By OGJ editors
HOUSTON, Sept. 28 -- EnCana Corp. reported it would cut its capital investment in Alberta by about $1 billion if the proposed recommendations contained in a recent report from the Alberta Royalty Review Panel are adopted in full.
The panel's recommendations, which include a new layer of royalty on rapidly growing production from Alberta's oil sands, outline increases in the total government take, or federal and provincial governments' share of total profits from royalty and taxes. For oil sands, the panel recommended the government's take to rise to 64% from the current 47% (OGJ Online, Sept. 25, 2007).
"If adopted in full, the royalty changes will negatively impact EnCana's future investments and operations in Alberta and will have a widespread impact on economic activity across the province," the company said in a Sept. 28 press release.
The proposed cut in its capital outlays would represent 30-40% of the $2.5-3 billion planned for EnCana's Alberta-based activity. Most of the reductions, the company said, would be to its natural gas activity "in areas where the proposed royalty scheme makes those activities uneconomic or uncompetitive in its portfolio."
If the cuts are made, EnCana said it would reallocate the capital to investments "outside Alberta."
Randy Eresman, EnCana president and chief executive officer, said: "If the Royalty Panel's recommendations are adopted in full, many of Alberta's new and emerging resource plays will simply not be economically viable. These new plays would have formed the foundation for the future of Alberta's natural gas production.
"Even without that future gas production growth, under the recommended changes EnCana's royalties on Crown lands would effectively double, assuming current gas prices. We will have no choice but to slow down our Alberta-based activity and move investments to other areas in Canada and the US that are more economically attractive."
Eresman continued, "We do not want this to happen. This does not need to happen. The consequences would be far-reaching. We are open to changes to Alberta's royalties—changes that reflect the economic realities of volatile commodity prices, higher costs, and the appropriate risks and rewards of long-term capital investments.
"A royalty system can be developed that achieves Alberta's objectives without so severely damaging the province's future."
