Not-so-neighborly
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Saskatchewan ready to sell its oil and natural gas ‘advantages’ to industry investors who are having second thoughts about Alberta
GARY PARK For Petroleum News
It’s not considered fair ball to openly take advantage of your wounded neighbor, but apparently in these tough times for the petroleum industry all is fair.
That seems to be the case between Alberta and Saskatchewan, whose adjoining governments have changed their political colors in the most dramatic fashion.
No Canadian province has experienced longer rule over the past 60 years under the left-wing New Democratic Party than Saskatchewan and no province has been more averse to the NDP than Alberta.
The tide turned in 2007 when Saskatchewan elected Brad Wall as its premier and installed his conservative-minded Saskatchewan Party as its government.
That might have been a mild shock, but it was nothing compared with the May landslide election of the NDP in Alberta, ending 44 years of unbroken Conservative Party rule.
Nervous tremor in Alberta Under Premier Rachel Notley, the new Alberta government has sent a nervous tremor through its mainstay oil and gas sector by pledging to conduct a review of royalties, possibly starting late this year.
At a time when billions of investment dollars were being pulled off the table, thousands were losing their jobs and corporate taxes were being raised to 12 percent from 10 percent, the prospect of royalty hikes has prompted many companies to warn of pullbacks in their operations.
The new layer of uncertainty has prompted Wall to assure companies that his government won’t change its own royalty regime and, in a mildly combative manner, said he will travel to Alberta to promote the “Saskatchewan advantage” which has included a series of incentives and royalty reductions since he came to power.
That message was reinforced by Energy Minister Bill Boyd who told the Global Petroleum Show in Calgary that the shift of capital to Saskatchewan has already happened and more is expected.
“I think companies are looking for jurisdictions where there is stability, certainly regulatory and royalty stability,” he said. “A lot of them are saying that they are certainly not looking to make any large investments or new investments (in Alberta) until the atmosphere or the climate is known.
“If royalties are raised too much and it’s out of step with the royalty rates in other places than that capital will move to other jurisdictions,” Boyd told reporters.
Not that it is in direct competition with Alberta, but Newfoundland, which relies strictly on its offshore oil production as a revenue source, has said it will move back to a generic royalty regime, rather than negotiating separate royalties for separate projects.
Fiscal term review Graham Kellas, vice president of global research at energy consultancy Wood Mackenzie, said that oil-producing governments around the world that are reviewing their fiscal terms to make up for shortfalls should resist those temptations.
“The oil revenue ‘cake’ has shrunk and it is hard for governments reliant on oil tax revenue to agree to a smaller slice of what is left,” he said. “But, if they don’t offer better terms, the industry may simply stop investing.”
Alberta Energy Minister Margaret McCuaig-Boyd has continued to reassure the industry that it has little to fear.
“Our approach to strengthening Alberta’s energy future will continue to be informed by the expertise of our partners in the industry,” she said in an emailed statement. “Our meetings with industry have been productive and collaborative and we are confident they’ll continue along that path.”
McCuaig-Boyd said the government is asking for the industry’s advice, adding that both sides have agreed to “work together as partners for the betterment of a vibrant energy industry.”
The Canadian Association of Petroleum Producers said its member companies have met with McCuaig-Boyd several times “to talk about the importance of competitiveness to our industry.”
If there is a breakdown in this building relationship, the industry has demonstrated in the past - notably in 1980 after the Canadian government introduced a fixed oil price and in 2007 after Alberta hiked royalties - that it is ready to shut down operations and pull out of Alberta.
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