Stelmach Government Now Admits Concerns About Pace of Development

Premier Stelmach’s government has done the right thing by cancelling the lease deal with Oil Sands Underground Mining Corp (OSUM) relating to Marie Lake because it did not serve the public interests. Protecting the public interest is Job #1 of democratically elected governments.

What is equally reassuring about this action by the Stelmach government is comment by the Minister of Energy that “for the first time…he had factored in Albertans’ concerns about the rapid pace of development. YES! That is a major step forward in an effort to have our government deal in a practical way with the need for responsible and sustainable development of our non-renewable natural resources.

OSUM is now reported to be threatening to sue the Stelmach government. Fair enough if they do not get what they are entitled to under the law. That entitlement, according to the Mines and Minerals Act of Alberta, means they get reimbursement for there development, engineering and planning costs.

However, OSUM wants more. They indicate they are intending to sue for opportunity costs for no longer having access to what they claim was a potential of 50,000 barrels a day of oil from an alleged reserve potential of 252 million barrels. Good luck. The legislation empowers the Minister to cancel a lease at his discretion when he is of the opinion that any further exploration or development is not in the public interest.

I truly hope the litigation goes forward because it would clearly establish the priority role of the Crown relating to natural resource management and development. The energy industry is working for the government on behalf of citizens when it gets a license or a lease to exploit our resources. When it proceeds and plans to do its exploitation profitably the industry is working for the benefit of its shareholders, the owners of the companies. Both masters must be served but they are very different masters.

The media reported comment by a well respected Calgary based energy lawyer is helpful and telling as well. He is quoted as saying he was “surprised the government would break a contract under public pressure.” It should come as no surprise that the public common interest concerns would trump an individual enterprise concern. The public interest is almost always paramount and the only protection an individual citizen (not a corporation) has is the Charter of Rights and Freedoms.

As for the potential lawsuit by OSUM for compensation for opportunity costs, the energy lawyer is quoted as saying “If the province has caused damages, as it has in this case, there seems to be a ‘plausible claim.’” Agreed, OSUM should get their out of pocket costs back – not their opportunity costs. Alberta Energy should never have issues that lease under those circumstances in the first place.

I was fascinated by the use of the word “plausible” to describe the OSUM claim for opportunity damages on the Marie Lake lease cancellation. So I went to my Pocket Oxford Dictionary and looked up the definition of plausible. Oxford was it means to be “specious, seeming reasonable or probable; persuasive but deceptive. Pretty much says it all don’t you think?

Danny Williams' Win Has Major Messages for Stelmach

Premier Danny Williams shows the way to electoral victory and there are lessons for Premier Stelmach in Alberta. Williams campaigned on strength pride and determination…values that will resonate in today’s Alberta too.

He also took on Big Oil for a fair share and negotiated government ownership equity deals for off-shore energy projects. Alberta in the early days was much like Newfoundland and Labrador today. They had government ownership positions in various energy projects in the early days and they morphed into the highly successful Suncor, Syncrude and EnCana entities of today.

The political lessons for Alberta coming out of Williams getting 70% of the popular vote was in no small part from his taking on Big Oil in the service of the greater good of all the citizens of his province. Premier Stelmach can take heart form these results and the pending consequences of some serious political decisions he is about to make on royalties and the role, relationships and the responsibilities between his department of Energy and the energy industry.

Stelmach, when perceived as a ditherer, saw his party’s fortunes dropped quickly to 39% in recent polls. When the “Our Fair Share” Royalty Review Report came out and Premier Stelmach said he would study it and would make a decision on royalties in a month. No more Mr. Dithers and no superficial responses either. Premier Stelmach also said he would not be “intimidated” by Big Oil he jumped to 45% support. Big Oil has been trying to intimidate him ever since the "Our Fair Share" Royalty Review Report was released.

The major political lesson from yesterday's win by Williams shows that siding with the voters/citizens interests over Big Oil is the way to go. Making a carefully considered royalty decision with a long term view of getting a fair share of non-renewable royalties for current and future generations of Albertans will put Stelmach’s support in the Williams’ territory of 70%.

If Stelmach instead decides to call a snap election this fall he will forfeit all this upside potential.

DOB Magazine On-Line Article Shows Insight

Here is a very insightful article on line and from the DOB magazine on the impact of the oil industry growth at any cost mentality. Nice to see this perspective being published in an industry publication. Maybe more in the energy sector will come to realize that what they are enjoying is not good for everyone. This article is a testimony to that reality…and written from a Calgary consciousness.

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October, 2007
Alberta Royalty Review
Fairness And Envy: Human Factors That Fuel The Royalty Debate
By Mike Byfield
Six months ago, the topic of higher petroleum royalties rarely cropped up in coffee shop chatter or the mass media. Now most Albertans are aware of the subject, and a large majority appear to favour drawing more energy dollars into the public treasury. "I'd like to see more funding for education and environmental protection," says Bertram Rampersaud, a Calgary masseur and father of four. "I'm not too concerned about hurting the oil and gas business, it's very rich. The people who drive those Porsches and Ferraris will still be parking them in their driveways after the province collects more money."


A handful of randomly chosen individuals - interviewed in Calgary's 17th Avenue Hard Disk Caf� and the Chinook Mall - conceded without exception that they knew little about Alberta's royalties system. Their attention focused mainly on high salaries and bonuses, cited repeatedly as irrefutable evidence of the petroleum industry's wealth. "I'm no expert in this field but I think the oil companies will make money whether or not royalties are raised," says Don Ward, who markets medical equipment to hospitals and clinics.


Several interviewees prefer to reveal only their first names. Among them is Donna, an energy service company bookkeeper who comments, "My husband and I have known a number of managers in the oil and gas industry, some of them as neighbours. Every one of them has made a fortune. Even when they got laid off in the busts, they got paid a bundle each time and none was ever out of work for more than a couple of months. Please don't tell me that those companies can't afford to contribute more to the community."


The prospect of an economic slowdown doesn't much perturb Stan, a construction estimator. He believes the oil and gas boom has intensified Calgary's cost of living, traffic jams and crime rate. "Service has gotten much worse. The buses are so late that it's a joke. Overall, our quality of life has deteriorated drastically in the past few years, especially for anyone who isn't pulling in big money," says the semi-retired builder. He also notes that Alberta's economy remains manufacturing-poor and overdependent on the energy sector.


Joanne, a middle-aged executive secretary with an oilfield manufacturer, says her employers have made personal fortunes since oil prices began surging three years ago. Although the firm moved into the red recently, she suggests that higher royalty payments from producers might help spread wealth more evenly. "I'm all for rewarding hard work, really I am. But there should be more balance. A single mom raising a couple of kids is working just as hard as anyone."


Bernice is a veteran administrator with a municipality outside Calgary. "Local governments have been struggling so hard for a long time to keep pace with the growth," she says. "The petroleum industry has new equipment and they spend very freely. If the province shares its extra royalty revenue with local governments, the result would be better for everyone."


David sells safety gear, mostly to oil and gas clients. "My sales are still okay but less than last year for sure. I think the companies are regrouping now. They're still building a lot of rigs, it looks to me like some big projects are being prepared," says the thirtyish Calgarian. He does not favour higher royalties, though. "Governments get too much money as it is. They're wasteful and higher royalties would just encourage more waste."


In fact, skepticism is common concerning the likely benefits of higher provincial oil and gas revenues. "The companies will lay off people to protect their profits so I doubt that the there'll be any overall benefit to ordinary Albertans," cautions Don Ward. Rampersaud agrees, "It would be wonderful if my children would get a better education but very little of that money is likely to get through to families that feel fortunate to go out for pizza once a week," the masseur comments.


Despite that cynicism about who benefits from public sector spending, polling by Leger Marketing over the past month indicates that 88% of Albertans favour higher royalties. Premier Ed Stelmach's personal popularity has risen to 45% on the strength of this issue, up from 39% in June. Two thirds indicated support for a 20% increase in oil and gas royalties and other recommendations from the recently released report of an Alberta royalty review panel. The industry's response - that higher royalties could trigger an economic downturn - does not appear to have generated much public alarm.


Brent Applegate, technical director for a roofing materials manufacturer, acknowledges that higher royalties could prompt a pullback in new capital investment. "Housing prices in Calgary are already off by 10% over the past few months and we've never seen so much new product for sale," says the former president of the Canadian Association of Home and Property Inspectors. "Prices could go quite a bit lower if the energy sector retreats in terms of new investment." On the other hand, Applegate suggests that lower house prices would improve affordability and he personally leans toward a modest raise in royalties. "The oil isn't going to go anywhere, it will likely be worth more later in any case and the producers will come back."


Norman Ward (who's not related to Don, above) wrote an oil and gas royalty review for the Western Stock Growers' Association (WSGA) earlier this year. The rancher recognizes that Alberta's economy could take a steep nosedive if the provincial government drives out too much new investment. "I haven't forgotten the 1980s, when the population of Brooks fell from 8,000 to 4,000," the rancher remarks. "Because energy and agriculture are entwined in so many ways, higher royalties could have both good and bad effects on our industry."


Specifically, the WSGA wants petroleum producers to pay market value (as opposed to agricultural value) for surface rights. "If the province takes a lot more money, agricultural operators are not likely to get more," predicts Ward, who sits on the association's board of governors. On the other hand, he notes that oil and agriculture compete directly for labour, machinery parts and some other services. "If the oilsands and drilling back off, the guy who's been making $40 an hour in the patch will work on a ranch for $15," the southern Alberta rancher says. "On balance, I'd estimate that what's bad [financially] for oil and gas probably benefits our industry."


Municipal politicians are campaigning for their upcoming election on October 15. Morris Flewwelling, running for his second term as mayor of Red Deer, says citizens of his city have distinctly mixed feelings about higher royalties. "Everyone sees big money being made in oil and gas. We've seen young businessmen who've accumulated millions in Red Deer, and no one wants the government to leave public money on the table," he points out.


On the other hand, the mayor acknowledges that oil and gas underpins much of Red Deer's economy. "No one wants the government to cripple the oil and gas industry. My own sense is that the balance is tipped slightly toward the energy sector, although I have no clue where the right point actually lies," Flewwelling says. "People are still confident that Stelmach will figure that out for them and make the right call."


Wayne Ayling, hitting the hustings for a third term as mayor of Grande Prairie, says voters seem pleased that Stelmach has conducted an unfettered, open review of royalties rather than cut an inside deal with the industry. On the other hand, it's clear to him that the main players on both sides "need to go into a room and make a consensual change. No one wants a war." Ayling does not feel that the popular temper has reached a boiling point which might impede a rational economic decision on the part of politicians. "As I go door knocking around the city, the royalties issue has not come up," the mayor reports.
© 2007 Copyright Nickle’s Energy Group. All rights reserved.
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TSX Presidents Tries To Reassure Alberta's Energy Sector on Royalties

Copied below is an interesting bit of advice that the conventional oil and gas sector in Alberta was being given by the President of the TSX today.

Notice in these comments there is no mention of social license to operate, corporate social responsibility, environmental responsiveness, reclamation responsibility, concerns over fragmentation of the land and destruction of habitat. There are no comments about the need for conservation, new technology adoption, enhanced community relations and civic engagement or anything at all about integrated land management and the overall sustainability of the industry in the normal marketplace thrust and parry of the marketplace in these comments.

If this industry wants "stable, transparent and predictable policy and regulatory frameworks," and they should, they have a lot more issues to consider beyond just “listing, financing and trading.”

Albertans are reading the “Our Fair Share” Royalty Review Report and the Auditor General’s recent report and they are going to be demanding a much higher standard – from both the conventional energy sector and the government of Alberta.



TSX Venture Exchange President Speech To Small Explorers And Producers Association Of Canada (SEPAC)
09/10/07
In remarks today to the Small Explorers and Producers Association of Canada (SEPAC), TSX Venture Exchange President Kevan Cowan said TSX Group’s exchanges have made a positive contribution to the energy sector in listing, financing and trading. He offered these comments on the recent recommendations from the Royalty Review Panel. ”A stable, transparent and predictable policy and regulatory framework is key to the success of any industry sector. As you all know, providing a stable, predictable and clear business environment is key to the success of

Alberta's oil and gas sector and an important objective for the province's overall economy. We are confident that the Alberta Government will carefully review the Royalty Review Panel's recommendations and continue to enhance the investment climate for this province's key industrial sector.”

TSX Group is a leader in the oil & gas sector - more oil & gas companies are listed on Toronto Stock Exchange and TSX Venture Exchange than any other exchange in the world. At the end of June 30, 2007, there were 434 oil & gas companies with a total market capitalization of $544.9 billion listed on Toronto Stock Exchange and TSX Venture Exchange.

He also explained to the SEPAC members that TSX Venture Exchange is well-positioned to represent the interests of junior companies. “We have the advantage of being part of a larger group – an international leader in financial markets. At the same time, we are focused on the needs of small companies and we understand the oil and gas sector. I look forward to working with your association on public policy issues of concern to the industry, and to assisting those of you who are seeking ways to raise capital.”

Edmonton Chamber of Commerce Takes a Position on the Alberta Royalty Review Report.

Edmonton Chamber of Commerce has taken a public position on resource royalties, and I like it. They step up to the plate and into the fray.

It takes the conservative position by asking the government of Alberta to “verify” the Review Panel’s findings on the potential economic impacts of their recommendations. Since the data used was all supplied by the government and the personnel and consultant data was all from government sources or those previously used by the government, verification should not be a problem.

Next the Edmonton Chamber confirms and agrees with the “Our Fair Share” Royalty Review goal of a simplified and very specific royalty framework. The energy industry in Alberta is changing and has many aspects from conventional oil and gas, to oil sands to coal bed methane. One royalty regime will not fit all but that does not mean the systems cannot be simplified.

They next ask for a staged and measured approach to rate changes and to provide more certainty to say the new rates will have a commitment for a certain period of time. That is a safety valve for some aspects of the industry to adapt, like the conventional gas sector for instance. The stated commitment of time for the rates before another review is a bit unrealistic but one can understand the motivation. On one side certainty for no change in rates for say 10 years will help industry with certainty. On the other hand we are in a market-based commodity reality where prices can drop as much and as often as the rise. In the 80’s under Premier Getty we actually say lots or rate cuts and holidays due to low commodity prices. So it may be a better model to have a formula that ties reviews to prices in case they drop but keep the severance tax in case they rise.

The last request of the Edmonton Chamber is the simple yet eloquent kicker! “Respond to any lapses in stewardship of the resources.” That is the elephant in the room for government and it goes to the heart of the Auditor General’s Report. This is not business telling government how to do its “business.” But it is saying they better attend to the business of government – especially the stewardship aspects – much better. LOVE IT!

The brilliance of the Edmonton Chamber’s position is that they also focus on what to do with the extra revenues the royalty increases will generate. They say cut taxes by 10% on the personal and 1% on corporate taxes. They are a Chamber of Commerce so this recommendation is to be expected. However, the Edmonton Chamber also says to use the additional money to “improve infrastructure” with a focus on high growth regions in the “northern extraction and processing regions.” That means the Wood Buffalo/Fort McMurray region that has been ignored for 10 years. It also means the Edmonton region, without serious co-ordinated regional planning around the various growth demands the new upgraders will cause, this city will turn into a new Fort McMurray - only this time the problems will be affecting ten times the population. It could be devastating.

Finally they push for some protection of the environment, again an idea contained in the Bill Hunter authored “Afterword” in the back of the “Our Fair Share” Royalty Review Report.

I have the odd quibble but overall I have to congratulate the good work and good ideas from the Edmonton Chamber of Commerce.