Posted on 03/15/2010 9:57:36 AM PDT by thackney
Energy companies have served notice they will boost spending in Alberta as a result of royalty rate cuts, although none has made a written commitment, the province's energy minister said on Friday.
Alberta Energy Minister Ron Liepert also said the moves, announced on Thursday after months of industry complaints over the previous fiscal regime, are aimed at getting Alberta into shale gas development, a booming part of the energy sector that has largely passed the Canadian province by.
Liepert said in an interview that companies, and especially shale gas developers, have told him they would sink more cash into Alberta's reserves after he removed what he acknowledged was a disincentive caused by royalty rates.
"I wouldn't call them commitments, but I would call them positive signs, such as, 'If this is the direction you go I can tell you our company will immediately start to reinvest in Alberta'," he said. "I would suggest that 'immediately' is within the next 12 months."
Liepert and Premier Ed Stelmach said the province -- one of the largest energy suppliers to the United States -- will backtrack on some of the royalty increases it instituted last year, citing a need to compete for investments with other jurisdictions in Canada and the United States.
The government cut the top royalty rates for conventional oil and natural gas, but left oil sands royalties alone, saying investments in that resource have not fallen.
It also made permanent an incentive that gives new wells a royalty rate of 5 percent for the first year of production.
A big driver for the moves, they said, was the development of massive shale gas reserves in British Columbia, Texas, Louisiana and other areas, something not envisioned when Stelmach made his last changes to the fiscal regime.
Such projects are prolific, but require more expensive drilling and production technology to unlock the supply.
Liepert said he expects the new moves to have a much bigger impact on future shale gas developments than on conventional gas supply, which is declining as companies cut spending due to low prices.
"What industry would tell you is that because the upfront costs are so high when you get into the shale gas business, our structure was a disincentive to doing business in Alberta," he said. "And with the 5 percent moves, making it permanent, I believe we've addressed that."
Meanwhile, the government does not believe its changes will fuel a return to the overheated economy earlier this decade that was one factor behind the last royalty changes, he said.
At the time, there was discord between Albertans who worked in the oil patch and lived lavish lifestyles and those who did not and experienced only runaway inflation and overstretched infrastructure and public services.
Liepert said at least some of that was a function of the oil sands boom and the tiny royalty rate on that resource. It has now been increased and made more sensitive to crude prices.
"We really have, I believe, addressed appropriately the oil sands royalty situation and we no longer have oil companies making a billion dollars in profits," he said.
"So there are a number of circumstances where the Albertan of three years ago was in a very different position than the Albertan of today, who I think is much more thoughtful as to what this industry means to the province."
Yedlin: Alberta Tories learn royalty lessons the hard way
http://www.calgaryherald.com/business/energy-resources/Yedlin+Alberta+Tories+learn+royalty+lessons+hard/2673391/story.html
Tories work to mend fences on royalties
There’s an adage in the business world oft quoted to those whose tendencies lean toward being on the greedy side: pigs get fat and hogs get slaughtered.
In announcing changes to the existing royalty framework under the guise of the competitiveness review, the Alberta government effectively acknowledged the new royalty framework — that was meant to net upwards of $1.4 billion in additional royalties for government coffers — was an abject failure. Greed trumped what was best for the province — factors such as real returns on investment and capital mobility were ignored or disregarded and the consequence was the massive decline in oilpatch activity.
This time, the government appears to have listened, with the great irony being that there was no difference in the material submitted by the energy sector to those involved in the competitiveness review than was presented during the Royalty Review Panel.
This is obviously a positive step forward, said John Dielwart, chief executive of ARC Resources. It’s a recognition that Alberta had lost its competitiveness, which came at a cost of thousands of jobs in the province. To support drilling at the front end with a five per cent royalty is a major step forward because it better reflects the evolution of the basin.
Ultimately, what Thursday’s announcement means is the primary challenge for the industry has gone back to being a focus on the geology and use of technology to exploit the resource, instead of being handicapped upfront with a royalty structure that acted as a disincentive to investment. It’s now about being a competitive operator.
“I give them an A for consultation, tone and spirit of this process. This time, it was based on looking at factors such as what are the real rates of returns and what drives capital spending,” said Michael Tims, chairman of investment firm Peters & Co. “I do think it’s a big improvement. I think they found a good balance between the government representing the people who own the resource and the industry that creates value from it.”
And while industry was lauding Thursday’s apparent recognition that one of the key ingredients for a healthy energy sector is the establishment of a partnership between industry and government, there was nothing resembling a mea culpa by Premier Ed Stelmach, whose decision to tinker with the royalties is what caused so much economic pain in the first place.
Stelmach publicly took no responsibility for the investment dollars that have flown out of the province, saying instead that industry circumstances had changed and that much of the pain was due to the difficult economic conditions around the globe.
Even more astonishing is that Stelmach took credit for things going well in the oilsands — that it was because of the new framework that activity was robust in that segment of the oilpatch.
There’s a word for that — spin. It is indisputable that the royalty framework in place since 1996 was a better structure for encouraging oilsands investment. A competitiveness paper published by University of Calgary professor Jack Mintz last month made the point that the original structure was the best at extracting what Mintz defined as the true economic rent from the resource, which is ultimately the intent of a royalty system.
The fact things are going well in the oilsands has more to do with the need to keep up investments in projects of size through the business cycle, costs that have come down and oil prices that have risen.
And lest anyone get too excited that what was announced on Thursday is going to fix drilling levels overnight, it won’t.
But it will make things better. Land prices are bound to go up because the value of that land, especially for conventional oil plays, has been enhanced. The challenge, however, remains natural gas.
It would be folly to believe the natural gas business is headed for rosy times. Commodity prices remain soft and the cost of production is high. Cracking this nut will require technological advances that help to reduce these costs. The fact the government is now bearing some of that cost in the form of the five per cent royalty is incentive for companies to try new ways of exploiting that resource.
Could the government have done more for the natural gas producers? Sure. They could have extended the time frame and production threshold of the five per cent royalty beyond the one-year or 500-million-cubic-feet limits.
The important piece in all this, however, is that a positive relationship between the energy sector and government appears to be in its nascent stages. The energy business is global, capital flows to where it earns the best returns and its success is based on a sharing of risk between government and industry. The Alberta government has learned an expensive lesson at the expense of its electorate. One hopes Thursday’s announcement is a signal that the temptation for the government to get its fair share, whatever that really means, has permanently vanished.
Had they not tinkered with the royalties in the first place, none of this would have been necessary.
Alberta appears to have learned their lesson that there is competition in the market for global petroleum resources.
I wonder when the Alaskan Government will figure this out?
Wow. Some common sense shown by the liberals here in Alberta. Who knew!
They’re showing more sense than lots of the ‘conservatives’ here in Alaska.
Ping
Now I know figures lie & liars figure but she mentioned this: Conoco Phillips apparently is going broke too, they have 20% of their investment in Alaska; yet it produces 50% of the Company's profits. This Moore girl then tied it all in to a legislator in Juneau who wants to give oil 750 million in tax reductions and the deal was oil would then bring 2500 Alaskans back to work; in other words, $300,000 a job. Now that didn't bother me at all but it really set them all off on the tv show, ha ha. Actually, I have a friends who want to get back up the slope as their unemployment is running out;;;; have afraid they might become democrats over no work, ha ha.
So if you ever want to come unglued, check that blond out up north. ha ha.
Still snowing, hanging around 10 above, and I'm seeing lynx around the house everyday. They must be trying to feed their pups and cleaning up all the snowshoes that subsist off my garden.
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I remember during the debates, I was out with a liberal friend of mine. She ran into an ultra liberal friend of hers, one of those real ‘militant’ types, and I think she assumed I was a liberal idiot too.
She was going on and on about Palin wanting rape victims to pay for the fees, blah, blah.... I said my views with rapists differ only slightly from burglars- burglars get two in the chest and one in the head, rapists get two in the groin and one in the head. Its proactive. She looked confused.
Then, she was going on about how she gets to give feedback to Air America radio (when it still existed), and to the CBC. I said ‘CBC huh?’, she replied ‘Yeah, its a HUGE media outlet in Canada’.
I told her ‘Oh I know what CBC is, only when I lived in Canada we referred to it as ‘Constant Bolshevik Crap’’. She laughed, evidently too stupid to realize I was making fun of her.
I haven’t made too big of a dent in my woodpile, hasn’t been terribly cold and I have been gone a lot. Next year’s work will be easier!
Hey, is a Tundra II a good sled? A friend recommended one to me, since they’re light weight.
You just can't beat those WT skandics with that old 500 fan, yellow with pogo stick front shocks; quit making them around 2006, they were 8 gran new then; 10 mpg, but I have 14,000 miles on my 2001 500 fan. New model has 4 stroke engine that gets 21 mpg and starts down to minus 50. It is around 10 gran, but well worth it. I'm thinking about that one for nx winter, cause my old yellow WT one has been so dependable.
We had a 2003 600 HO liquid WT SUV with swing arm and it was junk; got 4500 miles on her and fell apart. Kid had a 550 summit, but 550 fan wasn't near as good as 500 fan. I heard the 550 fan was a bad engine and that 500 fan was best one they built, some had 20,000 miles on them.
I'd either get one super cheap used or just spend the 10K and get a doez years out of her. I want to look at the new 4 stroke that gets high gas mileage. You don't want the super WT. Call me sometime.
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