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Gold/Mining/Energy : Oil Sands and Related Stocks -- Ignore unavailable to you. Want to Upgrade?

To: johnlw who wrote (18187)	10/27/2007 11:09:02 AM
From: johnlw	Respond to of 25575

Gov't has yet to address existing royalty contracts Ron Chalmers The Edmonton Journal Saturday, October 27, 2007 EDMONTON - A day after Premier Ed Stelmach announced a new royalty regime in Alberta, there was still no explanation about how his government will escape from Crown agreements that promise continued low royalty rates for Syncrude and Suncor. Those two companies have contracts guaranteeing that current rates will continue until 2016. "The Alberta government acknowledges that a legal contract exists," Marcel Coutu stated Friday, in a news release. Coutu is president of Canadian Oil Sands Limited, Syncrude's largest shareholder. "We would expect that the Alberta government would honour the contractual commitment it made to the Syncrude owners, which induced the owners to spend over $8.5 billion of capital in the past five years," he continued. Suncor president Rick George said the proposed changes "could have a significant impact on industry economics," and that "we will work with the government to find the right solution for Suncor and the people of Alberta." Stelmach's report announced, unequivocally, that "the government will not grandfather existing oilsands projects." It argued that "a level playing field" requires all operators to pay equal royalty rates. "The government is in discussion with Syncrude and Suncor, whose Crown agreements expire in 2016, to participate in the new oilsands royalty regime," his report stated. "The transition details will be worked out over the next 90 days." The government's dilemma -- honouring agreements or treating everyone equally -- arises from its 1997 decision to simplify, reduce and standardize oilsands royalties. In that generic policy, every operator pays only one per cent of gross revenue at startup until initial capital costs are recovered -- then pays 25 per cent of net revenue. Stelmach's new framework follows that same one-and-25 formula for oil prices up to $55 per barrel. Then the start-up royalty rises gradually to a maximum of nine per cent when prices hit $120. After costs are recovered, the royalty rises to a maximum of 40 per cent. When the Alberta government implemented its generic policy in 1997, it already had signed royalty agreements with Suncor and Syncrude. To bring them into the new one-and-25 policy, it agreed to not raise those rates before 2016. (The government entered a similar agreement with Imperial Oil for its Cold Lake plant. But that deal expires at the end of 2007 and is unaffected by the new framework.) No other operator has a Crown agreement limiting royalties. Stelmach's strategy to avoid the contractual commitments is unclear. "In the event the agreement cannot be reached, the government will take other measures to ensure a level playing field for all industry stakeholders," his framework report states. In a radio interview, Friday, Stelmach said "I'm not breaking any contracts." He insisted "it is in the best interest of their shareholders ... for those two companies to roll into the Alberta framework" -- but did not explain how they would gain by paying higher royalties. "I have no idea what they have in mind," says Andre Plourde, chairman of the economics department at the University of Alberta, and a member of the Alberta Royalty Review Panel. "It really becomes a negotiation." Stelmach's report also announced that all oilsands operators will pay future royalties based on an objective "bitumen valuation methodology" to ensure that the resource is not undervalued in sales between related companies. It further stated that the provincial portion of the accelerated capital cost allowance will end, following the federal government's recent elimination of its portion. This will tend to raise taxes. With higher royalties, however, "we anticipate there will be reduced tax revenues from corporate income in the short term," the report noted. Plourde estimates that provincial income taxes from tax-paying operators could drop by up to 10 per cent of the oilsands royalty increase, which the Stelmach report projected at $470 million in 2010. Federal taxes could drop by up to 20 per cent of that amount -- with no offsetting revenue gain.

To: johnlw who wrote (18187)	10/27/2007 11:29:28 AM
From: FreedomForAll	Read Replies (3) \| Respond to of 25575

Will the people of Alberta realize that new and higher taxes on oil production never result in a "fair share" for the people? The only people to see a "fair share" will be the politicians and bureaucrats. As long as the proceeds from those taxes go into government hands, the people will be lucky to see half of the benefit. That panel deserves to be boiled in bitumen for suggesting such a half-baked solution. The government has done little to facilitate the development of the oilsands. All the investment and ingenuity has come from the individuals in the petroleum industry. Without that investment and ingenuity the oilsands would have no additional benefit to any Albertan. Albertans have benefitted from investment by oil companies in jobs created by that investment. Do the people ever think about what these government actions are? If people allow their government to change contracts with individuals or companies at any time for any reason, is that government different from the Chavez regime in anything but degree? Unilaterally changing an agreement by one of the parties to the agreement without the consent of the other party is a criminal act. If any individual Albertan tried to do such a thing they would be punished in a court of law and rightfully so. This is nothing more than demonization of the oil industry by bureaucrats and theft for political reasons. The panel and the politicians involved don't care a bit about the people of Alberta except to want to buy their votes. If development of the oilsands creates a need for greater infrastructure to support that development then Albertans should be negotiating for those specific needs. Raising taxes and handing the funds to bureaucrats will result in less oilsands production (and lower revenues for Albertans), wasted money, and very expensive, inferior facilities for Albertans.