Alberta Premier Rachel Notley has rolled out an oil and gas royalty system she could never have envisioned before her election last May – one that oil and gas producers like.
It represents one more example of how the NDP in power is a much different – and more pragmatic – group of leftists than the NDP in opposition, when Ms. Notley was adamant that Albertans were being short-changed in the energy equation.
Alas, nothing engenders flexibility quite like the potential downfall of a government's major source of revenue and a province's largest employer – in this case, oil companies that are struggling to stay afloat as oil markets sputter.
With U.S. oil prices in the $30s (U.S.) a barrel, her government faces a $6.1-billion (Canadian) budget deficit, rising debt levels and skittish credit-rating agencies.
After months of gnashing of teeth among oil executives and energy investors over the very idea of a royalty review, the NDP has come up with a fiscal regime which, at worst, is what the industry is used to and, at best, is more responsive to market conditions.
The new framework, adopted from the recommendations of the government's expert panel led by ATB Financial president and CEO Dave Mowat, leaves oil sands royalties unchanged, establishes a flat 5-per-cent rate for new oil and gas wells until payout and promises clear calculations on which to base post-payout royalties. It also offers a reward for companies that can boost efficiency.
The Canadian Association of Petroleum Producers, the lobby group that had been frightened by potential moves on economic rents, had mostly nice things to say about the work of the panel and the government's adoption of its recommendations. Ditto with the Calgary Chamber of Commerce and a host of investment banks.
The Premier told reporters that the world has changed – and, indeed, acknowledged that she has changed – since her government stormed to power. At the time, she said that the previous Progressive Conservative lot was too cozy with the energy sector.
Her panel provided a crash course, she said.
"We've seen not only the price of oil drop, but also projections about how long the price of oil is going to stay low change dramatically, within the last eight or nine months," Ms. Notley told reporters on Friday.
"I will certainly take responsibility, for the impact of what was going on in the U.S. wasn't as clear to me eight months ago as it became as a result of going through this process."
That is, how quickly and dramatically U.S. shale-oil production has boomed, creating a glut that has contributed to the oil-price shock, and prompting Washington to give a green light to exports for the first time in decades. That means Canada's biggest customer is now going to be a competitor for overseas markets that energy companies have long coveted.
"I think we're at a point right now where we understand the implications of the energy industry's difficulties to our economy, to our communities, to people's feelings of stability – and now is the time to work together as partners."
The royalty review result is just the latest indication that Ms. Notley and her government have seen the economic writing on the wall, and moved to help the energy sector in its darkest hour.
Witness her spirited reaction to Montreal Mayor Denis Coderre and his regional compatriots when they made a public show of opposing TransCanada Corp.'s proposed $15.7-billion Energy East pipeline from Alberta.
They were being "short-sighted," and ignoring the risk of weakening the national economy by denying market access for energy resources, she said. Any previous Alberta PC premier would have said the same.
The current leader of that party, Ric McIver, accused the NDP of basically just updating the existing PC royalty framework, a difficult thing for him to be too angry about.
It all puts Ms. Notley and her government in an unusual position, being lauded for doing things they said they wouldn't do when they were campaigning for their jobs.
But, in the end, their other pledges to run the government smoothly and bolster Alberta's social safety net would be impossible without a continuing flow of energy money. That realization really helps a leader keep an open mind.