Sunday, October 28, 2007

Reviewing the Review

While the oil companies do Stelmach a million favours by claiming he was too tough on them, every independent expert in the field continues to say that the Stelmach compromise will cost Albertans billions of dollars. The latest:

An independent energy economist who worked closely with the province and royalty review panel said Saturday the Stelmach government's new royalties policy fails miserably on the oilsands -- the province's top energy play -- and won't deliver nearly enough economic rent to Albertans.

The analysis from world-renowned oil and gas economist Pedro van Meurs came a day after a member of the government-appointed royalty panel argued Premier Ed Stelmach's new strategy is "a blatant deceit" of Albertans and doesn't offer them a fair share of energy development.

"I believe that the proposed terms are highly detrimental to Alberta. They provide for only a minimal increase in revenues, compared to what was already a very modest proposal by the panel. The new terms will not give Albertans a fair share of the oilsands revenues," van Meurs said in an analysis provided to the Herald.


In crafting the new framework, the Tory government rejected nearly half of the 26 recommendations from the royalty panel -- including six of 11 suggestions on oilsands.

One of the panellists, who asked not to be identified, agreed with van Meurs that Albertans aren't receiving a fair share of the publicly owned oil and gas resources under a deal that's not grounded "in too much economic reality."

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  • In the short term, the amount of oilsands royalties depends on what gets negotiated with Suncor and Syncrude when the crown agreements get "broken".

    In the longer term, based on what oil prices are likely to be...i.e. higher, the review panel and the government's proposal are fairly similar. The government's proposal will generate lower revenues only if the oil price collapses, and with peak oil in our medium term future, that is unlikely.

    Depending on what gets negotiated with Suncor and Syncrude, Stelmach's proposal is good enough.

    By Blogger whyshouldIsellyourwheat, at 2:40 p.m.  

  • Stelmach's is 20%, Taft's is 20%,
    neither are anywhere near enough.

    If you hire a contractor to add a room to your house, you pay him cost plus a reasonable profit. You don't give him a share in the value of your property.

    Taft and Stelmach both want to collect a few more pennies from big oil, and pretend they are being tough. In fact, Albertans are getting robbed.

    By Blogger Art, at 3:22 p.m.  

  • "In fact, Albertans are getting robbed."

    That's the honest truth.

    By Blogger JimTan, at 8:55 p.m.  

  • ...every independent expert in the field continues to say that the Stelmach compromise will cost Albertans billions of dollars.

    I only see one "independent expert" in that article.

    By Blogger The Invisible Hand, at 9:14 p.m.  

  • I'm more and more convinced that government is composed primarily of individuals trying to transfer wealth from the people to themselves (ie. their organisations).

    Each government, regardless of its political stripes, raises taxes and enlarges its ownership of the country's assets.

    But here we are in a situation where Stelmach could have taken more, and he didn't. That makes me highly suspicious. (I know, I know, pleasing me is a no-win situation).

    By Blogger Robert Vollman, at 9:31 p.m.  

  • invisaible hand; A lot of the royalty review panel people were independent experts. And there was another study out last week that said the official royalty review number was too LOW.

    By Blogger calgarygrit, at 9:42 p.m.  

  • 'I only see one "independent expert" in that article.'

    And, how many experts disagree with the panel?

    By Blogger JimTan, at 10:06 p.m.  

  • Well, I happened to talk to an "independent expert" the day after the plan was released. Apart from the commonly discussed issues of breaking agreements and raising royalties on a sector (natural gas) that's already wobbling, he noted that if the increased rates cause even a slight dip in the amount of oil production, the government will end up losing more than $1.4 billion in revenues, turning the royalty increase into a net loss.

    Another "independent expert" has some interesting reading here, here and here.

    A couple more general points:

    - For some reason, the Royalty Review excluded the fees the government collects from energy companies from "land-sale bonuses", which amount to $1.8 billion per year... almost as much as the Review claimed the gov't is missing out on.

    - This would be amusing if it weren't so dangerous, but I notice people keep claiming that this is about how much benefit "Albertans" or "the people" get from oil. In fact, it's about how much benefit the Alberta government gets from the oil.

    They're not even close to being the same thing.

    By Blogger The Invisible Hand, at 10:01 p.m.  

  • “This clearly demonstrates that the Royalty Review Panel was never about securing a “fair” approach to royalties. It shows the entire process was about securing the highest possible government royalty share without the complete destruction of the local petroleum industry.”

    Wow! That shows where Ian Langdon is coming from. Complete destruction? Too bad, Ian doesn’t have numbers to justify his claim.

    Of course, governments try to extract as much as they can. The mineral rights belong to the state and its citizens. Governments have a fiduciary responsibility to get the best price for the resource. Same as companies have a fiduciary responsibility to maximize profits for their shareholders.

    In the market place, it’s called a deal between willing buyers and sellers. There will be another buyer if you can’t pay the price.

    I’ve provided the insight from a real estate forum. There’s tons of money being made. There will still be tons of money to be made after a minor increase in royalties.

    And, Alberta has one of the most ‘business friendly’ environment legislature.

    “The last concern I have is that I cannot believe that full implementation of the report will actually produce more revenue to the provincial treasury.”

    Ian Langdon works in the industry. He’s not an ‘independent’ expert. In fact, he’s not an expert at all. He is offering his opinion.

    By Blogger JimTan, at 11:15 p.m.  

  • “Agreed. Make a note of it. I don't disagree with everything the gentleman says. Only the nonsense. Decent, well thought out concepts I can agree with.

    Even after payout, companies can reduce the net-profit share to zero by expanding their projects and starting the cycles of cost recovery and rate of return allowance over again.”
    I have no idea who the author of WTF Journal is. I am willing to bet that he is not a finance or oil industry expert. At any rate, the author agrees with Pedro on at least one point. We should recognize that the existing tax legislature is extremely ‘friendly’ to the industry.

    In the past, Alberta may have been desperate to exploit its natural resources. Let me suggest that the shoe is on the other foot. That it’s time to think about the future where owners are stronger than producers.

    In fact, the balance of power shifted in 1973 when the Arabs imposed an oil embargo. Albertans are now the new Saudis of the western world.

    I don’t understand your fanatical devotion to the industry.

    By Blogger JimTan, at 11:46 p.m.  

  • “This was masterful. Immoral, wrong, and plain old mean to private interests, but clever as all hell.”

    Once again, it’s the same guy with the right wing ideology.

    “Gas: 10%
    Oil: 57%
    Bitumen: 27%”

    This fellow’s own figures show that there is an insignificant increase in gas and bitumen royalties. There is a significant increase in oil royalties. But, is it a problem at $90 a barrel?

    Oil is a fossil fuel. There is no more when you suck it all out of the ground. It becomes more valuable the longer you leave it in the ground.

    I’m sure that the Saudis regret all the oil they sold at $10 a barrel.

    By Blogger JimTan, at 11:47 p.m.  

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