Is Desperation Setting In as Some Try to Discredit the Hunter Royalty Review?

A comment on another post on the Blog about CAPP's claim in an Edmonton Journal Letter to the Editor that the Royalty Review Review Panel is no longer in full agreement on their recommendations is worth a post in itself. the anonymous commenter thinks because a consultant's advice on striking a balance between royalties or tax increases was not accepted by the Panel that the credibility of the whole report is suspect.

The commenter challenges me as to if I have even read the van Meurs Edmonton Journal piece. I have read the van Meurs op-ed and have it in front of me as I write this post.

Mr. van Meurs is not, and never was, a panel member or an author of the report. He was a consultant retained by the Review Panel to give advice. He wanted to see a higher severance tax and lower royalties as the approach to take to give Albertans their "Fair Share."

The expert panellists, who were actually tasked with the review job and appointed by the Premier decided a lower tax instead of a higher royalty was the best way to go.

So what? They disagreed but the process worked and a unanimous set of recommendations came out of the review panel.

Thanks to van Meurs' authenticity and integrity, Albertans got to see some of the differences and the range of options considered in the review. That is reassuring to me as to the quality of the deliberations.

This review process is a very different approach to openness and transparency in government than the cosy industry arrangements done behind closed doors in 2004.

Back then there was an internal review and a recommendation for royalty increases but they were refused by the Minister. Why? Because he felt there was enough cash flow into government already -not if is was fair to Albertans and no consideration of the resource ownership issues and the breach of the public trust such an attitude displays.

Or even consider earlier this year when the Energy Minister said, in the Legislature, that he had done an updated internal royalty review. Now we see that the AG finds out it that was not the case at all. Shame!

Remember also the intellectual dishonesty of some in the energy industry that used van Meurs' report on Alberta royalties from 10 years ago. They quoted old data at the public hearings on the Royalty Review to justify the status quo.

Yes. that is right. They had the gall to stand up in public and based on such outdated 10 year old information to say that there was nothing that needed to update royalties in Alberta. As if 1997 reflected 2007 realities and current public policy purposes.

The industry today says the panel used incorrect and non-current information in arriving at its recommendations. Too bad the Review Panel couldn't have put some industry players under oath at the public hearings to see if they would still so blatantly misrepresent the facts.

This attitude by some industry players - not all - is simply trying to play Albertans for suckers. It has been a successful industry strategy under the old Klein regime but it is not going to work anymore.

CAPP Incorrectly Claims "Many of the Authors Appear to No Longer Support"...the Royalty Review

Honourable people can disagree…and it happens all the time. Pierre is a knowledgeable and an accomplished spokesperson for the energy sector in Alberta. I know Pierre Alvarez the President of the Canadian Association of Petroleum Producers to be an honourable man. However, today I have to disagree with him, based on his letter to the Editor in the Edmonton Journal today.

The CAPP response is a classic example of “framing an issue” to fit a preconceived position and to be selective in presenting the facts. Mr. Alvarez takes two points and seeks to make them out to be major issues that ought to result in a conclusion that the “Our Fair Share” Royalty Review process and report is fatally flawed.

Firstly he suggests there are “revelations” from earlier comments of review panellists to be distancing themselves for the reports recommendations as they relate to elimination of deep gas and enhanced royalty programs. In fact the Panellist’s comments were that the Royalty Review was not intending to eliminate the deep well gas incentives and confirming that they ought to continue.

On page 68 of the Royalty Review this incentive is described as a lower royalty rate for deeper wells that do not achieve productions rates sufficient to compensate for the additional drilling costs. The Review notes the program is scheduled to end August 31, 2012.

On the same page the Review deals with the EUB flare management framework designed in 1996 to “reduce gas flaring volume reduction targets from 1996 base levels by 50% for 2002. This program provides a royalty waver “to natural gas that is produced from oil wells where it is uneconomic to conserve.” I for one, have to wonder if that is an appropriate policy to continue in light of the current environmental concerns and context in Alberta.

Otherwise the Review notes there are a bunch on incremental programs in the conventional gas area that are “patches on patches” designed to address specific problems and situations. The royalty regime is said to “not appropriately reflect the unique costs of certain developments or to facilitate special policy direction determined by government.”

The goal is to make the royalty regime simpler and CAPP’s Technical Review section 2.1.2 agrees with that recommendation.

The letter also deals with comparisons with Norway and Alberta and I will save that for another post.

Finally Pierre makes a huge leap in the final paragraph of his letter to conclude that “It was only three weeks ago that Albertans were asked top accept a report that many of its authors appear to no longer support.” Boy that is a stretch of the facts and a misrepresentation of the reality. The Panel has clarified one issue on its continuing support for deep well subsidies and made some minor revisions to correct some graphs in the report. That does not suggest that “many of its authors no longer support” the review recommendations.

Citizens are not going to take spin as gospel and it behoves the industry to avoid it at all costs. This is especially true if the industry wants to rehabilitate the public’s confidence and convince Albertans’ that they have the right stuff to be worthy of a continuing social license to operate their businesses on the public’s property.

More False Assumptions Over Alberta's Royalty Review Report.

Interesting piece in the National Post suggesting the Canadian oil and gas stocks are not “surging” as they apparently are in the US. The blaming is being put on the “Our Fair Share” Royalty Review, in part.. It also mentions that the loonies’ rapid rise (more correctly put – the US dollars significant decline) in value being up 20% in 2007 already and breaking parity with the US may have something to do with this.

The Canadian energy sector stock prices have been at or near record price levels before and after the royalty review report. Interesting today that Suncor is trading today over $103.00 – over the record high of $100.00 it enjoyed just before the Royalty Review came out.

People are entitled to their own opinions – they are not entitled to their own facts. In fairness, things are moving pretty quickly in the world these days and everything is so interlinked it is difficult to isolate causes and effects.

That said, it is at best a stretch to blame some minor stock volatility on a review report that has not been commented on by the government yet. Just more scaremongering and political positioning as I see it.

The Chinese Are Coming! The Chinese Are Coming!

ALBERTA ENCOURAGES CHINESE INVESTMENT:
Oct. 1ALBERTA 17, 2007 (China Knowledge) – Canada's Alberta encourages China to increase its investment in the oil province with many oil sand reserves, said a senior official from Alberta on Tuesday. Iris Evans, Alberta's Minister of Employment, Immigration and Industry, revealed in a press meeting at the Canadian Embassy in Beijing, that the more Chinese investments are expected to pour in.

CHINA’S CITIC BIDS FOR BEAR STREANS STAKE: REGULATOR
BEIJING — — China's CITIC Bank Corp. Ltd. is bidding for a stake in Bear Stearns Cos. [BSC-N], a senior Chinese regulator said, in the first official confirmation of media reports that the state-run bank was a potential suitor for the smallest of Wall Street's five big independent brokerages.
Bear Stearns is among the institutions hardest hit by the U.S. subprime mortgage crisis, and Chief Executive James Cayne said earlier this month it would consider selling a stake to an investor from China or the Middle East if the deal created value.

ALBERTA IS GOING TO BE PLAYING A NEW ROLE IN THE GEOPOLITICAL REALITY AROUND ENERGY SUPPLY AND INVESTMENT: The new normal of globalization on markets and investments and the demand for energy in the developed and developing world will put Alberta's oil sands in the cross hairs of geopolitical strategic issues. We Albertans better beef up our Intergovernmental capacity.

Gary Mar going to be Alberta's guy in Washington is a good step in the right direction. There is lots more to be done and some changes need to be made - including changing the Minister - for us to be ready for this new normal.

More Good Marketplace News in Alberta's Energy Sector "...regardless of what happens with the royalty review."

Oops! More good news from the marketplace on oil sands investments. How could this be happening when there is so many who are warning that the Alberta sky is falling on the energy sector?

Synenco Energy (SYN/TSX) is reported to have had a 13% one day rise in share prices now at $11.37. One analyst tagging it as a player to “outperform” and has a target share price of $15 on this company. Synenco Energy holds a 60% interest in the oil sands play known as the Northern Lights Partnership and they will be the operator of the Northern Lights project. They also hold a 100% interest in another adjacent oil sand project. They are also active in developing an upgrader just outside of Edmonton. These guys are not bit players.

The really interesting info on the Northern Lights Partnership is the other 40% partner. That is the SinoCanada Petroleum Corporation, an indirect wholly owned subsidiary of Sinopec – the large China based oil company. Again we see more confidence in the Alberta energy sector from non-North American sources. Why is that?

Mr. Bouchard, an analyst with Raymond James is quoted in the Financial Post as saying “Based on our analysis, current trading levels simply don’t reflect the value of the assets – regardless of what happens with the royalty review. (emphasis added.)

Some business writers (including this National Post piece) are still of the opinion that the “Our Fair Share” Royalty Review has caused the Alberta energy sector to “have taken a hit.” I presume they are talking share prices mostly. There has been some share volatility, off record or near record highs for most companies since the release of the Royalty Review on September 18. That volatility has been in a relatively narrow range that is more likely tied to oil prices being up and down on a daily basis...and setting new record highs this week.

For some more perspective, I see in the Globe and Mail Report on Business today noted that 4 out of 5 of the TSX Index Lifters are energy companies – all of whom are engaged extensively in Alberta oil sands activity. Curious wouldn’t you say? The sky is not falling. It looks to me like it is raining money.