Higher oil sands royalties could cut 13 per cent of the value from current and planned projects around Fort McMurray, but Alberta would remain one of the cheaper places to do business in the world even with more money going to government, according to research by British energy consultancy Wood Mackenzie.
Of 100 fiscal regimes around the world analyzed by Wood Mackenzie, money paid to government in the oil sands is ranked as the 11th-most generous system for industry. Should higher royalties and taxes be instituted, the ranking would fall to 44th, still in the top half.
Last week, an independent panel concluded Alberta is missing out on billions of dollars from its energy resources and called for the government's take from the oil sands to rise to 64 per cent from 47 per cent, including royalties, taxes and other levies.
The panel said Alberta would remain competitive internationally, but local oil companies are outraged and have called the proposed increases too onerous.
Wood Mackenzie calculated that if the recommendations were fully accepted, 13 per cent or $26-billion (U.S.) would be cut from the oil sands' estimated commercial value of $200-billion, based on $50-a-barrel oil and a net present value discounted by 10 per cent.
Undeveloped projects, such as Petro-Canada's Fort Hills and Exxon Mobil Corp.'s Kearl, face the greatest risk under the new recommendations, said Derek Butter, head of corporate analysis for Wood Mackenzie. He noted that Exxon is "notoriously strict" in terms of what it wants for profit, suggesting higher royalties could discourage the firm from building the $8-billion (Canadian) Kearl project.
Petrocan last week said it remains "very committed" to Fort Hills.
While energy executives publicly are saying the report's recommendations will hurt the industry and the province, several have said off the record this week that they expect much of the report to be adopted by the government.
The Alberta government plans to make a decision on royalties by mid-October. Yesterday, it outlined what it plans to do in the next several weeks, saying that Energy Minister Mel Knight will lead the technical analysis of the report. Deputy Premier Ron Stevens will "liaise" with industry and plans to publish a report on his discussions.
The Canadian Association of Petroleum Producers has said the royalty report is the starting point for further discussion, arguing that data in the document is flawed. A spokesman for Premier Ed Stelmach yesterday insisted that another round of talks isn't the plan.
"We're absolutely not opening up another formal consultation. Period," said David Sands, an Alberta government spokesman.
Energy stocks in Canada are down 2.6 per cent since the report was issued. Oil sands producers are down further, with Suncor Energy Inc. falling 5.9 per cent, a slip following the stock almost reaching an all-time high before the report's publication.
UBS Securities, in a Sept. 21 report, suggested names such as Suncor have been "far overpenalized" by investors and asked whether "is it time to buy?"
David Ebner