Petro-Canada Send a "Cooler Heads" Letter to Stelmach.

Petro-Canada is the next company to get in line to respond to the “Our Fair Share” Royalty review report. They have sent a “cooler heads” letter to the Premier seeking a “compromise solution.” They have acknowledged “that at higher oil and natural gas prices, it is reasonable for Albertans to expect higher revenues from royalties.”

They also believe the analysis of the “Our Fair Share” Royalty Report “contains material flaws.” They say; “If the report were enacted as is, we believe investing in Alberta would be severely impaired given prices today and those reasonably expected in the future. The result would be less total return to Albertan in both short and long term.”

According to the Auditor General we would already have a royalty revenue upside on the existing regime if we merely had a Department of Energy doing its job on the collection and calculation side. Albertans would be up some $6Billion. But that did not happen! There will be consequences no doubt.

The Hunter Royalty Review Panel used the GOA's the most current industry supplied and independent consultant’s numbers available in thier analysis. Royalties are not volatile like interest rates, currency rates or share prices. They are an economic rent concept embedded in a much larger context.

So what if “given prices today and those reasonable expected in the future” makes for a different set of end industry return calculations. The price of oil could crater or skyrocket base on geo-political forces alone not just markets. The Canadian currency exchange dynamics are just that dynamic. We are seeing central banks all over the world putting in billions of dollars to bolster the mortgage and some banks due to the sub-prime mortgage fiasco. They are also adjusting interest rates in response to this stupidity as well.

That volatility and risk assessment is the business of business. But no where in the energy producing world are the circumstances, everything considered, more stable and favourable, than in Alberta.

The business of our government as our trustee is to get us citizens a competitive and fair return from the exploitation of our natural resources in the form of taxes and royalties as well as environmental enhancements and in ways that these assets can be used in the service of the greater good.

Oil companies like all private enterprises have to worry about satisfying shareholder’s expectations at the end of the day. The amass resources like oil and gas leases, equipment, technology, expertise and employees to help serve those ends. But it is only the shareholder who votes in the Board of Directors who in turn hire the corporate managers and leadership. We citizens share the business risk with these managers and shareholders because we calculate royalties on net profits. We Albertans therefore only want quality companies with good corporate citizenship cultures and strong ties to our communities to be developing our resources.

The royalty payments are for access to the owner’s resources and they are rents - not taxes. They do not depend on income nor usually are they based on profits. In Alberta we risk share with the oil sands industry by only applying our royalty returns as a percentage of net profits. Albertans depend on these enterprises being profitable so we can get any royalty payment at all.

So to have some of them threaten to leave the province if we charge a competitive rent for our resources tells me something about their character and judgement. I, along with other Albertans, will start to wonder if they are the kind of enterprises we need to be doing business with in the first place. I am not tarring everyone in the Patch with this brush. I know and have worked for many oil companies who are amongst the very best operations and people I have ever met. But there are some who have forgotten who owns the resource and how it is supposed to work. That is mostly the fault of our past government the way I see it. An that has to be changed and straightened out real fast.

The energy industry is no doubt beavering away at their economic models and the impact the full implementation of the “Our Fair Share” would have. They are going to resist change because it is not in THEIR best interest. Government is about finding the balance – not the compromise – that best serves all of our interests.

The “Our Fair Share” Royalty Review is by far the best option for government to choose when all things and everyone’s interests are considered.