EDMONTON -- Alberta is missing out on billions of dollars in oil money, particularly in the oil sands, according to a landmark report yesterday, and rookie Premier Ed Stelmach promised a decision within three weeks on the issue that will likely define his government.
"Albertans do not receive their fair share from energy development and they have not been receiving their fair share for some time," said Bill Hunter, chairman of the panel that conducted the public review and wrote the report.
The report, described locally as the most important in a generation, called for a higher oil-sands royalty and a new tax, concluding that higher rates wouldn't drive oil companies to other countries. Giants such as Exxon Mobil Corp. and Canadian Natural Resources Ltd. had threatened that higher royalties would mean lower activity, hurting Alberta and the country.
The report concluded that Alberta in 2006 should have received $11.4-billion from energy royalties, taxes and other levies, fully 20 per cent more than the $9.5-billion collected.
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Companies pay only 1-per-cent royalties until they recover the billions of dollars spent to build their operation, when the rate rises to 25 per cent.
The report left the 1-per-cent rule alone, but recommended that the 25-per-cent rate should rise to 33 per cent, as well as calling for an extra tax. Mr. Hunter, the panel chair, described the oil sands now as a "production powerhouse," with natural advantages, including the political stability of Alberta and the fact that they are a massive, known resource with easy access to a major consumer, the United States.
Yesterday, an industry spokesman stressed that it is only a report and that "the real crunch comes when the government decides what to implement."
"This is significantly more than what we expected. These are wholesale changes," said Greg Stringham, vice-president of the Canadian Association of Petroleum Producers, adding that he couldn't immediately say what it means for oil sands projects.
Mr. Stelmach's government this year ordered a public review that visited six cities to investigate the money made from oil and natural gas, responding to criticism by citizens that given the industry's record profits, the major corporations were getting more than they deserved.
The Premier said a final decision on which of the report's recommendations will be implemented will be made by mid-October, but he did not betray his leanings. Political commentators say he is under tremendous pressure, with his government's popular support having fallen to about 32 per cent from more than 50 per cent at the start of the year.
"[This] has to work for Albertans and it has to work for industry," Mr. Stelmach said.
The 104-page report concluded decisively that even if Alberta raises its take, it will still rank favourably compared with other significant energy regions of the world.
Mr. Stelmach's government has "failed the people of Alberta" by not collecting all the money it should from energy, according to Kevin Taft, Leader of the opposition Liberal Party.
"They have failed them badly," Mr. Taft said. "This is a government that has fallen asleep at the switch."
Mr. Taft said the three-week delay before a final decision is made will cause unnecessary uncertainty and called the report a "defining issue" for the government: "They are running out of chances to handle an issue well. This might be their last chance.
"It's very clear from this evidence ... that when oil is at $80 a barrel, there's a lot of room for us to get a fairer share, a larger share, than what we're getting," Mr. Taft said.
The government may avoid adopting most of the recommendations, fearing it could damage Alberta's "engine of growth," said Frank Atkins, a University of Calgary economist.
"I think politically [the government] may have to back off on this somehow," Prof. Atkins said. "They will pick a few things, make it look like they are doing something and try to move on."
He said there isn't "one voice" among Albertans, noting that many people in the province make their living directly or indirectly from energy. But Mr. Stelmach already has a reputation of indecisiveness, Prof. Atkins added, meaning his reaction to the royalties report might make his political situation worse, especially with a possible election in the spring.
"He's genuinely between a rock and a hard place right now," Prof. Atkins said.
Most oil, natural gas and oil sands in Alberta are owned by the province, which leases rights to explore and produce the resources to energy companies for a royalty in return.
In the 1970s, royalties were increased because oil and gas prices were much higher than in the 1960s, similar to today's prices compared with the 1990s. When royalties were raised in the 1970s, industry didn't back away from pursuing development.
Many of the current royalty rules were created in the 1990s, when commodity prices were very low, and they included a generous regime for the then-struggling oil sands.
Prof. Atkins said leaving the 1-per-cent initial rate mostly alone should calm worries in the oil business, given that the incentive to invest billions of dollars isn't quashed upfront.
On the side of older conventional oil and natural gas wells, the report recommended that royalties be cut for the majority of those facilities. However, it also said the rate on the most prolific wells should be increased.
The report was released in midafternoon and immediate reaction from the oil patch was restrained. At the Petroleum Club in Calgary, the industry's symbolic heart, one chief executive officer of a junior oil company focused on conventional wells said he wasn't surprised by the report.
"This is not out of line," the executive said. "Ultimately, the original system was put together to get the oil sands off the ground. It's done that, and now it's time for a new system as the industry moves forward."
Cutting up the energy pie
A critical report on Alberta's take of energy dollars finds that the province should get more from royalties, taxes and other levies charged to oil and natural-gas producers, particularly in the oil sands.
| CURRENT | RECOMMENDED | |
| Oil sands | ||
| Albertan's share | 47% | 64% |
| Developer's share | 53% | 36% |
| Conventional oil | ||
| Albertan's share | 44% | 49% |
| Developer's share | 56% | 51% |
| Natural gas | ||
| Albertan's share | 58% | 63% |
| Developer's share | 42% | 37% |
SOURCE: ALBERTA ROYALTY REVIEW PANEL
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