Royalties 'Blatant deceit'
Gov't depriving albertans, review panel member says
Jason Markusoff and Jason Fekete with files from Gordon
Calgary Herald; Reuters
Saturday, October 27, 2007
EDMONTON - Ed Stelmach's new royalty regime is a "blatant deceit" that deprives Albertans of a fair share, a member of his royalty panel charged Friday.
The premier insisted his plan is balanced and will go ahead as planned.
The panelist, who asked not to be identified, said Stelmach's royalty strategy is a misleading response to what the royalty report and economic data suggest are best for Albertans.
"It's a political document that's not really grounded in too much economic reality," the panelist said.
"It's a lot of dread. ... Just seeing it unfold is like a Greek tragedy," the panel member added, saying the government's rejection of so many recommendations was a slap in the face.
As a result, Albertans "absolutely are not" receiving a fair share of the publicly owned oil and gas resources under the new deal.
Instead, the province could actually collect fewer royalties in the future because the government ignored several key recommendations, including an industry-wide oilsands "severance" tax.
"Overall, we could end up with less (in royalties) than we're getting now," the panelist said.
A big reason for that is the government's current deals with oilsands giants Suncor and Syncrude, and its plan to move the companies to the new royalty structure.
The agreements -- which allow the companies to pay royalties on the price of lower-valued bitumen rather than synthetic crude -- don't expire until 2016 and will eat away at the government's royalty take.
But had Stelmach adopted the oilsands tax, as recommended, he could have recouped some of the revenue lost by the agreements.
The only way the government will ever get Suncor and Syncrude to abandon their current deals is through a buyout worth "double digits of billions of dollars," the panelist said.
"If I was in Suncor's or Syncrude's shoes, Iwould be doing the happy dance," said the panel member. "They won the lottery."
Stelmach, in Calgary, rejected suggestions he's not delivering Albertans the fair share he promised.
"If we don't develop the resources in a very responsible manner, there won't be any revenue coming to the province in form of royalties," he said. "It is a balance."
As dust settled on Day 2 of Alberta's new royalty era, struggling natural-gas firms still had fears the winter drilling season is imperilled, while developers of a couple of oilsands projects announced they'll press ahead as planned.
But the "ugly day" some stock-market analysts feared never materialized.
On the first trading day after Stelmach announced royalties would rise by $1.4 billion by 2010 -- $463 million less than the review panel recommended -- oil and gas stocks rose 0.2 per cent. They had help as oil rocketed as high as $92 US a barrel.
Stelmach argued investors' muted reaction suggests "everything held its own" and that he found the right balance.
To analyst Peter Linder of Delta One Capital Partners, the stock market's response suggests that protests about Stelmach punishing Alberta's dominant industry are "much ado about nothing."
"The royalty proposed by the panel was watered down significantly, I feel, and the new royalty system is such that the industry can live with it, and I think the industry will live with it," he said.
"As much as it's a bigger slice of the pie, there's still enough of the pie left for the industry left to be healthy," Linder said. "It's still severe in some cases, but it could have been a lot worse."
Liberal Leader Kevin Taft added his voice to the chorus of those saying Stelmach is continuing to shortchange Albertans, which the auditor general and royalty panel said the Ralph Klein regime knowingly did for years.
"By falling well short of the recommended goals of the royalty review panel, he has compromised on a compromise," Taft said.
Higher royalties on natural gas stand to hurt a gas sector that has idled rigs because of high costs and low gas prices.
Tristone Capital eased off its declaration that the winter drilling season is dead -- saying some, like Talisman, can afford to come back thanks to new deep-well incentives. But Tristone said the picture's still grim.
Companies will still see a much more attractive royalty system in British Columbia, Tristone analyst Cristina Lopez said.
"The plays that straddle the border are going to be drilled across the border, and not in Alberta," Lopez said. Even though new royalty rules don't take effect until January 2009, firms set up deep-gas rigs for multi-year activity, and most players are now mulling how much of the winter activity to cut, beyond what's already savaged by lousy prices.
Grande Prairie Mayor Dwight Logan said he doesn't think there were "substantive changes" to the royalty system that would put the city's booming, natural gas-fuelled economy in trouble. He's more afraid of the factors already hurting the sector.
"If we don't see the market rise in the U.S., things will stay a little slow," Logan said.
As for the oilsands, analysts were relieved Stelmach rejected a new "severance tax" on bitumen, and instead gave them something closer to what industry wanted -- adjustments to the current formula that rises only as oil lifts above $55 US per barrel.
Petro-Canada said it will press ahead with design and engineering for its $26-billion Fort Hills oilsands project and the steam-driven MacKay River expansion.
"With what we've seen, that still is the right path for us to be taking, so we're still going full speed ahead to get to those decision points," said Andrew Stephens, Petro-Canada vice-president of corporate relations.
Connacher Oil and Gas also expressed faith that it can still comfortably profit in the oilsands.
"The new policy will not impair our decision to proceed with continuing evaluation of our oilsands acreage with our Algar project," Connacher announced in a statement.
EnCana, the first company that threatened to cancel $1 billion in spending plans in gas and oilsands, is still studying the impacts of the new royalty system, spokesman Alan Boras said.
Meanwhile Canadian Oil Sands, the largest partner in Syncrude, reacted cautiously to Stelmach's insistence that Syncrude and Suncor must renegotiate government agreements that would exempt them from new oilsands rules until 2016, or face unspecified alternative measures.
"We must ensure that our legal rights are preserved," Marcel Coutu, CEO of Canadian Oil Sands, said in a statement.
Stelmach's push to convince Albertans he's struck the right balance continues today as he speaks to a conference of his Progressive Conservatives. The party counts among its members some of the oil industry's loudest advocates against higher royalties.
Energy Minister Mel Knight begins a one-week trip Sunday to New York, Washington and other United States cities to sell the reforms to U.S. industry, investors and government officials.
A $225,000 ad campaign began in Alberta newspapers Friday, light on details but boasting that Stelmach "delivered" for the public.
"They royalty report was an economic document," complained Frank Atkins, an economist at the University of Calgary. "They've taken it and made it a political document."
NDP added further to the politics. Leader Brian Mason accused his fellow opposition Liberals of helping the government go easy on royalties by not firmly demanding a higher government take when Stelmach was still mulling his decision. |
