Monday, October 1, 2007

Law Prof: Alberta within rights to raise royalties

In many countries oil and gas resources are developed by government owned corporations. This ensures that any profits go to the government to be used for the benefit of the country that has the resources. Alberta or Canada could have its own gas and oil companies. Of course once upon a time there was Petro-Can but of course this was sold off. Albertans did not like Petrocan since it was not returning profits to Alberta. Maybe there should be a provincially owned company Stelmach Energy Resources.


Alberta within rights to raise royalties, says law professor
Energy firms decry 'no grandfathering'

October 1, 2007

CALGARY -- Alberta has the right to raise royalties on existing oil and natural gas projects in the province, according to a University of Calgary law professor, countering suggestions from industry that such a move could constitute a breach of contract.

Last month, an expert, six-member panel concluded that Alberta is missing out on billions of dollars of energy profits, recommending an increase in royalties and taxes. The panel insisted there should be no "grandfathering" of existing projects, meaning the proposed new rules would apply to everyone, adding that if grandfathering was used, "almost nothing would change."

Nigel Bankes, a law professor at University of Calgary with an expertise in resources law, says Crown leases in Alberta that provide energy companies the right to develop resources in the province explicitly state that royalties are not fixed and could change over time.

"It allows governments to share in any unanticipated changes in the market value of the resource," Prof. Bankes said in a new paper written for the Institute of Advanced Policy Research at U of C.

"There is nothing arbitrary about the 'no grandfathering' proposal ... The panel's proposal makes good policy sense and is completely in accordance with the province's legal and moral rights."

The one exception, noted by the panel and Mr. Bankes, are Suncor Energy Inc. and Syncrude Canada Ltd., the oldest and biggest oil sands producers that have special individual deals with the government that expire in 2015.

Other jurisdictions, such as Britain, have increased the money they get in recent years from the oil industry without grandfathering existing operations.

A number of companies in Alberta, led by Canadian Natural Resources Ltd., have questioned the grandfathering issue since the panel issued its report in mid-September.

The company, among the largest investors in Alberta, is nearing the completion of a $7.6-billion oil sands mine project, which is being developed under the generic oil sands royalty regime that the panel believes should be amended.

"We think we have an existing agreement that governs our project. Now we're told maybe we don't have an agreement," Murray Edwards, Canadian Natural vice-chairman, said in an interview on Sept. 20.

Asked whether he would consider a court challenge, he said the company hasn't "even thought about that or looked at that."

Mr. Edwards added that his investors are also concerned about the grandfathering question.

"There's a lot of concern about no grandfathering and no respect for existing contracts, in terms of sanctity of contracts.

"It's one thing to change rules on a go-forward prospective basis, but for major projects that capital has been provided for, to change the rules retroactively, that's a concern."

A final decision on the panel's recommendations by the Alberta government is expected in mid-October.

In the panel's 104-page report, which was the result of more than half a year of work and many public hearings, it concluded that "grandfathering causes market distortions and inequities among participants."

It also noted that industry executives claimed during the public hearings that they had "an implied contract" in their leases. Albertans own the oil and natural gas and energy companies lease exploration rights to develop the resources.

"Their arguments," the panel wrote, "were that all programs and royalty rates in place at the time a lease was issued should be tied to the lease for the life of the lease. This does not have a basis in law or in common practice in Alberta or elsewhere.

"The rights purchased with the lease do not extend beyond those included in the lease, which are limited to rights of exploration and/or production, and not to programs or royalty rates."

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