This Time an Eastern Business School Prof Warns Albertans over Royalty Rate Increases

Here is a Calgary Herald Editorial page piece written by a Queen’s University business professor that says Albertans should not be to “grabby” over royalty rates. It makes you wonder if he even read the “Our Fair Share” Royalty Review. Grabby it is not. It even recommends a final royalty rate below the benchmark 66% in all cases and provided incentives for new technology adoption and setoffs for upgrader investments, to name a few non-grabby features.

He seems not to know of the Alberta government largess that was given to the oil sands sector in 1997 with the introductions of 1% royalty until project payout and then 25% on NET PROFIT royalties…when oil was under $20, not the $88 it is today. Albertans have been sharing the risks of these projects for a decade but they are not participating appropriately in the royalty rewards under that old regime.

The rapid growth in the energy sector is driving the inflation, making housing unaffordable for middle class people and the competition for staff and materials is stifling the rest of the Alberta economy, and destroying the capacity of social service providers to do their jobs.

He also says: “To compound matters, such companies extract stuff that belongs "to the people," so claiming the people ought to get their fair share strikes a populist chord that governments find hard to ignore. It's a wonder the province waited as long as it did to do the review. The energy industry is perceived to be where government can extract wealth, and be rewarded politically for do so. The temptation to increase the take from a booming energy sector is almost impossible to ignore.”

Damn straight, but this is not about an overreaching “grabby” Alberta public and a hard done by energy industry. The Alberta industry has enjoyed record profits over the past 5 years, and currently record share prices. They have the benefits of dealing with an Alberta government that is democratic and sometimes responsible. They have stable long term leases in place, with a skilled well educated workforce. In Alberta they can develop their projects without needing a private army to protect workers and assets as are required in many other part of the oil world.

This is not about being grabby. It is about citizens of Alberta today and for future generations, getting a fair return of economic rents for this non-renewable resource with a one-time revenue stream. The “Our Fair Share” recommendations would even put Alberta in the lower half of the “take scale” relative to the international royalty marketplace in the world today. Grabby is not what the "Our Fair Share" Royalty Review recommendations are all about.

This royalty issue is more about good stewardship and trusteeship of government and the Auditor General has recently shown just how pathetic a job our government has been at honouring that responsibility. They have not even monitored, calculated or collected the correct royalty amounts under the current regime.

I agree the industry needs to be rethought. The industry players individually need to reconsider what they need to do to justify its continuing social licence to operate in Alberta. We need to look to investments and market from beyond North American sources. We need to find ways to make this sector sustainable in the sense it must be green and profitable the same time. It is not an option it is a requirement for the Alberta energy sector going forward. That is the big “re-think” that has to happen within the Alberta energy sector right now.

The citizens of Alberta are way head of the government and some of the industry, in this thinking. They will elect a new government this spring that will align with and act on those ends. Premier Stelmach knows this as does every other political party leader except of course for all the old die-hard Reform types and their Libertarians friends. They want to eliminate any government role entirely out of the energy sector revenue equation.

Here is a Calgary Guy who Gets It.

Here is a new Blogger out of Calgary that is worth a read and perhaps a following...and he is not anonymous. He is thoughtful, articulate, adds value and puts context on issues and even with all that heavy and heady stuff - he is a damn good read. I recommend you visit and even follow Drew Anderson.

Here is Dr. Dwarkin's Apology Letter to Fellow Royalty Review Panel Members

Thanks to Graham Thomson’s Blog in the Edmonton Journal Albertans have access to the letter of apology from Dr. Dwarkin written to some fellow “Our Fair Share” Panel members. This is because of some of the content and tone of a review she apparently “co-authored” and released by her employer Ross Smith Energy Group (RSEG) out of Calgary.

The Royalty Review panelists are a group of quality people of great character with a great deal of individual and collective experience and expertise. The final report they released proves they have done an exemplary job in a critical and complex area. Since they released the document, they been ridiculed, insulted, called names and vilified as part of an overall well planned intimidation and misinformation strategy.

In the face of all that, some of them are continuing, on their own time and at their own expense, to speak up, clarify and very ably debunk the misinformation and fear mongering campaign that is being put forth by some powerful forces in the Alberta energy sector.

There is a lot at stake here and, as important as that is, it is not just the money and how it is to be allocated and controlled. There are lots of very powerful special interests and self-interests at play and from people who are very used to having their way with our government and it seems to have been happening mostly behind closed doors. The “Our Fair Share” Royalty

Review Report made those points very precisely and they fixed the blame for it too. Then they went to work on recommending how to change it.


The royalty review panelists are personally bearing the brunt of some pretty serious pressures from those powerful sources and forces. The content and context of this letter by Dr.Dwarkin shows how the powerful sources and forces play the influence game, even at the personal level. It has a clear message to all Albertans that there is a serious problem with the balance of power in our provincial democracy. The Royalty Review said it and the Auditor General said it too.


Premier Stelmach set up this process and he is to be congratulated for doing so. It now falls on him to show the proper respect for government’s role as trustee of Albertans natural resources and to reaffirm industry’s place as the tenant on that public property not a tyrant trying to intimidate our citizens.

The best way to do that is to accept the recommendations of the Royalty Review Panel. Then Premier Stelmach, you need to clean up the culture of contempt for responsibility that is owed to the citizen’s of Alberta that has been found in some corners of your government.

Dr. Dwarkin’s letter shows just another example of how this power imbalance is practiced and applied on some people. Here is what Dr. Dwarkin said in her letter of apology yesterday to some of her fellow panelists.


Hello Evan, Andre, and Sam:


I very much regret how things transpired yesterday and understand completely your disappointment/surprise. I am sincerely sorry for not getting the RSEG report to you in advance, and providing you with the context for it in advance.


As I said in my note yesterday after the fact, I planned to send it to the panel when I got back from Edmonton (the final version was being finalized while I was in Edm.), together with the context in which it was done and more information about how things are done at RSEG . Unfortunately, things didn't happen this way and I am very, very sorry for this.


I also am really distressed and sorry about the way the report is being portrayed by the media as some sort of repudiation of the panel's report. This is absolutely untrue. RSEG endorses the panel's report, the thought process that went into it, the principles used to develop the recommendations.


RSEG is suggesting a refinement to one of the (dozens of) recommendations. My contribution to the work product was to share my personal view on this particular aspect.


Please know that there are some observations/characterizations in the RSEG report that I strongly disagreed with - for example, the one about 'short cuts’, that Texas isn't a good comparable for Alberta, the reference to lacking the requisite 'expertise'.


The report's other authors don't have all of the information about how the analysis was done because it isn't in the public domain, and they weren't convinced by my insistence that it wasn't an issue of 'industry expertise' or incorrect methodology.


I was horrified when I got back to my office late on Wednesday afternoon and saw that the final report had gone out with this stuff in it. If it's of any comfort to you - and I understand it probably isn't - please know that I wrestled several other unfair criticisms out of the report before that.


The language in RSEG's report is provocative in some places. If you were familiar with RSEG reports, this wouldn't surprise you. I did request it be toned down before this report was sent out but was over ruled. What everyone - especially the media - needs to appreciate is that one of the remarkable features of the panel report is that it reflects a BALANCE of views on a very complicated topic.


No one particular viewpoint dominates the recommendations. This is why the govt constructed a panel whose members came from a variety of backgrounds - it wanted to understand the BALANCE of views. The other remarkable thing about the panel report - that each of us emphasized during the meeting yesterday - is that it sets out a set of principles, concepts and framework to guide the government's decision.


The report has moved the debate to a fundamentally different place. As I said yesterday, this is a sea change.


In my dealings with the media, I am focusing on these points and that the RSEG report is a suggested refinement to a very solid proposed structure.


If any of the comments here would be of use to you in your own dealings with the media or others, please make use of them.


Judith Dwarkin

Chief Economist

Ross Smith Energy Group Ltd.

Stelmach' s Royalty Response Coming by the End of October

My Blog post yesterday and my armchair speculation about what will happen next week is proving to be true. Premier Stelmach confirmed today in Calgary that the television presentation on Wednesday “… deliver only basic principles of the government’s response to the controversial royalty report – with specific details to come at a later date.

The “Our Fair Share” Royalty Review is mostly controversial in Calgary from the replies I get to this Blog.

Cambridge Strategies' Most Recent Column for LaPresse

Here is our regular column that was translated into French and published in LaPresse in Montreal yesterday. We introduced them to some of the realities around the Royalty Review. We have received some interesting replies from Quebec already.

What do socialist regimes and Alberta have in common? Quite a lot, if leading voice in the energy industry are to be believed.

From the Canadian Association of Petroleum Producers to Deutsche Bank Securities to the President and CEO of the government-created energy giant EnCana, there is strong and resolute opposition to an expert panel’s recommendation that Alberta revise its energy royalties.

In an article entitled “The Bolivarian Republic of Alberta,” Deutsche Bank compared the findings of the Oil Sands Royalty Review to something out of Hugo Chavez’s Venezuela. This is an astonishing reaction to a government-commissioned report produced by economists and business executives, which recommends reducing royalties on most conventional oil and gas and increasing royalties on oil sands development.

The logic behind the recommendations is underlined by Alberta’s Auditor General Fred Dunn. His report, following on the heels of the royalty review, noted that Alberta’s current royalty system isn’t working. Dunn found that the Alberta royalty share had “fallen below stated government revenue targets” and that an additional $1billion per year in royalty payments could be charged “without stifling industry profitability.”

Industry is threatening to pull investment from Alberta unless Premier Ed Stelmach rejects the royalty review – and the conventional wisdom has it that the premier will bow to industry pressure.

Yet the premier has nothing to lose by standing up to the industry bullies. Stelmach, the Ukrainian-speaking premier who was taught English by nuns while recovering in hospital from a boyhood accident, isn’t the kind of leader who would ever be at ease in Calgary’s elite boardrooms.

After the failure of their favoured candidate Jim Dinning to win the premiership, the Calgary elite spoke sneeringly of “Farmer Ed.” Now that disdain (mepris) has turned into alarm. The Calgary elite and their apologists all their accusations, ignores the basic fact: Albertans own the resource, the energy companies are tenants who have been granted access rights.

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.

The energy industry strategy going into the province-wide royalty hearings was flawed. Some of their presentations appeared to be intentionally misleading. They cited an expert consultant’s report that was 10 years old. The royalty review panel led by retired forestry executive Bill Hunter asked the same expert consultant to update his report and he found the Alberta royalties were among the lowest in the world.

If anything, the “Our Fair Share” report from the Royalty Review Panel is conservative in its recommendation of the “fair share” Albertans ought to draw from the natural resources they own. That goes beyond adjusting royalty rates. It comes down to smart, efficient stewardship of the resources that belong to Albertans – now and in the future.

If the royalty review recommendations are adopted, Alberta will remain extremely competitive in the global market. Charging a fair-market rent will give us a much more flexible opportunity to design and build a future of sustainable prosperity. Alberta’s unique value proposition lies in supplementing today’s hydrocarbon wealth with alternative energy, green energy, and clean energy. We can use additional revenues to aggressively pursue carbon capture and sequestration, clean coal technology (including gasification, hydrogen production and coal bed methane extraction), and biofuels/biomass energy.

That said, Premier Stelmach needs to be exceptionally skilful in securing Albertans their fair share or the energy economy, without derailing investor confidence in the province. He must respond to the public desire for enhanced environmental standards and value-added processing of Alberta’s resources. The threats by energy companies could indeed lead to some short-term economic turmoil – but the premier has already said he will not be intimidated by anyone.