Alberta's oil sector has lost its competitive edge over the United States, so any changes to royalties should be aimed at wresting it back rather than increasing costs, the industry's lobby group has told a government-appointed panel studying the issue.
The Canadian Association of Petroleum Producers said the province's fiscal regime must take into account total costs of production – not just royalties – to attract investment and protect employment, especially with crude prices in a slump.
"Ensuring that we have the right balance is crucial for us to compete in a global market," Tim McMillan, CAPP's president, said in an interview on Monday. His group is among numerous contributors to the royalty panel's review.
"We know that Alberta has higher royalties than British Columbia or Saskatchewan, but ultimately, when we look at where we are compared to the United States, and the substantial increases in production that they've attracted over the last decade, they're eating our lunch."
CAPP filed its lengthy submission, including 60 recommendations, to the royalty review panel late Friday.
Premier Rachel Notley's NDP government created the panel to advise it on whether Albertans are getting their fair share of economic rent from companies producing oil and gas, as well as bitumen from the oil sands. The review, expected to be completed by year-end, is one of a handful of moves by the new government affecting Alberta's dominant industry.
Royalties are a touchy subject in the oil patch, especially after ill-timed hikes in the past decade fuelled a heated dispute between the industry and government to the point where the former ruling Progressive Conservatives backtracked on the measures.
CAPP said the U.S., Canada's main destination for oil and gas exports, has become its top competitor as its domestic production has boomed with the shale revolution. Meanwhile, overall costs for much of U.S. output are lower.
"In the 1990s, we were attracting about 36 per cent of North America's oil and gas investment. Today, we're attracting about 17 per cent. We need to look at how we're positioned and what type of economy we want here in Alberta in the coming decades," Mr. McMillan said.
Critics have said massive industry interest in the past decade in using new technology to tap U.S. shale-oil prospects, such as the Bakken in North Dakota and Eagle Ford in Texas, predated similar activity in Alberta. That, as much as the previous royalty moves, influenced investment.
The Notley government is scheduled to release its first budget on Tuesday, one that will show the harsh impact of weak oil and gas prices. It is faced with striking a balance between charging sufficient royalties and not stifling investment.
Alberta Energy Minister Marg McCuaig-Boyd declined to comment on CAPP's submission, saying she wants to ensure that the panel, led by Dave Mowat, chief executive of ATB Financial, could work independently.
The petroleum association said the government's recent two-percentage-point increase in corporate taxes is translating into $185-million more in annual payable taxes and resulting in $2.6-billion of "balance sheet impairments."
A doubling of the province's carbon levy on large emitters boosts overall costs by $600-million over two years, at a time when the collapse in crude prices has squelched investment and prompted thousands of layoffs, it said.
The group recommends offsetting the higher climate-change obligations with lower royalties.
It also urges the government to help the industry in its aims, chiefly building pipelines to oceans in order to boost exports and expose Canadian oil to more lucrative markets.
CAPP's position is not universal. Barry Rodgers, an Edmonton-based energy consultant and former bureaucrat in the Alberta and Newfoundland energy ministries, argues the province's low royalties compared with the United States are actually providing a subsidy to companies, driving up industry costs and reducing competitiveness.