With new mandate, Alta. Tories need to tackle royalties immediately.

This is from moneyaol. Interesting that even though the business community wanted any one but Stelmach as leader of the Conservatives Munro still claims that it would have been a disaster for business if the Conservatives had not one.
No doubt the business community, particularly in Calgary, are quite anxious to show Stelmach what he has to do! It would have been nicer if they had an insider but then sometimes democracy does not work the way it should.

With new mandate, Alta. Tories need to tackle royalties immediately: analystSource: The Canadian Press
Posted: 03/23/08 7:22PM
CALGARY - While Alberta Premier Ed Stelmach may want to spend some time revelling in his party's landslide election victory, he needs to get to work straight away on resolving issues around the province's booming oil and gas sector, says an industry industry analyst with the Ernst and Young consulting firm.

"At their peril the Progressive Conservatives would take the election results as a ringing endorsement of their policies," Barry Munro said in an interview Tuesday.

The Tories, who swept 72 of 83 seats in Monday's provincial election, need to immediately clarify some of the details of the new oil and gas royalty framework as well as restore their relationship with Calgary's business community, the consultant said.

"Business excels at taking risks and making educated decisions," Munro said.

"But we created an environment in Alberta where we created a high level of uncertainty because we've announced a bunch of policy changes but we haven't gotten very far along on implementation."

The royalty scheme, which will increase the provincial government's take by $1.4 billion a year beginning in 2009, was greeted with scorn from many companies in Alberta's petroleum industry when the revenue hike was unveiled in October.

Stelmach has since signalled that his government would work with producers about easing some of the policy's unintended consequences, especially when it comes to deep gas drilling and high-productivity oil.

"There continues to be this very, very impassioned call on the government to just simply fix some things that were just badly flawed within the logic of the royalty recommendations," Munro said.

"He's got to get on with that and he's got to get on with that right now because business planning cycles require certainty or else people just quit spending. When faced with an uncertain framework people just allocate capital elsewhere."

The new royalty plan also called for the government to re-negotiate its existing contracts with the two largest and oldest oilsands producers, Suncor Energy Inc. (TSX:SU) and Syncrude Canada, the world's biggest oilsands project.

Last month, the government cut a deal with Suncor, raising royalties. But talks with Syncrude's owners are still in limbo months later. Analysts speculate the delays could reflect that Sybcrude has many owners, including Canadian Oil Sands Trust (TSX:COS), Imperial Oil Ltd. (TSX:IMO), Nexen (TSX:NXY) and Petro-Canada (TSX:PCA)

The Stelmach government needs to gain a better understanding of how the oil and gas industry works, Munro said.

"There's that perception that there's a lack of understanding - whether it's well founded or not - immediately flowing out of that is this lack of confidence," he said.

"The only way to fix that is to re-engage the business community and have them feel and be part of the solution or you'll never make forward progress."

The Canadian Association of Petroleum Producers plans to talk with the government about the effects of the royalty regime and how a new land-use framework will affect oilsands development, group president Pierre Alvarez said in an interview

"With so many new MLAs and such a strong majority I think we'll wait until the premier has met with his caucus and at the appropriate time we'll sit down with them and get moving forward," Alvarez said.

"We look forward to getting back to work now that the election is behind us."

The Alberta business community also needs more answers on how the government intends to deal with the environmental concerns that come with the province's ever-expanding oilsands sector, Munro said.

That includes taking some concrete steps to advance carbon capture and storage projects. Stelmach has been a proponent of that technology, which could allow the huge amounts of carbon dioxide emitted by the oil and gas industry to be stored underground. But there need to be financial incentives to get those initiatives off the ground, Munro said.

The industry is also worried about the "infrastructure deficit" that has come with Alberta's breakneck economic growth in recent years, he added. Stelmach has made a great deal of big spending announcements in the weeks leading up to the election, but "people are really anxious for that to get on the way," Munro said.

"The business community has a very, very strong desire for them to actually get some of this stuff buttoned down."

Despite all the uncertainty, many businesses are likely relieved that they will be dealing with the government they have known for nearly four decades, Munro said.

"Frankly it would have been, for the business community, an absolute unmitigated disaster if anybody but the PCs had gotten in around the current state of the royalty framework."