Posted on 09/24/2007 1:43:58 PM PDT by familyop
The Americans are frothing at the mouth. So are oil company CEOs, but Alberta Premier Ed Stelmach was absolutely correct in commissioning a report to examine oil royalties in Alberta.
The report, made public this week, recommends increasing overall royalties by 20%, equivalent to $2-billion based on 2006 revenues.
It's important to note that what is being discussed is not taxation but the royalty paid to Albertans who own the lion's share of subsurface mineral rights in the province. And they are not getting as much revenue from their resources as competing jurisdictions are, according to the report. Industry spokesmen dispute the numbers and say Alberta's take is already high enough, and any higher will drive away investment.
"We will make sure we get it right," said the Premier in a luncheon address at the Global Business Forum in Banff attended by CEOs and others.
That's, quite frankly, his job to juggle public and private interests for mutual benefit, which is why the most critical figures in this report are comparisons.
For instance, conventional oil and gas royalties and taxes in the U.S. average 67% while they are 50% in Alberta, said the report.
Non-conventional oil production -- offshore and heavy oil -- is another interesting story. Heavy oil royalties in Cold Lake are 60% compared with Nor-way's offshore royalties of 76%, California's heavy-oil royalties (and taxes) of 67.5% and Venezuela's 72%.
If these figures are substantiated then the argument for higher royalties is compelling. If not, then the recommendations should be placed in a dust-bin.
There are also those industry sources who say that even if Alberta's numbers lag and royalties go up, activity will fall, which will hurt Albertans. They point out that there are already idle rigs in the province, mostly due to low natural gas prices and high costs driven by the oilsands boom.
The boom has imposed a "tax" on most Albertans and they're not happy about it. Housing costs have leaped along with rents, labour rates, labour shortages and there are crowded schools, hospitals and roads. It's Albertans, who own the oil, whose tax dollars are financing the enhancement of provincial infrastructure.
Unfortunately, the review comes on the heels of Ottawa's income trust debacle and has led many, including American investment guru Dennis Gartman, to conclude that Canadian governments are revenue-grabbers without reason. He said he's exiting Canada.Many American investors followed his advice and hammered stocks. One analyst called the province "Albertastan".
To me, both the markets and media have been hysterical about nothing. Stelmach is not some fiscal confiscator. He's the CEO of the most valuable jurisdiction in the Western hemisphere and his review of royalties is simply prudent business practice.
As for the trigger-happy Mr. Gartner, I say good riddance and good luck. Where will he and his investing flock find another oil Promised Land? California? Norway? Venezuela? Or perhaps Putin's Russia?
dfrancis@nationalpost.com
conventional oil and gas royalties and taxes in the U.S. average 67%
~ ~ bump ~ ~
67%
I don’t think it’s “Big Oil” that is gouging people.
That said, a deal is a deal. Existing active leaseholders should be exempted from any increase in royalties.
I wonder how this will play to Sara’s new ACES tax hike?
Thanx for ping.
Today, Prime West Energy Trust (PWI), a Canadian trust company traded on NYSE has agreed to be acquired by Abu Dhabi's state- owned energy company for $2.4 billion plus the assumption of debt. Full disclosure, I own it. Well, sale effective sometime in November.
The deal was made the day after the Canadian dollar (I love that, DOLLAR) reached parity with USD.
The price, $27, is a 30% premium to Fridays close.
:I am OK with this sale. Think I will buy a new computer.
yitbos
I have no pertinent investments and only have public news information, but it’s great to see friends do well! :-)
All those “tar sands” would be worth less than zilch without mega-billion dollar investments to mine and process the stuff.
It’s ridulous to make a straight-up comparison to other locales where the cost of extraction/processing is far lower.
Well, the last "Canadian trust news" was a PM who wanted to renig on deduction of trust payouts on profits. He wasn't going to do it 'til about 2011. All trusts tanked.
To me 5 years is long term. Buy low.
These new pronouncements will be overcome. Alberta says it will increase royalties and Abu Dabi buys Canadian oil company. Does that tell you something about Canadian oil?
I prefer to own oil and gas processing, transmission, and distribution companies.
yitbos
Security of physical assets is worth bucks.
yitbos
They just bought out my second one (PWI) today, one left to go. You might have a look at Harmony Energy Trust, cash-rich, someone ought to pick it up shortly. (full disclosure: I do not at this time own any units of Harmony, but am thinking about buying some).
PWI was at about $31 a year ago when Harper renigged on his campaign promise. Now sold to $ rich Arabs for C/US $27.
Can't complain about those dividends while I have it. One more to come before November.
yitbos
Kind of true. However, ownership of the oil is socialized. The government owns all the oil, and is collecting royalties on oil production. It is a tax, it's socialism. The government owns the resources and manages them for "the common good".
However in effect, the government can give itself a raise at the expense of cost of economic growth by taking a larger percentage of the profits. The effect of a 20% increase in royalties is exactly the same as adding a 20% tax on the oil.
What is the difference between an income tax and a royalty payment to the government on earnings?
You can change the name but it still has an identical effect as a tax increase, so you're just arguing semantics.
Royalties are paid for the franchise to extract resources owned by “the people” (or the Crown, or the Soviet, whatever). They are a cost of doing business for the miner. If a company wants a resource, it pays for it — same as if it needs office space, it pays for that.
We all know what a tax is.
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