Royalties Hike would Kill "golden goose"!

These are pitiful and predictable comments. I was watching CBC TV yesterday and some international investment fellow was interviewed who had just read over the report. His response was that the royalties levels would still be less than many other countries!
It only makes sense for the Alberta government to make a reasonable return on its natural resources. There are lots of problems that the provincial government faces that an influx of new cash could certainly help. The problem with Alberta is that many of its politicians are glad to sell out their resources for a few crumbs from Big Oil. Well quite a few crumbs!

Thursday » September 20 » 2007

Royalties hike would kill 'golden goose'
Claudia Cattaneo And Jon Harding
National Post


Thursday, September 20, 2007


CALGARY - Debate raged inside and outside Alberta yesterday over how to divide fairly the spoils from the province's envied oilsands deposits following a government-appointed panel's recommendation that would see oil companies slapped with another $2-billion annually in taxes and royalties.

"Do they really wish to kill this golden goose with one fell swing of the tax axe?" said economist Dennis Gartman, editor of the Gartman Letter, an influential investment newsletter based in Virginia, who was "shedding tears" about Alberta going "socialist" and wondering whether the provincial government has "gone mad."

"We want out of all things Canadian, and we want so immediately. We can return at a later date, when these proposals are turned down by the legislature involved. Until then, discretion is the far, far better part of valour. Goodbye Canada; it was fun while it lasted."

Even former Alberta premier Ralph Klein emerged from retirement to voice a strong opinion against radical changes, saying he fears for the industry that directly or indirectly employs one in three people in the province.

"There is one thing for sure, we have had a fair and clear and comprehensive royalty regime where the rules are the same for everyone," said Mr. Klein, who helped raise the oilsands' profile globally to attract investment and was one of the architects of the current oilsands royalty regime.

"It was a regime created by industry and government. Those kinds of rules don't change on a whim. Companies are nervous."

But reflecting the other camp in what has become a heated debate in Canada's most business-friendly province, Calgarian John Zalischuk said he doubts oil companies will abandon ship.

"People living in the real world know that this is not going to happen," he said in an e-mail. "If there is any energy company that does not like the new rules, they can leave and they will be replaced by someone else. They can always go back to Venezuela, Russia, Kazakhstan or Africa and try to negotiate a better deal," Mr. Zalischuk said.

Meanwhile, a major lobbying effort has begun to influence Premier Ed Stelmach, a novice who is seen as being naive for having triggered so much acrimony and is expected to pay a political price regardless of which way he leans.

The six-member panel, headed by retired forestry executive Bill Hunter, said in its 104-page report released on Tuesday that Albertans aren't getting a fair share of the province's oil wealth and urged a 20% increase to the billions the debt-free government already collects.

The recommendations, while still under consideration by the province, sank oilsands stocks across the board, even as oil prices touched a new record high of US$82.51 per barrel.

J.P. Veitch, an institutional broker at Westwind Partners, Inc. in Calgary, said he has been inundated with calls from clients in Canada and the United States "livid with this report and the subsequent uncertainty."

A litany of Canadian investment banks also pulled no punches in their assessment of the proposals in the Our Fair Share report.

FirstEnergy Capital Corp. warned the proposed measures, in a report entitled "Albertastan? Misguided Intentions and the Fair Share Option," would be "negative if adopted, and will slow down the development of oilsands."

BMO Capital Markets called its report: "Assassinating the Goose?" and predicted a negative impact on oil and gas share values. Peters & Co. said "the changes proposed by the panel are incredibly harsh."

Tim Hearn, CEO of Imperial Oil Ltd., Canada's largest oil company, said the panel failed to take into account the cumulative impact of policy changes in the past year that have added costs. Meanwhile, industry costs are soaring and the high Canadian dollar has cut the value of a Canadian oil barrel by a third.

"It's very important that whatever we come up with we end up with a vibrant and competitive industry, not end up doing something that we will all collectively regret," he said in Toronto.

Glen Schmidt, CEO of oilsands startup Laricina Energy Ltd., warned the panel "seems only to have identified the maximum possible tax grab to push the sector to the edge."

The Alberta government said it would have a formal response next month, stirring concerns that the province's oil-dependent economy will be on edge until the dust settles.

The report's key recommendations are that the total government take -- taxes and royalties --from oilsands projects increase to 64%, from the current 47% and that the new rules apply to projects across the board, including industry pioneers Suncor Energy Inc. and Syncrude Canada Ltd. that have Crown agreements that lapse in 2015. The report acknowledges that scrapping such agreements could give those developers grounds for lawsuits.

The panel believes Alberta should jump on the global trend of demanding a greater share from its oil wealth and argues that many of the world's producing countries that did so got away with it without seeing an exodus of investment, with Venezuela being the only exception. "Newfoundland's recent 5% and 10% buy-in deals are a very current Canadian example," the report said.

It also recommends a 5% increase in government charges for conventional oil and gas projects, with higher producing wells bearing the brunt of the increase, while low producers would get a break.

"Adopting this report, the Alberta government slams the door on any growth of conventional gas," said George Gosbee, chairman of Tristone Capital Inc. "I guarantee you would never see the production high of 17 billion cubic feet a day that we reached in 2000 ever again in our lifetime."

© National Post 2007








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