Project Alberta

Royalty report seeks big hike
Tony Seskus, Calgary Herald
Tuesday, September 18, 2007

A landmark report on oil and gas royalties in the province has determined Albertans do not receive their fair share from energy development and proposes a series of fixes that would boost the government's take by $2 billion.

The "Our Fair Share" study, conducted by an expert panel appointed by the Stelmach government, calls on the province to re-balance the royalty and tax system to ensure Albertans get more from their resources both now and in the future.

"Albertans do not receive their fair share from energy development and they have not, in fact, been receiving their fair share for quite some time," panel chairman Bill Hunter wrote.

"The onus is on government to re-balance the royalty and tax system to ensure a fair share is collected both currently and as circumstances
change."

Premier Ed Stelmach ordered the report in response to growing public concerns
The report, produced by a six-member expert, states that if its recommendations are implemented, they would boost the government's annual
take by $2 billion per year at current price and production levels -- a 20-per-cent increase over current revenues.

Of note, the panel recommends changing the oilsands royalty and tax regime. While the panel proposes keeping the base royalty rate at one per cent until the expensive projects costs are recovered, the net royalty rate would then climb to 33 per cent, up from the current 25 per cent.
The plan would replace the government's so-called "one-and-twenty-five" scheme introduced in 1997 to spur oilsands development.

"Just as a re-balancing was needed a decade ago, a rebalancing is needed now," Hunter told reporters today, adding the strategy would be fair to Albertans and producers.

On conventional oil and gas, the panel suggests lower royalties on low-producing wells and higher royalties on high-producing wells.

With the changes, 57 per cent of Alberta's 15,931 conventional oil wells will pay lower lower royalties, as will 82 per cent of the 117,951 natural
gas wells.

Currently, about 30 per cent of the Alberta government's total revenue comes from oil and gas royalties, and about one in six Albertans are directly or indirectly employed by the energy sector.

The province says it will respond to the report by mid-October.

© Calgary Herald 2007

Source; http://www.canada.com/calgaryherald/new ... 7c&k=21371

Something about using that old "fair share" thing rankles me right off the bat.

Will have to see how they came to their conclusions before making a judgement however.



There is a kicker. The part about "as circumstances change". I would hope that whatever comes of this is a program that can change quickly as commodity prices fluctuate and cost of extraction.





Ahh great. $2 billion more for the PCs to piss away in directionless spending.

What we need a panel for is studying how to save and invest our resource revenues, not how to gouge the producers more on what they currently extract.





A progressive tax system as our federal income taxes are?

Does this take the cost of development of these wells or simply the production numbers?

All the same, nothing seems too unreasonable in this. Seeing the news heralding it as if Albertans have been robbed for years is annoying though.

Albertans shortchanged billions in royalties: review
Panel recommends significant hikes and more accountability
Darcy Henton, edmontonjournal.com
Tuesday, September 18, 2007

EDMONTON - Albertans have not been getting their fair share of oil and gas royalties and are entitled to another $2 billion per year, says a new Alberta government-commissioned report released today.

An expert panel appointed by Premier Ed Stelmach says Albertans have probably been shortchanged $1 billion a year in natural gas royalties alone over the past five or six years.

The panel recommended hikes in royalties that will boost revenues and called for more accountability to ensure that Albertans know what return they are getting.

The 104-page report says that hasn't been the case to date.

"Albertans do not receive their fair share from energy development and they have not, in fact, been receiving their fair share for quite some time," said panel chairman Bill Hunter.

"By recommending an accountability package in the strongest possible terms, the panel intends that both government and industry will be forced to gather and produce data so that statistics and actionable information can be reported to the owners."

The panel has also called for a price-sensitive severance tax on bitumen and a credit for bitumen upgrading that occurs in the province.

Premier Ed Stelmach declined to say whether the province will in fact hike royalties, but promised his Tory government will respond to the report in October.

"It has to work for Albertans and it has to work for industry," he told reporters at the legislature. "It has to be fair, but it also has to be competitive."

He said his caucus will begin reviewing the report Wednesday.

Liberal Leader Kevin Taft said billions of dollars have been lost because of the way the Progressive Conservative government has managed the royalty regime.

"The Tories have failed the people of Alberta and they have failed them badly," he said.

The report says it doesn't believe the government has "sufficient expertise" to keep up with developments.

It says the workings of the energy industry appear "shrouded," but suggests that is not intentional.

"Imagine the repercussions if the income tax system experienced such drift and nobody knew and nobody seemed to give 'a tinker's damn.' "

Hunter said the fact remains the resources belong to the people and that hasn't always been clear to the government in the past.

The panel recommended a five-per-cent increase in Albertans' current share of conventional oil and natural gas production and a 17-per-cent hike in oilsands revenue.

The panel has recommended that the province maintain the controversial one-per-cent tax royalty "holiday" that oilsands companies currently enjoy until they pay off their intitial costs, but recommends ratcheting up the royalties from 25 per cent to 33 per cent once they reach that point.

It says that will enable Alberta to remain competitive internationally, but it acknowledged it will slow the pace of oilsands investment.

Hunter reiterated that the government can't pick and choose from the recommendations, but must implement them all in order to boost the revenues by $2 billion annually.

The panel rejected oilpatch claims that its recommendations will damage the industry.

The panel also offered a suggestion that Alberta should consider a new tax on energy production as well as mining, forestry and agriculture that would be used for environmental protection for future generations.

See Wednesday's Journal for full coverage of the royalties review report.

© Edmonton Journal 2007

Source; http://www.canada.com/edmontonjournal/n ... 2a3&k=9992

That will finish that off. They can start packing up small town Alberta any time.

This report should be called :

How to kill the goose that laid the golden egg.

Royalty recovery for Stelmach?
The Edmonton Journal
Wednesday, September 19, 2007

If they have the wit and courage to seize it, the Stelmach Tories have been handed a solution to their growing reputation for aimless indecision, and a potent platform on which to campaign for re-election. It is the powerful, compelling, refreshingly frank report of the Alberta Royalty Review Panel chaired by former forest industry executive Bill Hunter.

The report bluntly declares that Albertans have not been getting their fair share of their province's oil-and-gas wealth in recent years; that the Conservative government has not given the owners of the resources a decipherable accounting of the revenue it has been getting, and that total government take could -- and should -- be boosted by almost $2 billion a year without undermining the viability of the industry.

If the package is accepted and implemented by a man who only recently acquired the power to fix the problem, if the oilpatch boosts his credibility with ordinary Albertans by complaining when he acts, and if his government goes a step beyond the report to offer a vision of what it would do with the extra cash, well, Liberal leader Kevin Taft would look and sound a lot less confident than he did Tuesday afternoon.

In fairness to the premier, the very existence of the review panel, the fact that its report was released immediately upon completion, and the clear evidence that it had an honest, open, unguided mandate all speak very well of his new administration. In the Klein era, you'd have had reason to suspect the fix was in on recommendations before the process began, and that a dusty shelf might have been its final resting place -- not a website (www.albertaroyaltyreview.ca) where all Albertans can read and understand it for themselves.

But Stelmach's initial deer-in-the-headlights reaction Tuesday was not particularly encouraging.

He gave no indication he recognized the panel's work for the lifeline it is. He gave no hint that he has a positive impression, that he has any enthusiasm at the prospect of extra revenue, or that he understands he needs to distance himself from the Klein government that allowed a situation in which Albertans have lost out on at least $1 billion a year.

Elsewhere in The Journal today, and in this space in the days to come, there will be much talk of the details of the report. One common-sense ingredient, for example, boosts the price ceilings for oil and natural gas beyond which the royalty rate no longer rises. (To underline the wisdom of this, note that oil yesterday reached $81.52 U.S. per barrel, an unimaginable price when the current system was established.) Another key point is the boost in the rate of oilsands projects, from 25 per cent to 33 per cent of net revenue after initial investments have been recovered. A third is the creation of something called an Oil Sands Severance Tax, also varying in rate depending on the market price, to make sure all bitumen produced in the province generates a similar minimum amount of revenue. A fourth is the call for a simpler system that scraps distinctions between new and old wells, and replaces it with a differentiation between more and less productive wells.

But what really matters is the panel's effort to focus Albertans' attention on the overall government "take," and on the reminder that royalties must be thought of as fundamentally different from taxes. With the latter, government must of course account for money collected. With a royalty system, the government "must justify every dollar that does not go to the owners."

Industry would be wise to remember this distinction -- this priority obligation of government to the real owners of the resource -- as it responds to the Hunter panel's findings. Absolutely, the government must guarantee it does nothing to kill or even seriously weaken the golden goose. But it must also remember, as the former government sometimes seemed to forget, even the most wonderful goose's place in the scheme of things.

The panel -- also including economist Judith Dwarkin, professors Andre Plourde and Kenneth McKenzie, former industry executive Sam Spanglet and entrepreneur Evan Chrapko -- have done Albertans, and their new government, a great service. They have provided a framework that could be a fresh royalty start harkening back to Peter Lougheed's premiership.

If Stelmach doesn't grab hold of it with both hands, some future premier doubtless will.

© The Edmonton Journal 2007

Source; http://www.canada.com/edmontonjournal/n ... 053cc656d6

Royalty review puts lie to pablum Ralph fed us
Graham Thomson, The Edmonton Journal
Wednesday, September 19, 2007

It is the report Ralph Klein never wanted you to see -- written by the review panel he never wanted convened.

And now we know why.

The report from Alberta's royalty review panel puts the lie to Klein's assertion that we were getting our fair share of energy royalties while he was premier.

We weren't.

At 104 pages, the report is as hefty as a small phone book and contains more graphs than a math text but you don't need to read the whole thing to get to the punchline. You'll find it in the opening sentence: "Albertans do not receive their fair share from energy development."

Simple as that.

The rest of the report builds on that theme and does a masterful job of explaining the shortcomings of Alberta's royalty regime and what needs to be done to give Albertans, as the title of the report suggests, "Our Fair Share."

It is an exceptional document. If it was a movie I'd give it two thumbs up.

For what could have easily been a dry report, it is remarkably well written. If you've got the time and enough sheets of paper, I'd highly recommend downloading it from the government web page and printing it out. When you're done reading, you'll find it rolls neatly into a cudgel suitable for beating up Klein's credibility.

You might remember last year when Klein was asked if his government had launched an informal review of energy royalties, he replied, "I don't know if it was completed or not, nor do I give a tinker's damn whether it was completed or not." Then he added, "I've always been satisfied that our royalty regime is proper and right. We do get our pound of flesh."

However, according to the review panel, the royalty regime is neither proper nor right. "The royalty rates and formulas have not kept pace with changes in the resource base and world energy markets," says the report's second sentence.

By failing to keep pace, the Alberta government shortchanged us by $1.9 billion last year alone. Imagine how many interchanges we could have built with that or how many women's shelters we could have supported. And that's just one year. The report's authors say we haven't been receiving our fair share for "some time," maybe five or six years.

The report, written by a panel headed by Alberta businessman Bill Hunter, just might be the most logical, comprehensive and clear document ever commissioned by a provincial government in the past decade.

It takes issue not only with how the government failed to collect enough royalties under the last half of the Klein era but points out major failings in how the government regulates the energy industry.

It also raises questions about the government's muddled system of keeping track of the royalty regime which was allowed to "drift off course." In what some might see as a cheeky slap at the former premier, the report adds a line using some of Klein's own language: "Imagine the repercussions if the income tax system experienced such drift and nobody knew or nobody seemed to give 'a tinker's damn.' "

For anyone who suspected we weren't getting our fair share, this report is a smoking gun.

To Ralph Klein, it might feel more like a pair of cement overshoes helping sink his credibility.

Interestingly enough, though, to Premier Ed Stelmach it just might be a life preserver. This report gives Stelmach an opportunity to bob back to the surface after his disastrous decline in public opinion polls.

Without overstating the case, this could be the defining moment for Stelmach who has been labelled a ditherer for chronically delaying important decisions or delivering flawed ones.

This report gives him a chance to make a bold decision. Government sources say he is pleased with the report but you wouldn't know that from his guarded comments to reporters on Tuesday.

"The report will go through the regular process," Stelmach said. Government caucus will review the report this morning in Calgary. "We will look at the report in its totality and the response will be, as I say, timely."

That pretty much summed up the totality of what is a typically Stelmachian response: Let me think about it, talk it over and I'll get back to you with a decision.

You would think this report does that for him. After all, he commissioned it to answer the question: Are we getting our fair share?

We're not.

If Stelmach accepts the report, he can display a clean break from the Klein era, stand up to energy companies and ensure Albertans get "our fair share." He just might find himself floating back up in the opinion polls.

If he fails to act, he might yet find his credibility sinking as quickly as Ralph Klein's.

© The Edmonton Journal 2007

Source; http://www.canada.com/edmontonjournal/c ... f64b162136

Oil companies will put up with quite bit of bulls*** but are notoriously vindictive. Once they've decided enough is enough, they have all kinds of ways to put the screws to you. They only warn you once, and they've already done that.

Why do I have this queezy deja vu feeling........

You're not the only one.

We're are being asked this morning to run Alberta production numbers so they can figure out what the impacts will be if some of the reports plans are implemented.

Yes, that will be good. But you can't factor in what will happen if the oil companies decide to turn nasty. That's what I will be watching for, because that's where the potential for real damage is. These guys have the power to case billions of dollars worth of damage to Alberta's, and the countries economy as a whole. Far offsetting the two billion extra dollars Alberta thinks it's going to get.

No No - my point is that they (oil and gas) are worried and having us run the numbers. If we can't make money producing or drilling - we won't do it, we aren't a government crown corporation or agency - we don't purposefully lose money.

last CNN report I heard mentioning Alberta went along the lines of "all Calgary HQ companies are ripe for takeover, leaving Calgary a minor backwater in the oil industry." Alberta might do well to make itself less attractive to those big oil majors. Use that oft-claimed local initiative to develop yourselves.

Thanks for that. I'm well aware they won't do any drilling. They've already cancelled plenty of new projects over the last year or so.

It could be too late. As I understand it the report calls for no "grandfathering". Companies will be caught in projects based on different rules......

Why that is brilliant logic.

Lets make ourselves so unviable for business that we never have to worry about takeovers.

Uhh Len, if we are unviable for foreign investment it usually means we are unviable for domestic investment.

Rest assured the union men would suffer under such a legislated economic depression too you know.

If stelmach wants to be elected (since he hasn't been at all yet), then he would do well not to implement these changes.

I'm ready to act, Stelmach says
Tony Seskus and Lisa Schmidt, Calgary Herald
Wednesday, September 19, 2007

Premier Ed Stelmach warned critics - including those in the oil industry - that if they believe his government lacks the spine to act on a controversial royalty report that they are in for "a surprise."

"I won't be intimidated . . . by any position taken by either the oil industry or others that may take a different opposing position," Stelmach told reporters in Calgary today. "We're there to make the best decision."

The premier made the comments after his Conservative caucus met to discuss an expert panel's report on provincial oil and gas royalties. It found Albertans have not been getting their "fair share" from energy development and recommends changes that would boost the government's take by $2 billion a year.

Stelmach said the government would issue a formal response to the report in mid-October.

The energy industry reacted with surprise to the report, while some warned it would harm the sector if fully implemented.

After markets opened this morning, a number of oilsands companies saw their stock values slide. Big developers such as Canadian Natural Resources Ltd. dropping about six per cent to $74.93 and Suncor Energy Inc. falling four per cent to $96.80. Smaller developers were harder hit, with Synenco Energy Inc. falling nearly 15 per cent to $10.74.

"There have been a number of policy initiative and market impacts that, if you add it all up, the cumulative impact can be quite significant," Tim Hearn, chief executive of Imperial Oil Ltd. "You can look at each policy initiative and say 'Yeah, well, that's OK, we can deal with that,' but my concern is when you add it all up."

Stelmach characterized the stock market's initial reaction this morning as "predictable."

"It wasn't any more than what many had predicted, but again, I can only listen to the evidence of those who have been the market for many years and understand," Stelmach said. "There was a slight drop in some of the stocks . . . There was actually some increase, but there was also some decrease as well."

© Calgary Herald 2007

Source; http://www.canada.com/calgaryherald/new ... 7726bf8ed0

Yeah..... what an idiot, when it comes to something he should be careful about he'll rush to a decision. When a quick decision is required and when the outcome is not so critical - he'll waffle.

What good is taxing the oil industry 2 billion more dollars if you going to lose 3 billion or more by doing so, it's amounts to killing the goose that lays golden eggs to get the first one.

He's out to prove a point - that he can be tuff, the problem is he's picking the wrong issue to be tuff on. Like a government collecting record surpluses needs more money - it needs to stop sending money east, cut taxes, and that will attract more workers to Alberta, keep more money in Albertans hands for housing, and make the government coffers grow even more. If you increase royalties it will be the same as the new trust tax, it might make you a little more in the short term, but you'll lose in the long haul.

Is there a sale on tinfoil hats? Oil price tops 80 bucks a barrel and some folks think that our poor corporate citizens in the oil patch will pull up stakes and run off because the government seeks a few extra bucks in royalties. Somehow I doubt the science fiction story that would provide that scenario.

I can almost envision the plot now, where our Premier is compared to Mr. Chavez. But lets get real here people. The reason drilling is down is because there is very little conventional oil left that is not already in production. The reason tar sands development is up is because there is lots more of it than we originally thought and it is getting easier to extract it at even lower costs then ever before. Face it folks, we are currently exploiting this resource in Fort Mac, but there is a large ribbon of the same soil type that runs from Grande Praire all the way to the Sask. border. We are currently developing less than a single digit portion of this immense reserve. That means a hell of a lot of oil, and it also means that walking away from it would simply result in some other company taking advantage of the situation and that would create even greater competition for those that left the field by those that chose to either stay or get in. Not a good business decision in the face of declining world reserves and increased Alberta production capacity is it? Sort of like shooting yourself in the foot.

Big oil will bark about it sure, but will it cause anything detrimental? I seriously doubt that.