EnCana to cut $1-billion if royalties rise
>>>Very interesting. I think that the "royalty sell-off" losses have been overwhelmed because of the rising Loonie, and crude price. I don't think a reversal of the royalty regime has yet been discounted. When it does - mid October (?) - it might be Kati bar the door. I love it when a corporation talks hard economic sense to a socialist government.<<<
JOHN PARTRIDGE
Globe and Mail Update
September 28, 2007 at 9:46 AM EDT
In the latest salvo in a thundering barrage of industry criticism, Canadian natural gas and oil sands giant EnCana Corp. [ECA-T]says it will slash its investment in Alberta by up to 40 per cent or $1-billion next year if the province fully implements recommendations to sharply boost royalties contained in a recent review by an independent panel.
"If the Royalty Panel's recommendations are adopted in full, many of Alberta's new and emerging resource plays will simply not be economically viable," EnCana chief executive officer Randy Eresman said in a news release issued before stock markets opened Friday.
"These new plays would have formed the foundation for the future of Alberta's natural gas production. Even without that future gas production growth, under the recommended changes EnCana's royalties on Crown lands would effectively double, assuming current gas prices. We will have no choice but to slow down our Alberta-based activity and move investments to other areas in Canada and the U.S. that are more economically attractive. As a further consequence, Alberta natural gas production will continue to fall."
EnCana's statement, which also warns of heavy job losses across the oil patch and other harsh economic consequences throughout the province, is one of the most detailed industry responses yet to the panel's report, which was submitted to the provincial government Sept. 18.
The panel's report concluded that Alberta is missing out on billions of dollars in oil and gas money, especially from the oil sands.
Under its recommendations, the province's share of natural gas revenues would rise to 63 per cent, in the form of increased royalties and other taxes and levies, from 58 cent, while for the oil sands it would climb to 64 per cent from 47 per cent and for conventional oil to 49 per cent from 44 per cent.
However, as is now the case, companies would continue to pay royalties of just 1 per cent until they recover the billions of dollars in capital they invest to build their businesses.
Alberta Premier Ed Stelmach has pledged to respond to the recommendations by mid-October.
Like other companies that have already issued dire warnings about the potential consequences, EnCana insisted Friday that it is willing to accept royalty increases, but not as large as those proposed.
"We are open to changes to Alberta's royalties — changes that reflect the economic realities of volatile commodity prices, higher costs and the appropriate risks and rewards of long-term capital investments," Mr. Eresman said in the release. "A royalty system can be developed that achieves Alberta's objectives without so severely damaging the province's future."
This is the same argument made in recent days by other leading energy companies, including Canadian Oil Sands Trust — the largest shareholder in key oil sands developer Syncrude Canada Ltd. — Canadian Natural Resources Ltd. and TransCanada Corp.
EnCana said it is currently planning to invest $2.5-billion to $3-billion in its Alberta operations in 2008, but that it plans to chop this by about $1-billion, mostly in its natural gas operations.
It argued that the capital spending cuts would be just the "tip of the iceberg" of negative consequences for Alberta is the government accepts the panel's recommendations holus bolus.
(Edit: holus-bolus adverb 1. Altogether; all at once. Etymology: 19c: sham Latin, based on whole bolus.)
"In the short term, these changes would mean extensive job losses across the industry," the company said. "There will be fewer wells drilled, completed, pipelined, operated and serviced. There will be fewer hotel bookings, vehicle purchases, landowner lease payments, restaurant meals and lower property taxes in the areas where EnCana operates, and that is just about every corner of Alberta, from the smallest towns to the biggest cities. More importantly and over the long term, well-paying, permanent jobs will not materialize across Alberta."
Still, the company argued that it will "continue to thrive" even if Premier Stelmach's government does implement the recommendations as written.
"Our current projects and emerging opportunities in British Columbia, Saskatchewan, Colorado, Wyoming and Texas offer continued growth potential and strong returns for our shareholders," Mr. Eresman said.
The Globe and Mail reported earlier this week that British energy consultancy Wood Mackenzie that Alberta would remain one of the cheaper places around the globe for oil and gas producers to do business, even if the royalty panel's recommendations are fully adopted.
Based on monies paid to government, the oil sands would fall to 44th most generous to the industry from 11th among 100 fiscal regimes around the world, the firm said.
It also estimated that the panel's recommendations would cut the oil sands' $200-billion estimated commercial value by 13 per cent or $26-billion (U.S.). |
