I have done a quick read of the CAPP Technical Review Executive Summary of the “Our Fair Share” Royalty Review Report. CAPP is a very professional and respected organization with expertise available in it and to it to do such a Technical Review of the “Our Fair Share” report. I, on the other hand, am just a layman, and have not yet read the full report. However, I do find some representations in the Executive Summary curious.
I don’t know on what basis they say “Flawed Data” and that “The Panel did not take into consideration all of the data made available to them through the review process.” How could they know that, even if it were true? How do they know what was available to the Review Panel and what was not considered? We need a bit more evidence of this allegation, and it may be provided I the body o f the Review. I will definitely be looking for it.
The Panel based their recommendations on “severely understated industry costs.” The accusation is they (the Panel) used as range of between $4 – 6 Billion for a typical oil sands project. CAPP claims, and rightfully so, that such projects are ending up costing between $10 – 11 Billion. However CAPP omits the fact that all of those costs are totally recoverable by the industry during the 1% royalty rate until full project recoupment. In fact this 1% royalty rate until all project productions costs are recovered means less rigour is put on management to review and reconsider a project when costs are doubling as would be the case in a normal business model.
At record oil prices many projects have fully recovered these excessive project cost overruns in as little as 4 years. In any event, it is Albertans who are actually paying for these extreme project cost overages by virtue of our deferred royalties. So why is industry taking issue with this a saying the Panel is making a mistake of using “incorrect costs?”
I am inclined to have such projects that will do not meet presented budget targets in the original EUB process for approval go back to the EUB to show why their original project budget was so inaccurate. It is Albertans, after all, who are paying for these additional costs because of the 1% royalty rate until all such project costs are recovered. Albertans get no say in how much a company decides to pay or overpay in the end, once the proponents have an EUB project approval. That makes little sense.
Why don’t we require such projects to do a study and hold a further hearing to satisfy the EUB on what the cumulative impacts and secondary consequences are from such cost overruns? What do they do to the availability and increased costs of trades, supplies, equipment and materials? What impact will such excessive project overruns have on the costs of other necessary projects like schools, roads and hospitals who have to compete on price with energy companies?
Perhaps a project that is so inaccurately budgeted should have to justify the additional costs and perhaps even have to adjust the timing of the project so they don’t skew the labour and construction costs for other sectors. The astonishing cost escalation of the 23rd Street Overpass in Edmonton to some $250M in less than a year is a case in point on how this behaviour affects other sectors. Property taxes will also have to go up in Edmonton to pay for this inflated overpass project costs. This is because of the increases caused by competition with energy projects for everything from labour, to supplies, equipment and materials.
So the energy projects can blithely pay whatever they wish so long as oil prices stay high and Albertans eventually pay such additional project costs by our deferred royalty regime. The taxpayer gets it in the ear again by increased taxes or borrowing costs for much needed public infrastructure or the local government end up deferring those other very necessary projects hoping prices will come down.
And in the face of this the Technical Review accuses the Panel of using “Incorrect Costs?” Ironic isn’t it!
Tuesday, October 16, 2007
Alberta's Oil and Gas Industry Has Some Public Perception Problems
There has been some mention in comments on this Blog that want to compare the energy industry and the forest sector in Alberta. We did a survey in 2005 of almost 3000 Albertans on behalf of the forest industry looking into what they needed to do to enhance their social licence to operate.
Forest v. Oil and Gas
Comparison of two important Alberta industries:
Percentage ranking of Excellent and Very Good Performance:
The first number is the forest industry, followed by the oil and gas sector:
Concern with long term sustainability of resources: 83.7 vs. 63.1
Demonstrates environmental planning and mtg: 80.0 vs. 63.9
Gets attention/support of government: 77.3 vs. 88.9
Supports research and applies technology: 80.5 vs. 87.3
Is accountable on how it uses forest lands: 69.7 vs. 51.2
Coordinates with other sectors, communities and users 62.0 vs. 54.9
Is aware and respects needs of forest wildlife 61.7 vs. 47.2
Part of the work we did was a comparison of Albertans impressions of the performance of the two industry sectors on some key criteria on responsible and sustainable business practices.
You can see from the table there is a statistically significant difference between the two industries in every aspect under review. The most significant perceptions about the conventional energy sector was the low ranking in awareness and respect of wildlife habitat, which was found to be one of the most significant value drivers for Albertans in the use of their forests.
The low level of the energy sector’s accountability in how it uses the forest is telling as well, especially when it is a fact that the oil and gas sector cuts down more Alberta trees each year than the entire Alberta forest industry.
On the other hand, the perceptions amongst Albertans are that the energy sector get much more attention and support form government than the forest industry. Given the differences in relative size and economic significance this is hardly a surprise. One positive perception comparison for the energy sector is its use of research and technology.
The key finding is that the forest industry is perceived as an overwhelmingly better resource steward than the energy sector. This perception is not becoming reality as some of the energy sector players have tried to scare and intimidate government and suppliers over the “Our Fair Share” Royalty Review.
A recent poll is showing 88% of Albertans think royalties in the energy sector should be higher. Our findings of 2 years ago illustrated the poor perceptions Albertans’ have of the energy sector’s resource management and stewardship responsibilities.
The new focused political pressures from the royalty review and the Auditor General, and the crystallizing impact they have had on engaging citizens, the energy sector may want to revisit its strategy about threatening to pull out investment that will only punish suppliers and local communities.
Forest v. Oil and Gas
Comparison of two important Alberta industries:
Percentage ranking of Excellent and Very Good Performance:
The first number is the forest industry, followed by the oil and gas sector:
Concern with long term sustainability of resources: 83.7 vs. 63.1
Demonstrates environmental planning and mtg: 80.0 vs. 63.9
Gets attention/support of government: 77.3 vs. 88.9
Supports research and applies technology: 80.5 vs. 87.3
Is accountable on how it uses forest lands: 69.7 vs. 51.2
Coordinates with other sectors, communities and users 62.0 vs. 54.9
Is aware and respects needs of forest wildlife 61.7 vs. 47.2
Part of the work we did was a comparison of Albertans impressions of the performance of the two industry sectors on some key criteria on responsible and sustainable business practices.
You can see from the table there is a statistically significant difference between the two industries in every aspect under review. The most significant perceptions about the conventional energy sector was the low ranking in awareness and respect of wildlife habitat, which was found to be one of the most significant value drivers for Albertans in the use of their forests.
The low level of the energy sector’s accountability in how it uses the forest is telling as well, especially when it is a fact that the oil and gas sector cuts down more Alberta trees each year than the entire Alberta forest industry.
On the other hand, the perceptions amongst Albertans are that the energy sector get much more attention and support form government than the forest industry. Given the differences in relative size and economic significance this is hardly a surprise. One positive perception comparison for the energy sector is its use of research and technology.
The key finding is that the forest industry is perceived as an overwhelmingly better resource steward than the energy sector. This perception is not becoming reality as some of the energy sector players have tried to scare and intimidate government and suppliers over the “Our Fair Share” Royalty Review.
A recent poll is showing 88% of Albertans think royalties in the energy sector should be higher. Our findings of 2 years ago illustrated the poor perceptions Albertans’ have of the energy sector’s resource management and stewardship responsibilities.
The new focused political pressures from the royalty review and the Auditor General, and the crystallizing impact they have had on engaging citizens, the energy sector may want to revisit its strategy about threatening to pull out investment that will only punish suppliers and local communities.
Saturday, October 13, 2007
Warren Buffett Likes Alberta's Oil Sands As An Investment
UPDATE: August 19, 2008...Bill Gates and Warren Buffett visit the Alberta oil sands
Bad news for the Alberta oil sector doom and gloom propagandists - and it is coming from Warren Buffett. Buffett says he had spent time avoiding the oil sands as an investment. On Thursday in Toronto he told an international audience of 140 prominent investors from all over the globe he has changed his mind.
The Toronto Star story gives his reasons as follows:
"Buffett, who has made substantial resource investments this decade, after a history of avoiding them, is now interested in the Alberta oil sands. His rationale is that it is a known resource, says Hull, who manages money for clients of Berkshire Securities Inc., recently acquired by Manulife Financial Corp.
In contrast to speculative drilling, oil-sands projects are mining operations where the size of the reserves is known. One can calculate with relative certainty the breakeven requirements over 10 years. And production costs tend to drop as the extraction and processing technology improves. "
For those who say they are going to be pulling out of their oil sands related investment in Alberta because of the royalty review - call Buffett - he is coming into the market. As an Albertan I would welcome him.
For those of you who will be leaving us, presuming you were not scaremongering or merely pulling our legs - good bye. I presume you will be considering transferring your efforts to Venezuela's oil sands. The weather is nice there even if the political and investmate climate is not. But it is a free country - at least in Canada...so do as you wish.
Bad news for the Alberta oil sector doom and gloom propagandists - and it is coming from Warren Buffett. Buffett says he had spent time avoiding the oil sands as an investment. On Thursday in Toronto he told an international audience of 140 prominent investors from all over the globe he has changed his mind.
The Toronto Star story gives his reasons as follows:
"Buffett, who has made substantial resource investments this decade, after a history of avoiding them, is now interested in the Alberta oil sands. His rationale is that it is a known resource, says Hull, who manages money for clients of Berkshire Securities Inc., recently acquired by Manulife Financial Corp.
In contrast to speculative drilling, oil-sands projects are mining operations where the size of the reserves is known. One can calculate with relative certainty the breakeven requirements over 10 years. And production costs tend to drop as the extraction and processing technology improves. "
For those who say they are going to be pulling out of their oil sands related investment in Alberta because of the royalty review - call Buffett - he is coming into the market. As an Albertan I would welcome him.
For those of you who will be leaving us, presuming you were not scaremongering or merely pulling our legs - good bye. I presume you will be considering transferring your efforts to Venezuela's oil sands. The weather is nice there even if the political and investmate climate is not. But it is a free country - at least in Canada...so do as you wish.
Friday, October 12, 2007
Gore Wins Nobel Peace Prize
Way back in February I predicted that Al Gore would win both an Oscar and the Nobel Peace Prize this year. Congratulations Mr. Gore. I also called the selection of Ed Stelmach as the winner of the Alberta Progressive Conservative leadership and Premier of Alberta as well as Stephane Dion’s win of the federal Liberal leadership last December 2. So I am thinking of buy a deck of Tarot cards and turning professional.
In the meantime I am now predicting no fall federal or Alberta provincial elections. The only way we will get a federal election is if Harper forgets to put on a policy condom and does not practice safe-politics. There is no doubt Harper is intent on trying to screw Dion and if Mr. Harper doesn’t wear protection - an “accident” could happen.
That accident would result in an artificially induced premature election. The end result would a new born minority Dion government or a born-again minority Harper government. Another inevitable result of an election accident will be a serious possibility for some still born political careers for party leaders. That includes Mr. Harper’s leadership position. This could happen if he is perceived to have engineered an unnecessary election and as a result the nation turns on him…and I don’t mean the Quebec nation.
Steps and strategies are being planned to avoid the Conservative’s “con” of declaring everything being a “confidence vote” - starting with the Throne Speech. It would be funny and sad to see the Liberals being aggressive in the Throne Speech debate but ending up staying away from the vote so as not to bring down the Harper government and forcing an election.
It would be even funnier and even sadder if the Cons stayed away at the last minute from their own Throne Speech vote too. That would leave the Bloc and the Dippers to vote against it and thereby forcing an election. An election now is what Harper wants and by staying away from a vote on the Throne Speech – the Bloc and the Dippers alone could decide it is time for an election.
This game of vote extortion and political chicken over Harper’s push for an election is classic Harper and shows his penchant for clever politics. When partisan politics and personal power aspirations of the Cons and Mr. Harper over-ride the interests of the nation and its citizens this kind of absurdity can happen.
I am not predicting this turn of events…after all I am on a winning streak prognostication-wise and have to guard my reputation. However, I would not be surprised, only dismayed, to see Harper engineer his defeat on the Throne Speech with such tactics in order to make it look like someone else forced an election on him.
Harper has said everything his government will introduce in the next session of Parliament, starting next week, will be a confidence vote. Given Harper’s Cromwell-like lust for even more centralized political and personal power, if he doesn’t play this voting trickery with his caucus staying away from a vote next week, we can expect it sometime – anytime?
I will predict one thing, with this bullying attitude of Harper and his proclivity for power-grabbing political tactics, Canada can expect uncertainty and anxiety as the dominant over-arching reality for awhile.
Good government is almost always good politics. “Good politics” is almost inevitably bad government. This lack of good government and the excessive exercise of politics by tactics by the current Harper regime are not good for the nation and not good for the economy.
In the meantime I am now predicting no fall federal or Alberta provincial elections. The only way we will get a federal election is if Harper forgets to put on a policy condom and does not practice safe-politics. There is no doubt Harper is intent on trying to screw Dion and if Mr. Harper doesn’t wear protection - an “accident” could happen.
That accident would result in an artificially induced premature election. The end result would a new born minority Dion government or a born-again minority Harper government. Another inevitable result of an election accident will be a serious possibility for some still born political careers for party leaders. That includes Mr. Harper’s leadership position. This could happen if he is perceived to have engineered an unnecessary election and as a result the nation turns on him…and I don’t mean the Quebec nation.
Steps and strategies are being planned to avoid the Conservative’s “con” of declaring everything being a “confidence vote” - starting with the Throne Speech. It would be funny and sad to see the Liberals being aggressive in the Throne Speech debate but ending up staying away from the vote so as not to bring down the Harper government and forcing an election.
It would be even funnier and even sadder if the Cons stayed away at the last minute from their own Throne Speech vote too. That would leave the Bloc and the Dippers to vote against it and thereby forcing an election. An election now is what Harper wants and by staying away from a vote on the Throne Speech – the Bloc and the Dippers alone could decide it is time for an election.
This game of vote extortion and political chicken over Harper’s push for an election is classic Harper and shows his penchant for clever politics. When partisan politics and personal power aspirations of the Cons and Mr. Harper over-ride the interests of the nation and its citizens this kind of absurdity can happen.
I am not predicting this turn of events…after all I am on a winning streak prognostication-wise and have to guard my reputation. However, I would not be surprised, only dismayed, to see Harper engineer his defeat on the Throne Speech with such tactics in order to make it look like someone else forced an election on him.
Harper has said everything his government will introduce in the next session of Parliament, starting next week, will be a confidence vote. Given Harper’s Cromwell-like lust for even more centralized political and personal power, if he doesn’t play this voting trickery with his caucus staying away from a vote next week, we can expect it sometime – anytime?
I will predict one thing, with this bullying attitude of Harper and his proclivity for power-grabbing political tactics, Canada can expect uncertainty and anxiety as the dominant over-arching reality for awhile.
Good government is almost always good politics. “Good politics” is almost inevitably bad government. This lack of good government and the excessive exercise of politics by tactics by the current Harper regime are not good for the nation and not good for the economy.
Thursday, October 11, 2007
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?
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?
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