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.
Thursday, September 27, 2007
Wednesday, September 26, 2007
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.
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.
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.
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."
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.
Subscribe to:
Posts (Atom)