Tuesday, September 18, 2007

Alberta Oil Royalties Review: Albertans deserve another two billion a year

I'll admit to being surprised. I wondered what the frantic squealing I could hear through my window over downtown Calgary was this afternoon, turns out it was dozens of explosive prolapses in oil company boardrooms across the city.

A panel reviewing the fairness of Alberta's royalty take from oil and gas development said today Albertans are not collecting a fair share and recommended a massive jump in royalties paid by oilsands projects.

The six-member panel headed by Bill Hunter recommended that the government's overall take from oilsands projects be raised to 64%, from 49% today. The panel recommends leaving the 1% pre-payout royalty unchanged, but that the post-pay out royalty be increased to 33%, from 25%.

"Albertans do not receive their fair share from energy development and they have not, in fact, been receiving their fair share for quite some time," Mr. Hunter said in a letter to Alberta Finance Minister Lyle Oberg. "Royalty rates and formulas have not kept pace with changes in the resource base, world energy markets and conditions in other energy rich jurisdictions.

Premier Ed Stelmach, who launched the review last February, a promise he made in his leadership campaign to replace Ralph Klein, said he will respond to the report by mid-October.

"Albertans made it clear that examining the province's royalty regime was a priority to ensure they are receiving their fair share from energy resource development," he said.

The energy sector, the province's economic engine, is likely to be shocked at the recommendations after pleading for maintaining the status quo. Its view is based on escalating costs in the oilsands that generally make projects uneconomic when oil prices fall below US$50 a barrel. It had also argued for the status quo for conventional production, which in Alberta is mostly natural gas, because high costs and low commodity prices made the business increasingly challenging.

"The energy industry generally took the view that little in royalty and fiscal regime needs attention, while the municipalities, non-industry interest groups and the public were nearly unanimous in taking a different view," the report said.

Now Premier 'Special Ed' Stelmach will spend the next month frantically trying to figure out how to ignore the recommendations of his own review. Refusing to implement the housing review recommendations only cost the PCs Ralph Klein's old riding, how much will punting this report cost them?

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