Stelmach Finds the Balance in the Response to the Royalty Review

OK – I have to say I am very pleased with Premier Stelmach’s response to the royalty review process – for sure at the economic level. I am also very relieved and comfortable at the political level. There is an election coming up and my money is on March 2008

I have spoken with Bill Hunter tonight and he is very pleased with the government’s response to the Royalty Review Panel’s recommendations as well. There is still some devil in the details and quibbles but the former can be worked out and the latter are nothing to get worked up about. I like the January 1, 2009 start date. It gives enough time to retool the computers and create the software programs needed to calculate the new sliding scale, market price royalty rates and for government to make the necessarty legislative and regulatory amendments. It give industry time to adjust too. It is not so long as to take an sense of importance and urgency away from getting these changes made either.

One detail is that undoubtedly some pundits and politicians will accuse Stelmach of leaving ½ Billion on the table because the Panel calculated a $2B larger government take on their model and the government today said they estimate a $1.4B increase in take. I didn’t think this meant the government was leaving money on the table so and I confirmed my understanding with Hunter tonight.

The difference is that the Panel did not account for the conventional gas Deep Well and Flaring royalty holidays in their calculations and the government put them back in. The government was clear they were reaffirming both subsidies and that is the difference between the “government take” numbers. Conventional gas gets more form the government decision than the Panel recommend.

That is a policy decision to stay the course to continue the help for conventional gas they currently enjoy in these two programs. Notwithstanding, I expect Big Oil will be officially ticked and say so for the next days. Some may be reckless enough to lay off people in the next few days for dramatic effect and making their employees pawns in a tawdry political game. I hope that doesn’t happen but given recent history, I would not be surprised.

I like the fact that there is going to be a negotiation between Suncor and Syncrude now over there current agreements. Stelmach has confirmed no grandfathering but also that these contracts with these two companies are going to be honoured - unless of course they are amended by mutual agreement.

I think those companies will see that while they are in the unique position of having have a better deal right now, but in 2016 it is over. They are in the oil sands for 50 – 60 years so an extended time of more royalty certainty will no doubt be attractive.

There are lots of issues to discuss from the Stelmach royalty response today and I will do so in a series of subsequent postings. For now I can say Ed Stelmach did not get caught in the CAPP versus Review Panel game…that was never where the “balance” had to be found. There was and is so much more to consider in arriving at the right balance and Stelmach has done that.

What Premier Stelmach has taken is to take the Panel’s input, the consultation process input, the various pieces of advice (and threats and insults) since he made the “Our Fair Share” report public all into consideration. Then he applied some of his own thinking and principles and he has designed a very solid and sensible strategy that does take care of Alberta’s interests and provides fairness and firmness to the energy sector. Well done Ed…now lets get down to work and make this response well understood by Albertans and lets be sure they get accurate, timely and regular reports on how well it is working.

When It Comes To Trust and Truth on Royalties - Who Will Albertans Believe?

Every now and then you get a concise and comprehensive discussion of complex issues and how they inter-relate. It is well known that the communications cure for complexity is clarity not the KISS approach to merely making it simple but inevitably inaccurate.

Such is the case with the wonderful clarity of Derek DeCloet’s column in the Report on Business in today’s Globe and Mail. The key message is in the closing sentence where he says most Albertans don’t believe the doom and gloom messages of the oil patch. They also don’t appreciate the name calling and intimidation tactics they used.

At Cambridge Strategies we are in the middle of a major discrete choice modelling survey on Albertan’s value and attitudes about responsible and sustainable oil sands development. So far we have over 1300 Albertans telling us which of the current Alberta political party leaders do they trust the most to responsibly manage Alberta’s growth. The winner at 43% was NONE OF THE ABOVE.

Now it is over to the Stelmach government who was in second place in the survey with 33% trusting him. What will he say today about his government's approach to non-renewable resource royalties? What will it matter if most Albertans don’t believe or trust him or any of the other political leaders either?

The content of what Stelmach says today is going to be very important. But so is how he says it and if his presentation resonates with Albertans and and I am talking substance here - not speaking style. Equally important is how authentic Albertans perceive him to be when he announces his decision.

Today is indeed going to be a watershed day for Alberta, Albertans and political leaders from all parties to whom we have given our consent to govern us.

Premier Stelmach Brought Progressive Conservative Politics Back to Alberta Tonight

OK I heard Premier Stelmach’s TV speech tonight – and I took notes. Overall impression is that the Progressive Conservatives are back and governing the province of Alberta and it is high time.

Tonight Ed Stelmach outlined a fulsome and a comprehensive set of social progressive and fiscal conservative values, principles. He covered a wide range of issues that, as Premier, he wants to deal. And, by the way, he spoke very well too.

He accepts that the management of our growth by the government has not been good. Bloody awful growth management has been the governing hallmark in the past 8 years if you ask me. In fact at Cambridge Strategies Inc. we just completed the first phase of a large discrete choice modeling survey project we are working on and we polled on this issue.

We just asked 1200 Albertans in an on-line survey conducted between October 17 and 22, “of the current political party leaders in Alberta, whom do you trust the most to responsibly manage Alberta’s growth?” This sample size has accuracy within ± 3.0 percentage points, 19 times out of 20 BTW.

Guess who won. None of the above! That is right. The actual results were 43.02% answered ‘none of the above’. Ed Stelmach and the Progressive Conservatives garnered 32.9%. Kevin Taft and the Liberals received 10.7%. The NDP earned 6%; the Greens, just over 5%; and the Alliance, 2.2%. There is lots of room for improvement – in every party and for every leader. We will post more on this survey on Policy Channel tomorrow at www.policychannel.com

Our political leadership, regardless of party, is not seen by Albertans as being properly engaged in effectively managing Alberta’s growth. This is going to be a ballot question next election, as is environment. The only thing to change the ballot questions is if the Premier misses the mark on the royalty and related issues tomorrow. Then openness and integrity in government will take centre stage as a ballot box question. That will be because Albertans will react to the Ralph Regime reality of poor royalty monitoring and lax collection practices plus former Ministers of Energy refusing to revise the royalties, even when recommended, for seemingly pure political reasons.

Based on what I heard Premier Stelmach say tonight…he is going to be right on the mark on royalties tomorrow. Tonight he was talking full blown Transformational Option #4 that I described in my blog posting earlier today. Will he go as far as I suggested in today’s post? Time will tell but his heart has always been there and, based on what he said tonight, his head is clearly and concisely there too.

With that approach and that agenda he can move the 43% from “None of the above” into supporting a positive Progressive Conservative policy agenda in the next election. This political philosophy change away from a far-right paternalistic, passively indifferent approach to governing is long overdue in Alberta. That change is coming and it was confirmed tonight as Ed Stelmach decisively distanced himself from the old style politics of the Ralph Klein Regime.

Tomorrow is another day and at 3:00 pm I expect to hear an even more assertive and affirmative Ed Stelmach on royalties. I expect he will lay out a comprehensive, integrated, open, accountable, fair and long term royalty decision that will serve all Albertans well.

Good start tonight Mr. Premier. Now seal the deal tomorrow.

What Are Alberta Ed's Royalty Review Options Tomorrow?

So here we are, two days away from an event that could change the culture and consciousness of Alberta for at least a generation. Premier Stelmach is going live on the Internet to present and explain his government’s plans for the stewardship and management of our non-renewable energy resources.

Every engaged and influential Alberta citizen will be watching his TV address tonight. Many more will be glued to the Internet at 3:00 pm tomorrow to here in detail what he has to say about royalties. In any event by the end of the week Albertans will have finally come to know who Ed Stelmach really is. They will make up their minds as to what kind of character they think he is and what kind of leader they think he will be.

I sure don’t know what the outcome will be on Thursday. I have done some “what if” thinking about some options and the political implications in each case. I think there are five paths open to the Premier to take on royalties.

1 He Blinks! This is an approach based on minimalist tinkering and timidity with no substantial change. The conclusion will be that review process was just an exercise of "going through the motions" and fear of change and the industry are the guiding principles. This will be interpreted as a big industry win and voters will be angry since polls show 88% want changes made. Albertans who are now “Thinking like Owners” will begin “Acting Like a Voter” and we end up with a minority government – likely PC but no guarantees.

2 He Creates Confusion! He cherry picks pieces out of the “Our Fair Share” Report. As a result no one owns the ideas and nobody can understand what exact the policy goals are or what the proposed implementation means are to get there. This will seen as a big industry win and will be characterized by the pre-payout royalty going up to 3% and no severance tax and a post payout royalty of less than the 33% recommended by the Review Panel. Politically this will be interpreted that Ed is just a Ralph Rerun. Voters will disengage again and harbour grudges. PC supporters will stay away from the election in droves resulting in a minority government.

3 He Reacts Like A Progressive Conservative! He accepts the “Our Fair Share” recommendations as a package In addition his Progressive focus will be on new opportunities like synthetic gas from coal, Coal Bed Methane extraction, biomass and tying together with a major push for funding for Greening of the Growth as the overarching principle for the next Alberta energy strategy. His Conservative side will announce major policy changes to ensure accountability and transparency in the relationships between the owners and the tenants in the energy sector. He will outline stricter policy initiatives for calculating, monitoring and collecting royalties in response to the Auditor General’s recent report. This gives industry certainty and cleans up the governance mess in the Department of Energy.

Politically Albertans will be encouraged but will wait to see if the actions align with the rhetoric. If no authentic action is taken before the election PCs will abandon the party under his leadership. It will be worse than Ralph in 2004. I expect as many as 350,000 previous loyal supporters and volunteers will stay home through the campaign and on election day. Advantage Taft but this election he will have to earn our consent to govern. He cannot just wait for Ed to lose it.

4 He Goes Bold and Transforms the Province! In addition to option #3 he initiates the environment and technology fund idea in the Afterward of the “Our Fair Share” Report. He announces a major policy moves towards a comprehensive integrated economic, societal and environmental approach for the future of Alberta. He moves into a transformational mode and weaves in the Water for Life, Clean Air and Integrated Land Management strategies into the emerging Energy Strategy. He repositions the consciousness from today were the society is there to serve the economy to where the economy is more focused on meeting the needs of the society.

He balances revenues between short term infrastructure needs and savings for the long term aspirations of Albertans. And he puts conservation back into conservative politics and by protecting wildlife habitat and watersheds and water supplies and pushing for more and faster energy industry land reclamation. Ed defines the next Alberta and imbues the province with a new consciousness that emphasizes sustainability, responsibility and openness. He calls an election in February and wins a majority government based on fresh ideas and lots of fresh faces in Caucus and Cabinet. Alberta becomes recognized a leading force in energy, environment, innovation and investment.

5 The Nightmare Response! The nightmare scenario is “The Muddle of the Road.” This is not a variation of the Blinking or Confusion option. It is all of them together with the added instability of confusion trumping clarity, uncertainty over sureness, deconstruction of complex concepts instead of integration of related initiatives. There will be no definitive leadership statement declaring obvious goals and a game plan to get there. We would not have any articulated sense of the direction and preferred destination by the government arising from the royalties and the review. This will be the worst of all possible worlds for the industry and investment, for governing and politics and ultimately for the people and families of Alberta.

So which way is it going to be under Premier Stelmach? I have no idea but I am pulling for the transformation of Scenario #4. That said, I know one thing for sure. No matter which way this thing goes on Thursday, we Albertans are well advised to fasten our seat belts – it is going to be one hell of a ride.

Stelmach Plans a Live Webcast Thursday Afternoon on His Government's Response to the Royalty Review Report

Looks like my armchair quarterbacking post last week on what would transpire this week on the "Our Fair Share" Royalty Review process was pretty accurate. I said the Stelmach government would do their final government policy decision making today, as I predicted. In the TV presentation tomorrow the Premier will only deal with “principles” around the royalty changes, as I predicted.

On Thursday there will be the big event. That will have live streaming video coming out of Calgary (the belly of the beast?) of the Premier and the Energy Minister outlining the government’s response to the “Our Fair Share” Royalty Review Report.

That live web cast is scheduled for 3 pm with phone calls able to come into the event from all over North America. For 2 hours prior there will be a media lock up (just like in a Budget) so they can go over the documents and get briefings on the response details. I called that too but not the live streaming video – that is cool.

Friday will be media frenzy feeding reaction time and on Saturday the Premier faces his party in a Policy Conference to explain the whats, wherefores and the whys (wise?) of the response.

I see five possible outcomes on Thursday’s event and I will blog on them and some possible political implications for each on Wednesday morning.

I have no idea what the Premier is going to say except there will be higher royalties since "the status quo is not an option." What else is included is being closely held - as it should be. In Ralph's day something like this would have had trial balloons floating for weeks before. They like to set the expectation levels "properly" (meaning low) and then actual announcement was pretty pro forma.

Stelmach is a very different politician. He is not manipulating the media message, nor is he preprogamming the expectation levels. His challenge will be to bring clarity out of the complexity. His personal challenge is to communicate the plan effectively. He sees all the nuances and implications of a policy issue and he is comfortable exploring all of them - in public, usually orally and rambling...kind of like this blog - on occasion.

This is going to be interesting. I smell open and transparent and accountable democracy in the air...and it is about time.