Alberta's Auditor General Says Higher Royalties Justified Even Beyond the Expert Panel's Recommendations

The Auditor General is calling for even higher royalty rates than the “Our Fair Share” Expert Panel according to a Calgary Herald story this morning. The AG says the Department of Energy has a royalty rate of about 66% to keep it competitive with other jurisdictions. Dunn says even a 70% royalty rate would still keep Alberta’s royalty rate competitive.

The story goes on to say: “The auditor general's comments come the day after the release of his annual report, where he said a lack of political leadership saw the government miss out on an additional $1 billion or more in royalties annually.

Dunn said that money could have been collected without stifling the industry.

The key quote from Fred Dunn is “What is the risk that the industry sees which would therefore justify the owners – Albertans – selling the resource for less than other jurisdictions.”

AG Report Will Be Stelmach's Waterloo or His Trafalgar

The Enlightened Savage is one of my favourite Bloggers and a regular read for me.

His wisdom is way beyond his years. His latest post (Waterloo or Trafalgar) puts forth a high definition picture on the political perspective for the PC Party and Premier Stelmach coming out of the recently released Auditor General’s Report.

Give him - and the AG a read.

Alvarez of CAPP Speaks to the Calgary Chamber on "Our Fair Share."

Today Pierre Alvarez the President of the Canadian Association of Petroleum Producers gave a speech to the Calgary Chamber of Commerce. His comments reflect the same issues as in the Tristone review of “Our Fair Share” but he does is so much more clearly…but not any more convincingly to my mind.

Again it is all about growth at any cost and the attitude seems to be that in the energy sector right now any cost can be absorbed - at $80 oil. There are concerns expressed about conventional oil and gas and again increased costs are stated to be the reasons Albertans can’t get a competitive rent for its resources.

These costs are not seen as something management has to make hard decisions about in the context of the marketplace doing its job. The attitude seems to be we don’t need to adjust our activity because of high costs. They are merely to be accommodated in the project and, in the case of oil sands, passed on to the citizens of Alberta under the current royalty regime.

If our conventional gas industry is uneconomic and uncompetitive because our costs are too high for the current market price of the commodity…adjustments should have to be made by management too. But again that is just the marketplace at work and doing its job. Why does nat mean all Albertans have to forego a competitive market rent for its non-renewable resource?

A unity trust operation is saying that because of the “uncertainty” of the royalty regime in Alberta it is moving its exploration activity into Saskatchewan. Is that a bad thing? Saskatchewan as a province needs to be a sustainable and reliable “have” province and that investment in its energy sector will help them get there.

You can watch the video or read the speech on the CAPP website. While I disagree with Pierre on many of his conclusions, consequences and he takes a few “shots” at the Panel, he is reflective and considered. He is one of the cooler heads from the industry. We all need that right now if we are to get this right.

What Alberta Needs Now is Leadership - Not An Election

I noticed side by side news stories in the Edmonton Sun today, one by the Auditor General saying the Klein government had let $6B of potential energy royalties slip through their fingers. The next story the Auditor General said the Alberta pubic infrastructure deficit was estimated $6B and growing.

Coincidence? Sure! But ironic nonetheless. Klein said he had no plan…so this is not a surprise is it? Had the previous Minister’s of Energy been on the ball we would have the money to deal with the infrastructure deficit.

We have a social deficit now too because our social services sector can’t keep staff because they can’t keep up with wages in the energy sector.

Premier Stelmach, I hear more rumblings about a potential November 2007 election. That would be a mistake as so many levels. Take the time to get some planning done and some changes made before we rush to the polls.

Why would we go into an election now other than fear of the trends in the current polls? Not a good enough reason. We need leadership and we have already had the campaign to choose you in that role last December. It is time to lead - not run! And besides, polls don’t matter, campaigns do. The consequences of an ill-conceived and poorly executed election result can last for a long time in our Alberta.

Tristone's Rebuttal of "Our Fair Share" is Unpersuasive.

The Tristone rebuttal of the “Our Fair Share” Royalty Review is not all that interesting or persuasive. It at least provides some serious analysis instead the rhetoric of others who have denounced the dire consequences of sharing fairly with Albertans.

They mostly say high costs and low prices for conventional and deep well gas means activity will decline drastically in the Western Sedimentary Basin if the "Our Fair Share" model is adopted and royalties go up for high producing profitable wells. They don’t for a minute suggest that idle contractors might reduce their prices to adapt to the marketplace realities. Tristone just seems to suggest the rest of us have to take a haircut on our economic rents instead.

They also say they make different assumptions and use different methodologies than the review panel did and surprise; they come up with difference conclusions. So what! The assumption behind the Tristone analysis seems to be that we have to keep the overheated economy and growth at all costs as a central goal. They essentially want maintain the status quo or to increase subsidies to aspects of the industry. That simply means the “benefits” are not to be shared fairly amongst all Albertans and the energy industry can continue to enjoy record profits on the backs of all other Albertans?

I love the Tristone quote at page 14 that says the Royalty Review Report “included inaccuracies, incorrect assumptions and leaps in logic that makes the data that drives the Panel’s conclusions highly suspect and requiring independent assessment.”

Fair enough, but the Auditor General Report comes to the same conclusions as the “Our Fair Share” Report. The Auditor General is a pretty independent assessor I’d say.

Tristone goes further to say “Without meaningful and accurate data, debate on royalty reform is not fruitful.” The AG and the Review Panel depended on the data provided by industry to the EUB and the Department of Energy. Please tell Albertans that the data supplied by industry is not “inaccurate.” It is the industry data after all.

Costs are high gas prices are low these days but times of late have been extraordinarily good. Perhaps some aspects of the energy industry have priced themselves out of the market and that is why they are not drilling. Maybe they need to sharpen their own pencils instead of asking All Albertans to forego a more than competitive rent.

Albertans are continuing to face unsustainable levels of economic activity. We need a breather and some time to catch up and to clean up the accountability of our government on energy revenue collections and calculations. If the conventional industry wants to keep busy in the meantime maybe they could start cleaning up the orphan well problems they have created and ignored. Maybe they need to spend some time to reclaim some of the unused roads, seismic lines and well sites they have ignored.

The tone I get from the Tristone analysis is it is all about growth at any cost and for protection of the conventional and deep well gas business in particular. Responsible and sustainable integrated growth is not in their consciousness based on what I read in this report. These are major concerns of ordinary Albertan however. And perhaps that is why this industry is currently having a difficult time earning respect for their positions on royalties.