The energy-rich Canadian province of Alberta wants a bigger slice of the energy pie, so in February the government appointed a blue-ribbon panel to review energy royalties and come up with a plan to increase the government’s take. On Sept. 18, the panel proposed that the provincial government increase its share of oil and gas revenues by 20% annually, an amount equal roughly to $2 billion Canadian ($1.97 billion US). Last year, the province collected $10 billion Canadian ($9.9 billion US) in energy royalties.
The report went on to state that, “Albertans do not receive their fair share from energy development.” Several interested parties weighed in almost immediately after reviewing the panel’s proposal, which has not yet been enacted.
After studying the proposal, Calgary-based Tristone Capital’s response was to issue a media advisory and call a press conference in which chairman and CEO George Gosbee led a discussion that included four other members of the firm’s management team.
Gosbee stated that Tristone found the government-appointed panel had used “flawed data” in its report.
“This is very misleading to the citizens of Alberta,” said Gosbee. “Our independent analysis found that the evaluation processes used generated unsubstantiated conclusions, but above all, the recommendations failed to incorporate key rate of return analysis.”
Tristone believes the recommendations if implemented, will be “catastrophic” and will result in an immediate reduction in drilling activity.
“All areas will see a dramatic slowdown,” said Gosbee. “We expect capital investment to migrate away from Alberta [if the panel’s proposals are implemented].”
Tristone offered a range of recommendations which it believes would benefi t both the petroleum industry and the province. These include initiating a tertiary oil recovery program to stimulate industry activity in maximizing overall recovery in maturing oil pools and eliminating the Oil Sands Severance Tax, which it calls “too burdensome on project economics.”
Wood Mackenzie, the Edinburghbased research and consulting firm, believes the debate should focus on the rate of return and how costs affect this.
“The impact on project economics is crucial,” said Derek Butter, Wood Mackenzie’s head of corporate analysis. “As we consider a $50/bbl longterm real oil price to be at the upper end of most companies’ planning scenarios, and a 10% return marginal, we would therefore consider that, under these assumptions, these projects could be considered uneconomic under the proposals.”
Alberta should listen to some of these experts rather than risk cutting off its own lifeblood.
Don Stowers Editor-OGFJ
