs, producer and infrastructure costs. This simmering is seen as a good thing and a chance for Alberta to catch her breath and according to the TD Bank “…is what the doctor is ordering to ensure that expansion continues over the medium term.”

They make a point about the growth in medium sized (10k-100k populations) centres in Canada. Alberta has 7 of the fastest 15 such cities and 5 of those Alberta municipalities are outside the Edmonton Calgary corridor.

The Edmonton Calgary Corridor is ranked 4th amongst the 19 largest North American urban centres in terms of job creation and lowest unemployment in 2006. The average purchasing power for Albertans living in the Corridor is $57,000 in 2005, a full $15,000 above the average American’s purchasing power. If the Edmonton Calgary Corridor were an OECD country its prosperity would rank second in the world – just behind Luxembourg.

There is a cost to good times. Labour markets are tight and the retiring baby boomers will make it harder to sustain growth. Housing shortages and recent dramatic price hikes makes affordability is a problem and vacancy rates make it worse.

Infrastructure is strained and new growth requirement are putting project in jeopardy because of premium pricing and worker and material shortages. As a result government spending has skyrocketed increasing 12% per year every year since 2004.

While Alberta is the new economic engine of Canada other parts of the country are suffering because they have to compete and costs have gone up as a result. That said the TD notes 60% of the oil sands spin off goes to the rest of Canada through demands for manufacturing. The higher incomes for Alberta residents’ results in them paying a net $9B per year more than other Canadians into federal taxes. That is about $3000 for every man woman and child living in Alberta today. The other provinces benefit form Alberta’s prosperity because they can keep taxes lower because they now qualify for even larger equalization payments.

Note to Premier Stelmach: Oil is a Seller's Market

Here is some highly relevant information for Albertans and their politicians when they consider the recommendation of the Royalty Review Report.

I find it interesting that some of the current oil patch players are saying the industry will leave Alberta if the royalties go up. Strange when we see “unsophisticated oil nations” like Norway, China and Dubai buying up companies or oil sands leases.

It is a sellers market Premier Stelmach. This is a but and a big picture long term policy issue Premier Stelmach. You and your government are our Trustees responsible for long term stewardship and development of our resources. YOU must ensure the development benefits all of the citizens of Alberta - anw and in the future.

The answer to the Royalty Review Report is obvious…don’t let anyone obfuscate the issues with short term narrowly framed self interest positions or threats.

-----Original Message-----
From: UNNews@un.org [mailto:UNNews@un.org]
Sent: September 27, 2007 9:00 AM
To: news11@secint00.un.org
Subject: COMPETITION FOR OIL AND GAS RESERVES HEATING UP, SAYS UN TRADE BODY

COMPETITION FOR OIL AND GAS RESERVES HEATING UP, SAYS UN TRADE BODY New York, Sep 27 2007 11:00AM The emergence of new players in the global market and shifts in the policies of gas and oil producers means that traditional conglomerates from industrialized nations are facing increasing competition in the race to access the world’s reserves, the United Nations agency on trade and development issues said today.

With crude oil prices staying well above $70 a barrel, traditional transnational corporations are losing bargaining power to oil-producing countries “eager to use climbing demand to capture a larger share of the rents,” <" http://www.unctad.org/Templates/webflyer.asp?docid=9016&intItemID=1528&lang=1 to the UN Conference on Trade and Development (UNCTAD).

The agency draws attention to “large imbalances” in global consumption, production and reserves of oil and gas, such as the fact that developed countries consume more than half of global oil and gas output, while they account for only a quarter of production.

Moreover, less than 8 per cent of the world’s remaining proved reserves of oil and gas are found in these countries. As many as 21 of the top 25 countries ranked in 2005 by total remaining proved reserves were developing or transition economies.

In addition, data suggests that resources in developed countries are being depleted more than 10 times faster that that of developing and transition economies, which means that the former will have to rely increasingly on oil and gas imported from the latter.

Competition for oil and gas resources is becoming more complex, according to UNCTAD, due to changes in government policies in producing nations. Some developing countries with large reserves, such as Kuwait, Mexico and Saudi Arabia, do not allow foreign participation in oil and gas extraction.

Others permit foreign investment but are facing embargoes applied by the home countries of companies, such as in the case of those from the United States which are not allowed to invest in Iran or Sudan.

Also affecting competition is the entry of new corporations based in developing and transition economies, including Kuwait Petroleum, Lukoil (Russia), Petrobras (Brazil) and Petronas (Malaysia), who are already among the main foreign investors in selected oil and gas producing countries and operate alongside traditional companies from the developed countries such as British Petroleum, Royal Dutch Shell and Chevron.
2007-09-27 00:00:00.000


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Oil Exec Calls Royalty Review Chair "A Lumberjack"

I see from the Front Page of the Edmonton Journal and Gary Lamphier’s continued excellent business coverage on the RRR the Hunter Panel on Royalty Review is not going to stay out of the fray. Some of them made the rounds to some media people yesterday and are ready, willing and able to actively explain their processes, findings and continue to clarify the issues and their recommendations. Good for them.

There are some oil company executives who are now becoming insulting and calling names like some school yard bully. One such person recently appeared on a radio show saying Bill Hunter, the Chair of the Panel and former president of Alberta-Pacific Forest Industries was a “lumberjack” and suggesting he didn’t know the energy industry.

I have worked in both industries and I can tell you one thing though. If the oil and gas industry took a similar responsible stewardship view of their obligations to the citizens as owners of the natural resources as does the forest industry, the energy industry would not be in the public relations and political jam they are in now over rents and royalties.

The Edmonton Journal Headlines today says it all about the tactics being used by some – clearly not all of the oil patch leadership. Bill Hunter the Review Chair says “We’re Not a Bunch of Morons” is the front page of today’s Edmonton Journal. The inside story headline states the Panel position “Industry Argument ‘Distorts Picture.’”

These reactions from some of the industry “leaders” remind me of some “practical” advice from one of my professors in Law School. He said “If the law is against you argue the facts. If the facts are against you, argue the law. If both the facts and law are against you, then call the other side names.” Let’s hope the players keep this pubic consideration about this very important matter to all Albertans at a professional level and in a civil manner – even where we disagree.

This complex issue of providing for responsible, sustainable and optimal development of our oil sands is one of the most important economic, environmental, social AND POLITICAL decisions facing Alberta.

The record shows the development of the oil sands has not been well planned by our political level, not well regulated by our regulatory agencies and not well administrated by our bureaucracy. The impacts and implications of this decision will be felt for a long time to come.

This resource belongs to all citizens of Alberta and we need to be sure we, and industry and government are all clear about that. As Albertans we need all the various parties to work together but the ultimate decision is ours. Let your MLA know what you think responsible development and sustainable stewardship of your oils sands means. I will soon post on some of my ideas and those of others I have spoken with on the subject.

Ed Stelmach Wants To Hear From Albertans (Again) But This Time on the Royalty Review Report Recommendations

CAPP obviously wanted a “further consultation” process on the final report itself given the statement in their September 24th news release. There is nothing wrong with that. Industry and other stakeholders are free to challenge the findings in a factual and forthright fashion. Lets be sure we do not turn this post-report process into an exercise of recurring reviews like Quebec's perpetual threats of independence referendums.

We hear the official word out of the Alberta oil industry is that Hunter Royalty Review analysis is flawed. The Canadian Association of Petroleum Producers, the voice of the oil and gas industry in Alberta says they want to “focus on the facts” and we can all agree with that. They claim the report recommendations will slow oil sands investment. Are we pleased with the pace of growth and how we are managing it now? They claim a report was commissioned by the Panel on relative royalty revenues in Alberta tha tis not reflective of the real world...they ought to get to comment for sure. They claim project costs were not considered. The Report deals with that most effectively. Go to page 78 of the Royalty Review Report wher they say that cost control is a management issue and besides with no significnat royalty payment due until all cost are recoved - what is the issues for investors.

The Panel was given a free hand to hire world call experts. They were given a free hand to work with government officials and their advisers. They provided background papers on royalty issues and context and specific advice to Albertans on how to participate that included online submissions, snail mail, fax or personal appearance at hearings. The panel went all over the province to meet with interested stakeholders and ordinary Albertans about their concerns. Copies of all the submissions received were published on the Panels website at http://www.albertaroyaltyreview.ca/


Albertans are clearly interested in the Royalty Review Report. I am told in the 4 days last week after it was released there were 210,000 hits on the Panel’s website. Unfortunately the government has decided to receive the post-report consultation to their own website http://www.gov.ab.ca/ so some continuity and context will be lost.

I suggest before you go to the government's post-consultation website be sure to visit the Review Panel website and educate yourself on the review process, facts and findings. Then let your thoughts be known but don't be anonymous. This is about citizenship in a free and democratic society. No Alberta citizen, acting as such, should fear their government or their employer - so anonymity is unnecessary and intimidation only works if you let it.

I hope we can trust this government, who I support, to run process. We need them to have the same honesty, integrity, openness, transparency and accountability as the citizens who contributed their time and expertise to the Royalty Review Report in the first place.

This is a critical issue facing all Albertans and we all better get involved because after all it is our resource and our children’s future at stake here.

Link Byfield Wants to Debate the Alberta Royalty Report With Me

Link Byfield called me yesterday with an interesting proposition. He wanted me to attend the Wildrose Party shindig at the Pioneers Cabin and to debate the Alberta Royalty Review Report with him. I was very interested but said if I participated I wanted it to be made very clear I am in no way supported the ideology of the Wildrose Party. I am a proud – if not seriously frustrated - Alberta Progressive Conservative Party member.

Yes to satisfy the need for full disclosure and to pacify my friends on the far right disclosure I am a Red Troy. I can’t stomach the Harper Cons and I have voted Liberal federally. I liked Anne McLellan as my MP and have a lot a time for Dion as well. I even joined the Liberal Party to help his leadership campaign.

In a debate with Link I would clearly be pro-report and he would have taken the side of doom and gloom and industry is always good - government is bad. I was keen to take the challenge but had a dinner meeting with clients from out of town last night so the scheduling did not work out.

Based on the Blogosphere and MSM reports this morning I imagine I would have had great time in such a debate. Thanks for the invitation Link – maybe some other time with a bit more advance notice.

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.

High-Cost - Low Margin Oils Sands Projects Can't Handle Higher Royalites - Is that Necessarily a Bad Thing?

The Experts are getting engaged in the recommendations of the Alberta Royalty Review. Wood Mackenzie issued a news release yesterday projecting some $26B on reduced value in oil sands projects could happen if the Alberta Royalty Review recommendations were adopted. Wood Mackenzie are well respected consultants in area of Energy and Life Sciences. They consult to Alberta Energy and as a result their expertise was used by the Royalty Review Panel as well.

Two different news stories and headlines based on the Wood Mackenzie release are telling and is enough to make one wonder just who you can trust to report on this stuff. A Reuters story in the Edmonton Journal today uses essentially the same headline as the Wood Mackenzie release predicting doom and gloom over a potential for $26B of lost value in the oil sands if the Alberta Royalty Review recommendations are implemented. The Globe and Mail headline based on the same news release says: “Report finds Alberta still a bargain, even with higher royalties.”
The Globe says Wood Mackenzie finds that even with the royalty hike "...Alberta would remain one of the cheaper places to do business in the world even with more money going to the government."

Both stories are "correct-ish" but let’s look at little deeper at some facts and some context. Wood Mackenzie actually says “…higher royalties will have the biggest impact on high-cost, low-margin projects.” They calculate the Net Present Value of current and planned projects would fall by $26B based on $50 per barrel oil. The Wood Mackenzie news release it self notes that “We predict the worst affected projects would be the most marginal, or those with a start up date furthers into the future, with an average of 30% of value transferred for underdeveloped projects.”

I would like to know some more of the assumptions behind the consultant’s conclusion beyond oil at $50. What interest’ currency exchange and inflation rates did they use? Was this the same assumptions used for open pit and in situ projects and what project assumptions on environment and reclamation costs were applied in the calculations? Did they differentiate between the Fort McMurray, Cold Lane and Peace River sites…they are all quite different realities.

Not all projects are created equal and some will become more marginal as circumstances change – including economic rents, environmental requirements and new technologies are all a natural consequence of the larger concept of the marketplace. An oil sands extraction project is a very long term patient investment. If your project is so marginal at the start that a royalty increment of 8% on your NET PROFITS is untenable – the same could (and should?) be said for the project anyway.

Albertans are strained and arguable unable to cope with the economic, infrastructure and social demands caused by the current oil sands production of 1.2 mbls/day. We are being told we need to triple the production within the next 8 to 10 years. What planning is in place and being done by industry and government to catch up and be ready for the consequence of 3-5million barrels of production?

Wood Mackenzie says only marginal projects may not be economic at $50 oil but that clearly means not all projects are in jeopardy. I can live with that and I am sure Alberta will survive. After all the demand for energy is not going down and the oil sands are not going away.

C.D. Howe Institute Weighs in on the Alberta Royalty Review

I do not usually post news stories verbatim in this Blog. But in this case I wish to make an exception. If for not other reason that I am a Member of the C.D. Howe Institute (by way of disclosure) this piece brings forth some larger questions on the future of Alberta we need to start to discuss. Another quality think tank based in Alberta - the Canada West Foundation has also been posing this question for a couple of years now. I highly recommend the work of both of these organizations.

HERE IS WHAT THE C.D. HOWE HAS TO SAY:

Alberta's Royalty Review Panel released its final report on September 18, 2007, which recommended increases in provincial oil and gas royalties, particularly as they apply to oilsands extraction. In a column in today's National Post, C.D. Howe Institute President and CEO Bill Robson wonders what Alberta would do with even more resource revenue.


Alberta's chronic overrunsNational Post Wed 26 Sep 2007


The release of Our Fair Share by the panel studying Alberta's oil and gas royalties has prompted a loud debate. No surprise, with the panel recommending that the province boost its energy-related levies by almost $2-billion annually. The panel's message that Albertans should get more from their fossil-fuel resources has overshadowed its proposals to rationalize and rebalance energy taxes and royalties, while an industry already struggling with escalating costs in the oilsands naturally views the prospect of higher levies with alarm.

Premier Ed Stelmach has promised a response to the Royalty Review Panel's recommendations by mid-October. Before the provincial government acts, however, it needs to answer a question that the controversy over the panel's report risks obscuring:What would it do with the extra money?

The yo-yoing of provincial spending in Alberta as fossil fuels boomed and busted in the 1970s, 1980s and 1990s underlines this question's importance. It is all very well for the report to emphasize that Albertans own their sub-soil resources. The fact is they can only exercise their rights as owners through their provincial government. While the ways the province might use these extra dollars --further increases in provincial programs, tax relief in other areas, or saving to prepare for a leaner future-- was not part of the panel's mandate, they matter greatly for the report's ultimate larger impact.

Those who recall Alberta's misadventures with its Heritage Fund and its deep fiscal retrenchment of the mid-1990s will know that Alberta has always had trouble handling resource revenues adeptly. Experience since the mid-1990s provides a fresh lesson. In successive budgets since 1996, the provincial legislature has voted spending increases averaging less than 2% annually. But the final figures for each fiscal year showed actual spending increases averaged almost 7%. These chronic overruns had a huge cumulative effect. Rather than the cumulative spending increase of $4.5-billion anticipated in budgets, provincial spending ballooned more than $15-billion over the period. The cumulative overrun of $10.5-billion is equal to all of the province's budgeted health care spending last year.

While all Canadian governments have had trouble living up to their budget commitments over the past decade, the record of Alberta's legislative assembly is uniquely bad. The tendency for resource revenues to outpace projections, and for in-year or end-of-year spending surprises to absorb most of the extra money, has been a driving force behind this breakdown of fiscal accountability. The 2007 budget anticipated no less than a 12% jump in spending for the
current fiscal year -- even before overruns, that would make provincial spending almost double what it was at the beginning of the decade. Raising the province's take from the energy industry by one-fifth, as the panel recommends, amid an energy boom will add fuel to the fire, increasing the prospects for yet another sizeable overrun -- and for a painful mix of tax hikes and spending cuts as demographic pressures and the resources boom's inevitable fade squeeze Alberta's budget in the years ahead.

This prospect highlights an obvious point: Some potential uses for any extra energy revenue are clearly smarter than others. Lower corporate income-tax rates would enhance Alberta's attractiveness to all kinds of business -- and mute the impact of new levies on the energy industry. More personal income-tax relief would help Alberta attract and develop the human capital that can sustain growth beyond the current energy boom. Saving the funds and investing them in a diversified portfolio outside Alberta would also prepare the ground for a future with less resource revenue.

None of these options, however, is likely to appear as compelling as more spending. The resource boom has created many legitimate needs for more infrastructure and public services in the province. Less happily, it has also fuelled a sense among many Albertans that resource wealth entitles them to the best of everything. Pumping more government money into a red-hot economy will further push up costs and inflame expectations -- setting Alberta up for an even more painful fall when the cycle inevitably turns.

For this reason, the provincial government should make a fiscal plan for any extra revenues resulting from the panel's recommendations a precondition for their implementation. Although a long delay would be terrible for energy investment in the province, no long delay is needed: another panel will be making recommendations on how Alberta might set resource wealth aside for the future before year-end. A few extra weeks would help in sorting out some individual royalty and tax recommendations -- not to mention explore some of the panel's more difficult proposals about long-term stewardship and upgrading incentives. And importantly, it would set the royalty-review recommendations in a vital wider context -- as a step toward ensuring that the current energy boom reinforces Alberta's future economic and fiscal base -- and alleviate the pressure to take more revenue now, and think about how to spend it later.

Those who think the debate's "fair share" rhetoric demands faster action should take a fresh look at the numbers. The Royalty Review Panel put the revenue impact of its recommendations at just under $1.9-billion annually through the end of the decade. Even if the depressing effects of the new levies themselves reduce the take, we are talking a lot of money. Yet spending overruns since 2003 alone have absorbed three times that much! When extra money vanishes so quickly, how strong is the case for more?
-William Robson is president and chief executive of the C.D. Howe Institute.

C.D. Howe Institute67 Yonge Street, Suite 300, Toronto, Ontario M5E 1J8Phone: 416-865-1904; Fax: 416-865-1866http://www.cdhowe.org/

Please CBC - Talk to Some Real and Representative Albertans

I know it’s late and I know you’re weary. But this Blogger (thoughtinterrupted) captured so much of what I saw and felt with Mr. Levant’s guest spot on Don Newman’s Politics show yesterday.

Not all of us Albertans - in fact the vast majority of us are not anything like Mr. Levant in terms of view and values. He sure does fit the bill for the wetsuit wearing Stockwell Day model of what too many in the central Canada media likes to portray as the “typical Albertan.”

Expand your Alberta based Rolodex Mr. Newman and do the province - and the country a favour.

A Reality Check on Oils Sands Costs and the Impact on Albertans.

Let’s get something straight about oil sand project costs. The oil sand project developers total project costs are paid by the citizens of Alberta in forgone royalties. This is under the current regime and would continue under the recommendations of Royalty Review Report. Only 1% of gross revenues are due as a royalty until all project construction, financing and operational costs during a project build and prior to plant production.

Sure government get taxes on the industry activity from personal income taxes on citizens who earn a living from working on are with the various projects. They get corporate taxes on net profits again – after all expenses are paid.

With that deal from Albertans why would project developer’s care about cost over runs? They end up being paid 100% by deferred royalties by Albertans in any event. Even after project costs are recovered and the royalty kicks in, the current 25% and the proposed 33% royalty of oil sands is only on NET PROFITS. Again all developer operating and related costs of a plant are deducted before royalties are calculated and charged. If a project has a net profit of 10% ( a modest assumption) that is the amount the royalty is calculated against - nothing more.

Besides project costs are management decisions in the hands of the corporations. If they are too high then management of the corporations needs to control them or make alternative arrangements. Like howabout spreading out the projects so they do not all chase the same workforce and suppliers at the same time and drive up prices for labour and materials.

When an oil sands project has a doubling of costs (and that seems to be the norm) they don’t even have to go back to further approvals from the EUB to have the impacts reviewed again. Those increased costs change the essence of the approvals and are not neutral on the rest of the Alberta economy nor the economy in the rest of the Canada. The project managers don’t have to consider the increased cost and accelerated project approvals might have on cumulative impact on housing prices, inflation, wage escalation and competition with other sectors or if municipalities can afford to compete for steel and concrete for public infrastructure.

At at high oil prices they can absorb the cost increases handily so they don’t seem to worry about the implications to other on such decisions. They get to unilaterally turn the entire province into what Fort McMurray has become...thank to the benign neglect of the Klein regime to the regional needs. IN fairness it was the oil sand companies working in conjunction with the municipality that did the calculation and delivered the needs assessment to the Klein government - only to be ignored at the political level. I know because I was on the team with industry and the regional government that wrote and presented the Wood Buffalo Business Case to the Alberta government in 2005.

To say high costs for project is a barrier and royalties are to be kept as they are is rich given who makes the decisions and that the rest of us end up paying the pipers. If that is not infuriating enough, I understand the oil companies have had record sustained profits in the recent past. Here is the kick in the head. Apparently senior people in some companies have had seven figure annual bonuses AND those costs are seen as project costs as well so the rest of us get to pay for them too.

Please you scions of the Alberta energy industry - say and prove this bonus bulls##t ain’t so. Inquiring minds want to know.

Stelmach Heckled at the Empire Club in Toronto

Premier Stelmach was heckled at the Empire Club speech in Toronto today over environmental concerns. My friend, crisis management and media relations specialist and fellow Blogger Allan Bonner was there and here is what he has to say about what happened.

The Edmonton Sun has a piece on the Empire Club - Stelmach event too.

Stelmach Wants More Royalty Review Input and Analysis

The Government of Alberta just issued a news release indicating that “While the formal consultation is over, we have not stopped listening. We want to make sure that people how have comments send them to the right place so we can consider this input as part of the review process.”

Nothing wrong with that per se and this initiative may be an obvious admission by the Alberta government that the old style of public consultation is not as effective as it should be at getting authentic citizen input. So citizens of Alberta here is your contact channels for your further input into the Royalty Review Report findings and process...www.alberta.ca and 427-0265. Get at ti and have your comments and concerns over the Royalty Review Report known to the powers that be. And you don’t even have to register as a Lobbyist to do this.

If you do not engage and the powers that be may very well make these decisions behind closed doors (again). If citizens of Alberta value accountability from their government to be reality not rhetoric they better start making those expectations known…loudly and clearly.

It looks like the energy industry gets their very own separate channel of continuing input and communications through the very capable Deputy Premier. He is said to “be the lead minister liaising with the energy industry.” This was the same approach used with the Mayor of Calgary and we saw how the municipal funding formulas were biased against Edmonton at the end of the day.

I am very wary about this approach. I expect everything that the industry says and presents to the government in this further consultation process will be fully disclosed by the government as the original inputs were done in public. This ahs to be part and parcel of a new spirit of an open, accountable and transparent government. I don't understand why doesn’t the government use the new all-party Standing Committee on Resources and Environment and have Industry make their cases there – in public and televised? The next scheduled meeting is October 2 so it is timely.

The Royalty Review Reports has some good advice in this regard too. At page 18 of the Executive Summary the Panel says:

“The government of Alberta must implement means to gather and assess the workings of all aspects of revenue policy and collection associate with energy resources in the province. This must be done on behalf of the citizens of Alberta, and its findings must be made public and have the highest degree of credibility. It must not be a confidential exercise internal to the government.”

Here is the strangest development of all. The Royalty Review Panel used Department of Energy data, senior staff and their advisers in determining what was going on with the industry-government relationships on resource revenues. The Department of Energy was chastised in the Royalty Review Report. The news release says the Minister of Energy is to “lead a technical analysis of the report.”

None of this fiasco is the current Minister’s fault but why on earth do they need a technical analysis of the report findings when it was the DOE data that was used with assistance of departmental staff and advisers who helped the Panel do the review in the first place? Surely they would not let any inaccuracies of a “technical” nature be included in the final document! What is this all about? If industry has a rebuttal on the figures and analysis – let them put it forward. Let’s not have another Melchin kind of faux Royalty Review when we were told “Don’t Worry – Be Happy – Your government has it all under control.”

The mandate of the Royalty Review did not allow for infrastructure, growth pressures and environmental issues to be considered in the public consultation. Too bad but understandable! Since the government has “…not stopped listening” Albertans ought to feel free to use this invitation to have input into the government at “the right places” so it can consider this input as well.

If industry gets a second kick at this – so should citizens. Wake up Alberta and get engaged. The opening sentence of the new release quotes Premier Stelmach: “The decision on the royalty report will affect Alberta and our energy sector for decades to come.” He can say that again - but the final decision his government will make will affect all Albertans in all walks of life and future generations too.

Hunter's Royalty Review Is a Tipping Point for Political Change In Alberta!

The Hunter Royalty Review Report is catching fire in the media and in the consciousness of Albertans, with industry and now with politicians. It has captured the attention of Albertans and is about to reach a tipping point where it commands and dominates the primary focus and attention of the Alberta citizenry It will not be the ballot question in the next election but it will be the context setting concern around which the ballot questions are decided in the pending spring election.

Albertans want see some serious changes…including in their government, how it operates and what it pays attention. That is partly the reason Stelmach won the PC Leadership last December. That desire for change has not yet crystallized or coalesced behind an issue or an event that usually tips the politics of change a swell.

I have been waiting to see what will be or moment that captures essence of the concerns of Albertans. Would it be around the quality of life, managing growth or the ecological angst that is raging just below the surface of so many Albertans?

I think we have this political changing tipping point/crystallizing moment with the release Hunter Panel’s work on the royalty review. As proof consider the MSM and Blogosphere response, the letters to the Editors and the open-line radio show coverage. Then realize that in the almost 6 months of the RRR consultation they had 56000 hits on their website. In the four days following the report’s release they had 210,000 hits…and it is still growing. That is not an indication of a merely passive interest by Albertans.

The last such crystallizing moment that triggered massive political changes in Alberta was in 1993. That was when Laurence Decore as Leader of the Opposition stood up in the Legislature in Question Period and held his wallet high above his head. He asked the then rookie Premier, Ralph Klein, when the government was going to get its spending under control? The emotional context was if we did not do this we would not be able to face our children and grandchildren because of the crippling financial burden we would have left them. The political result was not if and when cost cutting would happen. It was about if the cuts would be “massive or brutal.” They were both - and done way too fast for effective planning and sustainable development – which Klein has admitted – was non-existent in his tenure as Premier.

To be fair there was a long term Strategic Plan prepared and presented to Caucus and for full disclosure I had a hand in its preparation. But Klein was a one-man show leader (kind of like Harper today). As Premier he not prepared to engage and push it through...so we ended up with drift and decline to the point the PC Party had to push him out of leadership.

IN the early 90's Albertans knew uncontrolled government spending was a serious problem and at that wallet raising moment the politicians finally caught on too. Today we Albertans know uncontrolled growth is a problem. Now we also have the Royalty Review Reports as evidence that the government has not been doing its most fundamental of jobs. Our government has breached its trustee role where we expect it to protect the best interests of Albertans. We can see form the Review findings that our government’s trustee role both in collecting and accounting for resource revenues and the responsible sustainable development of our non-renewable energy resources is wanting…very wanting indeed.

Will the rookie Premier Stelmach catch on and be as decisive, determined and disciplined as the early days of the rookie Premier Klein was in dealing with this fundamental concern of Albertans?

Whose government is it anyway? Albertans are about to let the political class - regardless of partisan affiliation - know in, no uncertain terms, the unequivocal answer to that question. Changes could once again be massive or brutal - or both and fast.

Memo to Minister Lunn - Firewalls Will Not Stop Pine Beetle.

Federal Natural Resources Minister Gary Lunn is reported to have said his goal is to stop the mountain pine beetle from moving east beyond Alberta. The MPB is already well established in Alberta by the way and is moving east quite effectively. The methodology Lunn intends to use is burning larges segments of the forest instead of letting the beetle eat it. Mighty clever Mr. Minister! Mighty clever!

Lunn is reported to being “committed” to spending another $50m “…to keep the beetle out of B.C. boreal forest,” (WHAT!!!) The MPB has already devoured 40% of the BC forest and conservative estimates indicate the tipping point has passed and likely 80% is gone. This is like watering the lawn after the tsunami has hit the house.

Mr. Minister burning “firewalls” will not stop the beetle. They migrate on air currents so they will just leap over your stupid firewall and continue on. The beetle rides on air currents and that is how they got into Alberta from BC in the first place. They managed to cross the Rocky Mountains on air currents for God’s sake…how is a firewall going to make any difference in the face of that reality?

Firewalls are effective at one thing, controlling the spread of forest fires. That is what they should be used for. The beetles leave vast areas of standing dead dry trees that are prefect for a lightening strike and a massive size and number of forest fires. Given that reality burning firewalls around forest related towns like Banff, Jasper, Grande Cache, Hinton, Edson and Whitecourt would make sense. Firewalls are needed to protect these towns from forest fires NOT to stop the spread of the beetles.

B.C dropped the Beetle-ball and now it is obvious the Feds are being stupid about what to do about the infestation. Mother Nature is not happy and she is showing it. Our species like all others in the forest have one intelligent and responsible response to the beetle…ADAPT.

Here is a Great Blog on the Alberta Royalty Review - "King Ralph Shilling for Big Oil."

I can’t say I always agree – or even agree very often - with fellow Alberta Blogger Eugene Plawiuk. But Boy oh Boy I have to admire his work on the post he just did on the Royalty Review Report and reaction to it.

This post is an example of the Blogosphere at its best. Great piece of work Eugene – I will read it carefully and with great interest - once I finish the report itself.


For those outside of Alberta - I suggest you will want to read the Royalty Review Report too. 60% of the billions being invested on oil sands development gets spent outside Alberta in the rest of Canada.

Claims of Oil Royalty Review Causing Market Meltdown is Bogus

Another update on oil patch stock market fear mongering from the Hunter Royalty Review Report is in order. The Royalty Review Report came out on Tuesday and the next day business press was rife with quotes and claims of a draconian disaster and a “tumbling” market for the energy sector

Yes there was a dip in some stock prices reported for companies like CNRL and Suncor. Well by Friday, in the face of a $.51 cent drop in oil prices the G&M reports that CNRL and Suncor were ranked #3 and #4 in the Market Lifter Index. The TSX was up 101.64 points on Friday and these two companies were jointly responsible for about 16 of those points.

As for CNRL –it shed 5.9% of stock value on Wednesday and on Friday the stock was up $1.64. Meaning it had recovered all but 1.5% of that pre-Royalty Review Report value decline in only two trading days and it is trading at $76.84 - only $3.14 off its 52 week high.

Some melt down.

Does Harper Have Any Sense of Humour?

Jane Taber of CTV and the Globe and Mail notes in her Hot and Not column this morning that Prime Minister Steve is rumored NOT to be attending the annual Press Gallery Bun Throw…AND in the PMO best Faux Fascists form, he has ordered all his Cabinet Member NOT to attend either.

Guess what all the dinner jokes are going to be about now. Guess which political leader will bear the brunt of the most barbs. Expect CPAC to tape it and rerun it more times than the Cons ever did for their paid for negative TV ads on Dion. No doubt the MSM media will run clips and the caricatures too.

Harper has been PM about 2 years now. He should know by now the “Parable of the Press” is that they giveth and they taketh away. The Cons being a total no-show at the Press Gallery Dinner is definitely Not Hot Steve. The Gallery will be sure to get even if you don't come out and play with them.

Besides a bit of humorous self-deprecation about now would be good for The Steve don’t you think? He may need it when Jack Layton sends him a reminder since their by-election win in Quebec the Dippers now have enough votes to save or cave the Cons. I wonder what Jack wants to see in the upcoming Throne Speech. I wonder if Harper shares my curiosity?

Oil Patch Fear Mongering is Very Removed From Reality

Business writers have been hyperventilating over the market impacts of the Hunter Royalty Review Report on oil sands share prices. Globe and Mail today has an example of an over reaction quotes: “Oil companies’ share prices have tumbled on investor concerns that incomes will be adversely affected and make future project less viable.”

A decrease in the TSX in the past day has been blamed on the Royalty Review Report recommendations as well. Horsefeathers! The Globe Index Drags today shows the cause was mostly by Research In Motion, three big Banks and Suncor was the only oil company reported. BTW, the smallest of these stock market "drags" only has a capitalization of over $31B.

Well yes some of the oil stock declined – more of a dip than a “tumble and only for a day. CNRL shares dropped 5.9% on Wednesday and the Chairman is leading the pack from the oil patch against the Royalty Review. BTW he is reported to own about $830,000,000.00 in CNRL stock so a 5.9% hit in one day hurts, "technically" but he is hardly homeless.

For the record CNRL stock rose $.21 or 0.2% yesterday and so far today it is up $1.73 or 2.29%. It has traded in a 52 week range between a low of $40.29 and $78.90. Still trading in spitting distance of its 52 week high is hardly a disaster for the company and its investors.

Albertans need to be sure the oil patch rhetoric over the veracity of the Royalty Review Report calculations tempered and evidence based. The facts need to be protected from the fantasies and the tenants need to start rethinking their roles and responsibilities to the resource owners…and show the owners a little respect too. They are citizens and therefore - voters. come to think of it, these same citizens may be shareholders in Alberta-based oil companies where they are voters too.

Please Premier Stelmach - Do Not Delegate Royalty Issue to Energy or Finance

The news out of Banff today reasonable notes that Premier Stelmach says the oil industry representatives will be able to take their issues with the Royalty Review Report up with the Finance Minister and the Minister of Energy.

Then Stelmach says “… the two Ministers will bring that forward to caucus.” It is the latter comment that scares me.

It would be prudent for the Premier to be personally in on any and all meetings with the oil industry. He needs to hear first hand what they have to say. It would also be appropriate for the details of the oil industry problems and presentation materials to be released publicly too…ideally in advance so the resource owners can know what the industry has problems with and why.

This is not the stuff of deal making behind closed doors, In fact as a show of good faith it would behove the oil industry representatives to go a step further and act as if the Lobbyists Act was already in force and make every effort to voluntarily comply over their issues.

There are indications in the Royalty Review Report that the Department of Energy had difficulty being forthcoming with the Review Panel because their data was seen as unreliable. The Royalty Review Report is reported as saying the Department of Energy is in a difficult conflict position because it wears so many hats. For those reasons alone it would be advisable for the Premier to keep control over this file and not delegate it to Energy but keep them involved.

As for delegating it to Finance that too would be a mistake. One has to merely remember the current Minister was once kicked out of the PC Caucus for making up stories about knowing where there were alleged "skeletons." Has he even kept his promise to disclose his leadership campaign contributions – and it has been 10 months. The Premier would be legitimately cautious about the credibility of any briefing from that Minister about such a critical aspect of Alberta’s future.

I hope you proceed with caution Mr. Premier and hear out the industry concerns. They better are based on facts supported by current evidence and not on a 1997 report like in the earlier presentations of some industry submissions to the Royalty Review Panel.

And please Mr. Premier, what ever you do, get your information on this critical issue first hand.

Whose Oil Is it Anyway?

I have been harping on Albertans to read the recently released Royalty Review Report for 2 days now. Here is the link to make it easier.

Hunter Royalty Review Reaction Shows Some in the Oil Patch Just Don't Get It!

What is it that some oil executives and certain investments brokers in the oil patch do not understand about the natural resources belonging to Albertans? Based on media reported comments in the past two days, since the release of the Hunter Royalty Review Report, it appears that some of them don't understand anything around that reality.


The Hunter Royalty Review Report evidence indicates oil industry types seem to think that they are the one who control and dictate the provincial energy resource policies...from top to bottom. From some of the Hunter Royalty Review Report findings, it looks like that has essentially been the way things have been operating in the oil patch with the Klein government apparently just going along with it. I hope the former Premier and his Ministers of Energy will be able to prove to Albertans that this is not - and has not - been the case.

Someone in the Calgary-centric energy investment community is also reported as saying in an
E-mail to clients entitled “Caracas on the Bow River” that if the Hunter Royalty Review Report "is enacted investment decision will be impacted." Duh! Isn't that is what this is all about? The impact is about the appropriate rents and rates Albertans should get from granting a social licence to oil companies to operate in OUR resource base and who is most appropriate to be trusted to develop those resources. This broker claims the Hunter Royalty Review Report “…reads a bit like a Chavez-style manifesto.” Boy is this attitude off base and out of touch with reality.

Then we have news reports of some energy CEOs meeting in London calling for a new National Energy Program demanding an increased federal role in their industry. Interesting timing in the face of a royalty review don't you think?


It was the NEP that killed the Liberals in Alberta 25 years ago and the myths remain. If that were to ever be seen as a possibility then Peter Lougheed’s predictions of a constitutional crisis that would make the old NEP look like a picnic would actually come to pass. Harper needs to win Quebec and not lose Alberta in the process. It is not going to be smart politics for Harper to be revisiting the NEP of Trudeau times especially since he is an old-style Reformer at heart. Stranger things have happened. Harper has flip-flopped before - think Income Trusts!

The oil and gas industry, the Alberta Department of Energy and past Energy Ministers since 1995 have a lot of explaining to do about how they calculated, accounted for and ensured the right royalties have been paid. That reassurance is something that needs to be done in addition to settling the question of how the rates should change and how much they should increase.

Perhaps the Auditor General Report on Royalties due in mid October will shed some more light on this or at worst point to more clouded mystery of perpetually poor accountability that needs to be fixed.

In any event this situation will either lead to Stelmach's finest hour as Premier or his final hour as Premier. Everything is at stake. Stepping up to the plate and hoping to hit a single will not cut it.


Stelmach has to step up to the plate and point to the fence and then swing for a home run. Nothing less will do. Hunter has given him a perfect pitch with this report. Over to you Ed - and here is a tip - keep you eye on the ball!


All eyes in Alberta are soon going to be watching the Premier. They ready to cheer or boo - depending on how well he deals with this. No pressure Ed...it is just about good government and appropriate politics.

C.D. Howe Institute Ranks the Best and Worst Elementary Schools in Alberta

The C.D. Howe Institute has just released a report on the ranking of the Best and Worst of the 2,240 Elementary schools in Alberta. This review and ranking actually takes into consideration the socio-economic aspects of the individual schools environment.

Rankings are always difficult to do and often mislead as much as they enlighten. In something as complicated and varied as elementary schools in a diverse province like Alberta those ranking problems tend to get amplified.

As Alberta Teachers Association President, Frank Bruseker, has oft said of other school rankings, they essentially measure the house prices in the neighbourhoods where the schools are located. That is a powerful way to say school performance is very strongly influenced by the socio-economic realties of the local neighbourhoods.

Full disclosure, I am a Member of the C.D. Howe Institute so I have a bias in fabour of their work. That notwithstanding, this review and ranking report on Alberta Elementary Schools is worth a serious read.

Does EUB Spying, Muncipal Funding Fiasco and Royalty Rates Review Mean Trouble and Turmoil in Alberta?

Boy what a week – Quebec by-elections, real threats of recession in the States, a run on a British Bank, the US dollar in meltdown and then we have Alberta’s governance in turmoil in the face of a municipal funding fiasco, two damning reports on EUB and spying and the recent Royalty Review report just released.

MUNICIPAL INFRASTRUCTURE FUNDING FIASCO:
There is plenty of consternation in the Edmonton region over the municipal funding for infrastructure. I have had my ear bent by a number of Edmonton politicians and officials on how unfair and damaging this funding approach will be to stability in the Capital City and the surrounding region. I need time to read and reflect on what happened and how it happened and to better understand the implications. Expect the City of Edmonton to take on the Stelmach government and all the other local regional governments surrounding the city. This political and governance turmoil is at play now because of the obvious unfairness of this municipal infrastructure funding model. Edmonton now has a central municipal election issue that will heat up significantly over the next month. Stelmach needs rural support and one of the major cities to retain power. He will not retrieve anything in Calgary and risks losing all of Edmonton with this municipal infrastructure funding formula.

EUB PLAYS "I SPY WITH MY PRIVATE EYE:"
I want to post on the EUB private investigator issues but need to find the time to read the two reports. The political responses to the reports are important and need comment. My sense is the government is under reacting and the opposition is over reacting. The implication for how citizens are treated by such agencies boards and commissions is critical and the security and protection of public officials is equally important. This is not about a trade-off of competing values. It is about what is a reasonable and responsible exercise of judgment and authority by public officials. More to come later.

ROYALTY REVIEW REPORT COULD AND SHOULD ENERGIZE THE STELMACH GOVERNMENT:
The Royalty Review is even more vital to the future of Alberta economically and politically. This report needs a thorough read and study. The importance of this report and the political, industry and citizen reaction cannot be over stated. It is foundational to the future of Alberta and not just the rates and payments. It is just as important to consider in terms of the relationship and roles of the development and management of this public-owned resource. How is the public’s government to behave as proxy for the citizenry? How is the oil and gas industry doing in the execution of its responsibility? How does it fulfil its various societal outcomes, ecological integrity and sustainable economic duties within the social license to operate responsibly and sustainably in this non-renewable energy resource sector?

IT IS TIME FOR CITIZENS TO READ AND REFLECT AND TO BE RESPONSIVE
Again I need time to read and reflect and respond to the reports and their recommendations. I encourage anyone who takes their citizenship seriously to read and reflect on these reports and to let their MLAs know what they think about the implications and impacts in each case. These reports identify issues that are all too critical to leave to politicians, government administrations, appointed agencies and industry self-interests to deal with alone.

Quebec By-Elections Herald Change and Uncertainty

What Happened in Quebec Politics Yesterday?

I watched the by-elections last night and had to wonder what is going on in Quebec. For the most part I think it is healthy for democracy and could be good for Canada. The reality is these events were by-elections. Personality of candidates often means more in those events than party or policy or leadership. There is a reality of the timing of these by-elections too. The current minority government could be brought down any given day the House is sitting and now the NDP alone can save the Conservative’s bacon in a confidence vote. So the consequences of a local constituency “getting it wrong” are not too damaging. So why not send the powers that be a message?

Enough context (excuses???) Here are the messages I got from the result in Quebec last night. Dion and Duceppe are damaged and personally deflated by these results. Layton is the big leadership winner by making a breakthrough in Quebec for the first time and very decisively.

The personality issue played well for the NDP with Mulcair but he also had some fascinating political manoeuvrings at play in his victory too. He attracted a large segment of the Bloc voters (Ouch Mon. Duceppe – that has to hurt) and what were those Bloc voters saying? Were they ticked with the Bloc and wanted to “block” the Liberals. Don’t forget Mulcair was a Charest Liberal Cabinet Minister who resigned and turned Dipper. His election as a Dipper sends a message to the federal and provincial Liberals and bruises them both badly.

The Conservative win by Lebel in Roberval was stunning. Not only was the margin of victory impressive it was in separatist country. This Conservative win was by a guy who, a few short months ago, was also a Bloc party member and presumably a separatist himself. Did Mr. Harper’s Quebec Nation sentiments trump his stance on Afghanistan? One can’t help wonder if Lebel is eventually going to be to Harper what Bouchard was to Mulroney.

Duceppe had something to smile about winning St Hyacinthe “comfortably” and over a Conservative…who will no doubt be breathing down the Bloc’s neck come the next election.

Dion is the sacrificial lamb in all of this. Quebec is still smarting and clearly unforgiving over Adscam and about being “played” by the cynical Chrétien government. It was the Chrétien government who tried to buy Quebec’s loyalty with flags and banners scam perpetrated by a Quebec Liberal party arm that was infected with culture of fraud and favouritism.

Quebecers were insulted and still unforgiving of the Liberals and Dion has to wear it. Such is the reality of the Liberals in Quebec...and for a while yet obviously. And while all this is not technically not Dion’s doing or fault – as the leader of the Liberal Party of Canada he has to carry that baggage. It is proving to be a heavy load. That past party baggage is not a new phenomenon nor unique to Dion. Harper had to live through the disaster that was Stockwell Day when he took over the Conservative Party and on his way to 24 Sussex Drive. All this is as it should be.

The larger question is what doe this mean for Quebec politics and how does that impact Canada? Quebec is no longer a fight between Liberal federalists and Bloc Separatists. Quebec’s feelings and political aspirations are much more unclear, uncertain and consequential for Canada since yesterday. Is the Quebec-Canada Cold War over? If so what political relationship within Quebec and between Quebec and Canada fills the vacuum? Is the Rest of Canada ready to deal with the Harper declaration of the Quebec Nation as a reality? Is Mr Harper the new voice for Quebec aspirations or just a means to an end in Quebec – that end being power or at least access to it?

Will Harper “play” Quebec or will Quebec “play” Harper for power and which “player” wins in such a power-game? What happens to the Harper’s western political base in either event? Wasn’t this the kind of Quebec Problem that Mulroney dealt with in his efforts around Charlottetown and Meech Lake? Wasn’t all of that the stuff that lead to the formation of the Reform Party in the first place? Interesting time ahead – interesting times indeed.

In summary – here is how I saw last nights by-elections. Duceppe had some cold water poured on his Quebec sovereigntist torch last night. Dion’s Quebec torch was all but blown out last night by winds of change in those three by-elections. Both of these parties and their leaders were sent strong and angry messages by the Quebec people last night.

Layton has found a small candle in the Quebec winds of change and will have to tend it carefully if he is to keep it lit. One candle does not make a torch…but it can light one.

And as for Mr. Harper, well he was seen as the new and emerging de facto torch carrier for Quebec’s national aspirations. Last night Harper was handed the Quebec Nation’s torch and we shall see how high and well he carries it…or if it ends up burning him and his political carrier in the process.

Bon chance Prime Minister Harper as you move to bring Quebec into nationhood and lead the rest of Canada into a better understanding and an abiding acceptance those unique francophone aspirations. The eyes of an uncertain and a hesitant nation(s) are all upon you.