Alberta must reduce royalties and find more sources of revenue if Canada's oil industry is to remain viable, the Canadian Petroleum Association says.
CPA Chairman Don Stacy, president of Amoco Canada Ltd., said the industry can no longer support royalties of as much as 40% on oil and gas production. He said the industry is being strangled by royalties that are no longer realistic because of higher production costs and low oil and gas prices. Federal energy department figures show the Canadian petroleum industry lost $1.9 billion in 1991 and paid about $2 billion in royalty to Alberta, which accounts for most Canadian oil and gas production.
The CPA head did not say what level of royalty cuts are needed but added that the association will make a detailed proposal to government later this year. Stacy declined to say how Alberta could make up a revenue shortfall if royalties are cut. But he noted Alberta is the only province in Canada that does not have a provincial retail sales tax. The Alberta government reported a $1.5 billion deficit in 1991, and a $2.3 billion deficit is forecast for the fiscal year that began Apr. 1. Stacy said the Canadian industry's average rate of return on investment in recent years has been about 4%.
"You cannot solve financial problems by allowing your main industry to wither away," Stacy said.
Alberta has asked for submissions on how royalties could be changed.
The province's Energy Resources Conservation Board reported sales of petroleum and sulfur totaled $16.1 billion in 1991, a 15% decline from 1990.
Alberta crude oil production slipped 2.5% in 1991 from 1990. Conventional oil production was 326 million bbl in 1991, and reserves declined by 7.5%. Heavy oil production totalled 66 million bbl, up 3% from 1990. Synthetic crude oil production totaled 82 million bbl in 1991. A total of 2 Tcf was added to Alberta natural gas reserves in 1991, the lowest figure since 1998, as a result of reduced exploration activity.
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