Ed Stelmach was obviously not the choice for leader of the oil barons. Now Stelmach has a report that shows why. With Ralph Klein they had a leader who gave them great value for the money they invested in him. Stelmach could very well be a bit of a problem to manage. However, as one article shows raw bitumen is being piped into the US resulting in no value added in Alberta, exactly what Stelmach was supposed to stop.
At least the Edmonton papers do not join in the silly babble about killing the goose that lays the golden egg. They just want their fair share of the funds from the eggs. Anyway the eggs (oil) is already all there. There is nothing to kill just the problem of getting the most from its extraction. As the royalty report shows Alberta is one of the world's kindest royalty regimes. It is Albertans who are getting royally goosed.
Sunday » September 23 » 2007
Klein's 'don't worry, be happy' royalty ideology doesn't cut it
Review panel member finds Third-World accounting practices
The Edmonton Journal
Sunday, September 23, 2007
Evan Chrapko and his brother, Shane, farm boys from Two Hills, built a small software company into a multimillion-dollar business. They sold it for $850 million in the dot.com boom a few years ago. Now they are working on biofuels, turning cattle manure into biogas for electricity, ethanol or plain heat.
So Evan knows a thing or two about big business and markets, which was one reason Premier Ed Stelmach appointed him to the royalty review panel.
Chrapko had other expertise that Stelmach wanted. He spent years as an internal auditor for international oil companies. His dot.com company specialized in software to let companies track ongoing costs of massive construction projects or operations at power plants.
So he also knows a thing or two about accounting and company expenses too.
When Chrapko began work on the royalty panel, he went looking at that basic accounting data about provincial royalties. He was "horrified" to discover the Alberta energy department has no accurate records of how much royalty money is owing compared to how much is actually collected -- which means there's no way to find out if the department has collected the right amount over many years.
"This province will join the top five-ten oil producers in the world and we have record-keeping that works for Third World countries in the 1960s," says Chrapko.
Can you imagine running an income tax system that way, not caring if people submit receipts for their expenses? Or whether their claims are legitimate?
So Chrapko is keen on the panel's recommendations for a royalty accounting system to ensure companies are paying what they're supposed to.
Oil companies are doing their best to discredit the panel's report which says Albertans should collect another $2 billion in royalties.
This is Albertistan, some cry, or Caracas, Venezuela, on the Bow River. The economy will slow, companies will leave.
Chrapko refuses to be rattled by the outcry. "Oil companies have a job to do -- to continue to maximize their return" to shareholders, he says, so they'll keep pushing.
But that doesn't change the fact that the owners of the resources, Albertans, have a right to their fair share and they're not getting it, he says.
Between 2002 and 2006, governments across the globe began to raise royalty rates as oil prices soared to record levels -- the very years when former premier Ralph Klein said Alberta didn't need a royalty review.
"The hallmark of the Klein years was 'don't worry, be happy,' " says Chrapko. "But he wasn't speaking for a lot of people."
No one seemed to be speaking for average Albertans in those days, says Chrapko, but they certainly spoke to the panel.
The panel compared Alberta's royalty take to other that of oil producing countries. It found this province has among the lowest royalties across the globe, especially in the oilsands. Everywhere, from Texas to Norway, the owners take a bigger share than Alberta.
In 2004, Venezuela raised royalty rates to among the highest level for all oil-producing countries. Companies like Exxon grumbled but they still didn't pull out, says Chrapko, (though that changed in 2006 when Venezuela nationalized some of the oil sector.)
The panel never considered that kind of increase. Their reasonable proposals still leave Alberta with one of the lowest royalty regimes.
Let's also not forget right here at home Newfoundland Premier Danny Williams successfully negotiated a small equity stake (five per cent) for his province in three offshore oil deals and has released a 35-year energy plan that calls for a ten-per-cent stake in future projects.
Oilsands companies especially are hollering that they can't afford higher royalties because their construction costs are escalating in this high-inflation economy (never mind that it was their rapid rush into the oilsands that created much of the problem.)
Chrapko has little sympathy, he says, because the people of Alberta take only one-per-cent royalty until the projects become profitable.The higher the costs of construction and operating in those early years before a profit is made, the longer we forgo royalties -- " a significant loss to Albertans as resources owners," says the report.
Oil companies, Chrapko adds, have mostly ignored the fact that the panel also recommends lower royalties on 82 per cent of conventional oil and gas, including new wells for coalbed methane -- because wells producing at a lower rate should pay a lower royalty.
Chrapko had never met Ed Stelmach until a few months before he was asked to sit on the royalty review panel and he's never been very interested in politics.
He's impressed that Stelmach didn't try to influence the panel. That's a "breath of fresh air," in Alberta he says, where usually this work "gets done by insiders and never made public."
One of the major strengths of the report is that it states more clearly than the Klein government ever did that Albertans are the owners of the resource and royalty rates should flow from that starting point. It's important, and a relief, to have that principle firmly back on the table.
Then consider this. The day after the panel's report came out, as the hue and cry began, both Petro-Canada and Teck Cominco bought an increased share of the massive Fort Hills oilsands project.
© The Edmonton Journal 2007
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September 23, 2007
Lights dim on Alberta's economic future
By NEIL WAUGH, EDMONTON SUN
It was a one-step-forward-two-steps-back kind of week for Ed Stelmach.
Who is technically Alberta's premier. But still must face the folks in an election to confirm it.
The release of forestry guy Bill Hunter's bold report into what's wrong with the Tories oil, gas and oilsands royalty regime (Bill says there's plenty) made the premier's day.
Even though the fat cats in the Calgary oil towers were pretending like their secretaries had to talk them down off the window ledges after they read the "Our Fair Share" document.
The most draconian recommendation calls for a massive 4% "severance tax" on oilsands production before plant payout. That's over and above the oppressive 1% royalty that the developers are now stung with. Yes, it's really scary folks.
And after the massive costs are fully covered by the generous Alberta taxpayers, the royalty rate climbs from 24 to 33%.
The end of the world as we know it.
If this is the plan that Stelmach wants to wrap his election platform in, I say go for it Ed.
But that's only part of the problem.
Because a year ago when royalties became a gotcha issue on the PC leadership trail, Stelmach was more focused on a far serious problem. Can't blame him since Upgrader Alley overlaps the western part of his riding.
And that's the sinister plans by EnCana, Exxon Mobil and others to begin shipping massive volumes of raw oilsands bitumen down zipper pipelines to Illinois and Texas. Along with thousands of high paying, permanent jobs.
Stelmach compared it to stripping the "top soil" off a farm and trucking it Stateside.
So concerned was Candidate Ed with the threat to Alberta's long term economic future, the first thing he did when he became Premier Ed was to send out a mandate letter ordering that a "value added strategy" be developed.
At the same time he also called for the royalty inquiry.
But there were two fundamental difference.
Stelmach clearly didn't trust the energy department bureaucrats to essentially review their own blunders and turned the royalty probe over to Finance Minister Lyle Oberg.
The report Oberg delivered was on time and on the money.
Alberta's royalty regime is broken and needs to be fixed before any more of our billions go over the dam.
That's the good news.
The bad news came two days later after the myopic National Energy Board rubber stamped the offensive Keystone pipeline project which sees 600,000 barrels-a-day of raw bitumen and 17,000 jobs flushed down the big inch to the States.
Alberta Federation of Labour president Gil McGowan branded it a "bitumen superhighway."
And there's a second and worse deal for Albertans called the Alberta Clipper line waiting in the wings.
While Alberta NDP leader Brian Mason - flanked by Alberta construction union brass who are already steaming over the Tories' go-to-work-or-go-to-jail court orders their members were served with last week - accused the premier of "barely lifting a finger to stop it from happening."
Good shot Brian.
Except, ironically, Stelmach did. The only problem, he gave the job to the wrong guys.
Because the value-added strategy was Job One on Energy Minister Mel Knight's to-do list.
But now it appears Knight and his blundering energy-crats are stalling on this report also.
Just like former energy minister Greg Melchin shamefully suppressed the previous royalty probe.
The one Ralph Klein got burned in Hunter's document for not giving a "tinker's dam" about.
And what should have been a win-win week for the premier, as he desperately tries to untangle himself from the mess that Ralph left behind before the March election, turned into doggie doo.
It also makes a pre-Christmas cabinet shuffle a tantalizing possibility.
Especially if Stelmach doesn't get the bounce in the polls that the royalty review and municipal infrastructure deal is supposed to give him. There's already talk.