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Providing coverage of Alaska and northern Canada's oil and gas industry
March 2009

Vol. 14, No. 13 Week of March 29, 2009

Gobert: Alberta headed for ‘disaster’

Gary Park

For Petroleum News

Wilf Gobert has what verges on an unassailable position, when he suggests that the Alberta government’s royalty grab might eventually be seen as the “most disastrous economic decision the province has ever made.”

Once a highly respected investment banker with Peters & Co. and now chairman of the Calgary Economic Development Authority, he has called on the government to almost do the unthinkable, admit a mistake and try to prevent a bad situation from becoming worse.

In the process, Gobert blamed poor advice from government officials and a suspicion within government ranks about any recommendations from oil patch leaders.

He said that 18 months after the draft royalty plan was rolled out “there is still a sense in the industry and financial community that the government doesn’t get it.”

“It begins, unfortunately, in the bureaucracy, which I believe has been dramatically weakened in terms of its talent over the past 10 years and as a result is making bad policy recommendations to the politicians,” he said.

Gobert said the ruling government lacks the experience to appreciate that it is poorly serviced by its officials, but faced with a dramatic slide in land sales, capital spending and drilling programs, has already made three adjustments to its new royalty framework.

Analyst: lack of experience

Chris Theal, an analyst with Tristone Capital, endorsed Gobert’s assessment of government officials, adding that has been reinforced by the number of changes to the royalties.

He said that when the government first issued its formulas for the new royalties, the matrix of rate and gas prices quickly became uneconomic.

Theal said the government didn’t have the brainpower to “litmus test their royalty framework” and the changes are too complex for either the industry to act on or the government to enforce.

Gobert said that unless there is a decisive move to repair the damage, Alberta will face a continuing erosion of its royalties and even more budget deficits.

He noted that Alberta’s gas production, which accounts for 70 percent of royalty income, has been in decline since 2000.

Gobert: Panel best hope

Gobert’s best hopes lie with the government’s appointment of a panel which is expected to deliver its findings on Alberta’s competitiveness later this year.

He said that could provide an opportunity for admissions that mistakes have been made and for corrective measures.

In the meantime, the industry is headed downhill, making only C$2.9 million in successful bids at a land auction March 18 — the lowest return in 14 years, raising its year-to-date total to C$55.9 million, compared with C$201.72 million for the same period last year.

Royal Dutch Shell delivered another failing grade to the royalty regime when it scaled back its net proved oil sands reserves by 114 million barrels to 997 million barrels last year, according to a filing with the U.S. Securities and Exchange Commission, pinning most of the blame on a government royalty ruling a year ago.






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