Stelmach Finds the Balance in the Response to the Royalty Review

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

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

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

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

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

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

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

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

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

Bill Hunter Speaks Out On the Dr. Dwarkin Incident and the Alberta Royalty Review Report.

I got an interesting email on Saturday night from Bill Hunter, the Chair of the Premier’s Royalty Review Panel. He has been a friend and a client for many years and we have had a number of chats since the “Our Fair Share” Royalty Review Report came out. That said he sent me what I think is an important email and we had a chat about it Sunday night.

There has been an unfortunate set of circumstances around the controversy caused by Dr. Dwarkin, one of the review panelists. It arises from her subsequent co-authoring of a “Royalty Review Report” entitled “Looking for Rent in All the Wrong Places” done by her employer the Ross Smith Energy Group. That document detailed some criticism over specifics in some conventional gas aspects of the “Our Fair Share” document. Some differences of opinion were stated as well as some points of agreement with the “Our Fair Share” findings and recommendations were also noted.

But some of the observations, language and representations in the review seemed intent on casting aspersions as to the capabilities of the expert panelists. Ironically that would include Dr. Dwarkin, herself an expert panel member. The Ross Smith Energy Group allege that “short cuts” were taken, the modeling methodology used by the Panel was not proper, the panel lacked “requisite industry expertise” and they did not have enough time to do the job.

This approach could be interpreted as another attempt to undermine the credibility and capability of the panelists as well as cast doubts on the reliability of final Royalty Review Report. Ross Smith Energy Group is not the first to use or be seen to be using, these tactics. They are, however, the first to do so with the aid and apparent abet of one of the expert panel members, who just happens to be in their employ as well.

It leaves one wondering, what was the motivation behind the Dr. Dwarkin’s co-authorship of her employer’s document? She also seems to be trying to disavow its content and context in subsequent media and other comments. This is all the more strange when you consider that she was the panelists who led the Royalty Review’s work on the conventional oil and natural gas aspects review, analysis processes findings and recommendations.

With all the examples of intimidation and coercive tactics that we have been seeing from some energy industry players, questions naturally arise over the circumstances and the context surrounding what Dr. Dwarkin did. Why did she do it at all under the circumstances? You have to questions the timing as well. I wonder why it was done just before the meeting of the Panel with the Premier.

The facts seem pretty clear and complete surrounding the context and content of the Dr. Dwarkin and the Ross Smith Energy Group "review" incident. I will leave it for others to interpret and pass their own judgment as to the consequences, motives and implications of those facts and the parties involved. Citizens will no doubt draw their own conclusions. I have no further comment on those questions and issues other than what appears in my previous postings in this Blog.

So in light of all of that, here is the email Bill Hunter sent me on Saturday night. For the record, he has never asked for an advanced look see on anything I have written on this Blog including the Royalty Review Report. He has never asked for me to write anything about the Royalty Review Report either. That said he read this Blog and gave me permission to publish this email.

I suggest Albertans also consider Bill Hunter’s words in any judgment and conclusions they choose to reach about this incident. Albertans need and are entitled to have confidence in the appropriateness and thoroughness of the royalty review process. They must be able to respect the capabilities of the expert people involved. There has to be authority, authenticity and reliability in the analysis and methodology used in reaching the “Our Fair Share” Royalty Review findings and recommendations. I believe there is no reason for Albertans to have any doubts whatsoever about any of these points notwithstanding the Dr. Dwarkin incident.

So here are Bill Hunter’s opinions and observations on those matters.

"My friend

The Our Fair Share report is a culmination of learnings, analysis, debates, arguments (for and against), thoughts and personal believes … in the future of Alberta through some stringent Terms of Reference, asked of Albertans.

Six extraordinary (extraordinary because they gave up their lives for 7 months to volunteer to participate in a Panel to ascertain whether Albertans get their fair share of revenues from “their” non-renewable energy resources) Albertans, many of which are North America’s top minds when it comes to; Royalties, Taxes and Fees, Business, Economics, Sustainability, Production and being Albertan … elected to design and deliver a report that came from a position of what they believe is compromise and balance.

Each Panel member brought unique and solid strengths to the mix of intelligence and compassion for the topics being discussed. Judith Dwarkin is an example of that strength; her careers and exposure to/and in the Energy world were critical to the balance we found in our deliberations, I am indebted to her contribution and appreciate her ability to represent the industry’s positions.

Today, Oct. 20th, 2007 … I feel that there are still 6 Panel members who stand behind their report and its intent to be a starting point for the launch of a new regime that embraces “continuous improvement” and will ensure Our Fair Share for the Owners, the People of Alberta!

Proud to be an Alberta Royalty Review Panel Member and it’s Chair,

Bill Hunter"

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.

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.

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.