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.
Thursday, September 27, 2007
You Can't Handle The Truth
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Ken, any idea why our proposed OSST is a tax on gross profits when the Alaska PPT is a tax on profits. Perhaps you may want to ask the Royalty Review Panel for an explanation.
ReplyDeleteThe severance tax (production tax) of the State of Alaska has essentially remained
unchanged since 1989. The current tax is based on a percentage of the gross revenues less
the royalty. The percentage is adjusted with a formula (Economic Limit Factor or ELF),
which for oil is based on field size and well productivity. This formula has served Alaska
well for more than a decade. However, the economic framework on which the ELF
formula was based is no longer realistic for North Slope conditions. As a result, based on
the formula, the amount of tax will significantly decrease over the coming decade to a
point were less than 20% of the oil is actually taxed. This is not in the interest of Alaska.
Furthermore, the current ELF formula is not sensitive to variations in oil price creating
significant losses for Alaska under current conditions. Also the production tax does not
provide incentives to re-invest in Alaska.
It is suggested to repeal sections of the current act dealing with production tax (AS 43.55)
and replace them with a profit based tax, the Profit based Production Tax (“PPT”).
The profit based approach is a widely accepted international practice, including for
instance Norway, the UK, Nigeria and Angola adopted this approach for the offshore.
Alberta is using this approach to develop the oil sands.
High oil and gas prices since 2005 are frequently cited as the cause of these cost
ReplyDeleteincreases. Projects around the world that were once only marginally economic, are now
considered very viable, and are now placing increased demands on limited supplies of
engineering, procurement and construction services and on raw construction materials.
The Upstream Capital Costs Index, developed by Cambridge Energy Research Associates
(CERA), shows that costs for oil and gas production equipment, facilities, construction
materials and personnel have increased 53% since 2005. CERA expects cost escalation
to continue through 2007, although at a slower pace. Fluor Corporation estimates that
prices for fabricated structural steel have increased 60-70% from 2003 to 2006, and that
delivery times for these materials increased by 18-20 weeks from their previous levels.
The same company reports that prices for seamless and welded pipe used in petroleum
production have increased 80-160% from 2003 to 2006, and expects increases of another
15-50% by 2009.
And industry gets to decide unilaterially if they want to incur those costs and pass them on to Albertans in the form of deferred royalities in the 1% royalty construction period.
ReplyDeleteComplaining about costs being a reason touted by industry not to increase royalites is ironic (I am being generous) to my mind.
Anon @ 8:08 - have you looked in the Report for your answer? I will. If I can't find it I will pass on the question for you/us.
ReplyDelete