Not Everyone In the Oil Patch is Threatening to Leave Alberta

It appears that the energy industry is not of one mind when it comes to the impact of increased royalties recommended in “Our Fair Share” review report.

The Calgary Sun is reporting that Enbridge is not following the herd using the same speaking points in the news releases that have recently been promulgated by some energy industry doomers and gloomers.

Interesting in this same Calgary Sun story is comments that clarify (sic) Talisman’s position. They are now repositioning their attempts to punish Alberta. Now they believe “…that public opinion isn’t fully informed.” They say “One of the reasons for Jim’s letter is to educate and inform – it’s important for the public to be aware.” “Jim” I believe is a former Talisman CEO. Shareholders must be wondering why is he still speaking for Talisman instead of the current CEO?) Could there be a difference of opinion between them?

So are we to understand that, as a public service, Talisman issued a news release saying they are pulling $500m of investment out of Alberta because of the “Our Fair Share” Royalty Review Report. Of course that is the reason. What else could it be?

Yes, upon reflection, I do feel much more “educated and informed.” I have a much more educated and informed. Now, thanks to Talisman tactics, I am much more capable of forming an “opinion.” I have a much clearer and more committed opinion of the kind of company Talisman is and how they “communicate.”

They say Talisman’s vow to divestment “is not meant to be threatening.” I don’t feel threatened. I feel insulted. And I think the recent polls showing 88% of Albertans - who actually own the oil and gas - and who believe the oil patch should pay more – are all also insulted.

Citizens of Alberta have never been so focused, so furious,at so many levels and in so many ways over their government's incompetence and the arrogance and intimidation efforts by some energy industry players.

Please appreciate this public opinion poll result is not intended to be threatening to Talisman or the Government of Alberta. It is meant to be a clear message that things are about to change. Those changes will be in royalties, revenues and relationships with both our government as our trustee and the energy sector as our tenants.

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.

Talisman Says Its Reducing Alberta Investment Too - But Is It Really Due to Royalties?-

Here is the continuation of the energy industry political strategy – unnerve small town and rural Alberta – the Stelmach “base” - with fear mongering. Talisman is now musing in yet another “open letter,” this time to Premier Stelmach about withdrawing $500m of activity from Alberta if royalties go up.

It is a mere coincidence I am sure that on September 7th Talisman signalled in the Financial Post they were already thinking of cutting spending in Canada and the US by as much as 32% “…due to weak natural gas prices.”

This is positioning and posturing and classic issues framing to divert attention for the real issues. Royalties are too low and there is lots of room for them to go up. Secondly, our government have been breathtakingly inept at reviewing them and collecting them.

The Federal LIbera Adscam was touted as a $250m scam that was proven to be more like $40 million by Gomery in the end - and much of that loss was due to fraud. But it brought down a government, crippled the Liberals and may well have destroyed that political party in the process.

We have no indications of fraud at all in this Alberta royalty sham. But the Auditor General says we have about a $6BILLION loss due to royalty leakage caused by governance drift, incompetence and ineptitude.

Step 1 for Stelmach was to set up the royalty review. Good for him.

Step 2 for Stelmach is to implement it becise it is timely and fair and Albertans want it to happen. Otherwise;

Step 3 will see a lot of PC MLAs cleaning out their Legislature desks after the next election.

As Encana Leaves Alberta, Others Are Moving In!

EnCana, Talisman and Crescent Point Energy Trust have recently announced intentions to move investment out of Alberta because Albertans are being told by an expert panel and the Alberta Auditor General to demand competitive rents for their natural resources.

Others are moving in like Taqa from Abu Dhabi, British companies are scouting around to join the Chinese, Koreans, Norwegians, French and others as investment in Alberta’s energy sector continue to be vibrant and robust.

One EnCana shareholder recently told me he sent a letter to the Board questioning its logic about pulling out of Alberta, because it is the fastest growing, most stable and safest place on the planet to be in the energy business.

I was also pleased to see the recent announcement by Suncor Energy, that they are staying and investing in more cost effective technologies to replace natural gas as a clean heat and electricity source for their operations. Suncor is one of the most progressive and enlightened corporations in Canada, and this technology investment announcement proves it once again.

They have just found "several major investors" who are ponying up $100 million into GreatPoint Energy Inc. which has a technology to gasify coal, petroleum coke and biomass into natural gas. The process produces a pure stream of methane, produced much needed hydrogen and removes or captures mercury, sulphur and CO2 which Suncor intends to use for sequestration purposes. CO2 sequestration is a key initiative towards getting more production efficiency out of old oil wells in addition to reducing GHG emissions.

Oxford Properties are reported in the Globe and Mail today as giving "the green light to the second phase of a 1.2 million square foot office tower" in downtown Calgary with construction to start immediately. The story notes that this announcement brings the total "...amount of office space being constructed in downtown Calgary to around 5.6 million square feet." Toronto has only 3.4 million Square feet of space under construction. Who owns Oxford Properties? The Ontario Municipal Employees Retirement System...yes sir - an Ontario Pension Fund is bullish on Alberta too.

The industry bullies send out press releases, call people names and buy full page ads as “Open Letters to All Albertans” trying scare us with scenarios of economic doom and gloom and threats to leave Alberta.

There is a funny thing about Canadian values and paid advertising. A public opinion study showed that 80% of Canadians react negatively to such advocacy advertising…we think if they have to use paid advertising, they must have something to hide. Hmmm!

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.”