The provincial government released their new royalty regime for Alberta oil and gas industries last week. The government had decided to raise royalty rates but not the full amount that was suggested by the Royalty Review panel a few weeks earlier. The government feels that it has made the correct decision to ensure that Albertans received their "fair share" of Alberta's natural resources despite the opposition saying that Albertans are still being shortchanged.
"I made a commitment and I delivered," said Premier Ed Stelmach in an Oct. 25 provincial press release. "Future generations of Albertans will receive a fair share from the development of their resources. I offer stability and predictability to those in the oil and gas industry, and the time to adjust to royalty changes. And I can also assure investors that Alberta will remain an internationally competitive and stable place to do business."
However, opposition parties have criticized the government for not abiding by the government's own report.
The Alberta Liberal party wanted the royalty rates raised to the levels set out by the panel.
"We want royalty rates raised 20 per cent just like the panel recommended," said Liberal energy critic Hugh MacDonald. "He's leaving half a billion dollars uncollected annually."
The NDP agreed the government should have adhered to panel recommendations.
"Very simply too little, too late," said NDP house leader Ray Martin. "The reality is [Stelmach's] saying that it wasn't a compromise but it was a compromise, it was a compromise on a compromise."
Similar sentiments were echoed at the Parkland Institute.
"Compared to other jurisdictions around the world, Alberta is capturing a lot less," said Parkland Institue executive director Ricardo Ecuna. "There are other jurisdictions capturing 75 per cent or better of the money that is available from resource royalties and a lot of these jurisdictions--places like Iran, Russia, and South America--are places that aren't terribly politically stable--so when you consider that a place like Alberta, which is incredibly politically stable, [and has an] incredibly trained and well-educated work force in the energy industries, we don't need to cut our royalties short to compete for energy business. There is room there for significantly more."
The rise in royalty rates impact will be minimal according to University of Calgary's Haskayne School of Business professor Dr. Robert Schulz. He noted natural gas prices were already quite low and cut backs were probably coming anyways. He explained the big question mark is what is going to happen in the oilsands with SunCor and Syncrude.
"The royalty review is probably more targeted towards oilsands changes, and the real question here is what is going to happen with Suncor and Syncrude because that was not part of the press announcement," said Schulz. "There's ninety days for Suncor and Syncrude to redo the deal, so the other companies are probably saying, 'Well, it's not as good as we hope, it's not as bad as it could have been, let's move on. In the long run for conventional oil and conventional gas, I don't think there are going to be any substantial changes in terms of what corporations look at what happens here."
Those who advocated against raising the royalty rates were concerned it might damage Alberta's reputation as a good place for companies to invest, but Schulz noted he thinks Alberta's reputation will survive the rise in royalties.
"If we look at what happened in the stock markets there was not a major drop in all of these oil sands companies so the market already anticipated something like what the royalty review part two came up with" said Schultz. "I think most people in the international finance business already knew that there were going to be some changes. They already knew 1 per cent royalty was probably too low. In many respects none of this is new."
However, he did point out that there are some unknowns facing the oil and gas industry where no one is exactly sure what is going to happen. At the moment Suncor is unsure about how they are going to proceed.
"Suncor recognizes the oilsands resource we develop is owned by the people of Alberta, and Albertans have the right to benefit economically through royalties," said Suncor president and CEO Rick George, in a press release Oct. 25. "However, the royalty regime changes proposed by the Alberta government are substantial and could have a significant impact on industry economics."
With all of these unresolved questions, Schultz felt the government is not implementing the new royalties gradually, despite the claim.
"It's not so much a phase-in but the production accounting computer programs have to all be completely redone for every company," said Schultz. "All the consultants that do the evaluations and all of the accounting firms are going to have to go back and rework at the recalculations of all these numbers with the new regulations. Jan. 1 2009 may be too soon when you look at all the logistical computer programs that have to be changed and tested and resolved and given a good housekeeping seal of approval by their CA firms."
The NDP dismissed this claim.
"That's what they [oil and gas industry] would say," said Martin. "If there is a profit to be made, they can do it very quickly. I'm not particularly worried about that."
How this will either help or hurt the Conservative government remains to be seen.
"I think we have to wait and see what happens," said Ecuna. "I think a significant number of Albertans understand that this is a watering down of the panel's recommendations and when the panel's report was first released it had really strong support among Albertans so unless the provincial government can do a really strong sell job on this, it is likly that it may hurt the Premier. We've also seen the provincial government do really strong sell jobs on policy before, so I don't know how it will play out in the long-term."