Alberta leader wants calm Stelmach: formal royalty, tax talks ‘over,’ but ministers meet privately with investors Gary Park For Petroleum News
Alberta Premier Ed Stelmach has urged all sides to “just calm down” as a parade of industry heavyweights has issued dire warnings about the consequences of implementing a proposed wholesale change in the province’s royalty and tax system and challenged the fundamentals underlying the recommendations of a review panel.
Faced with talk of drastic cuts in spending that could climb to C$10 billion a year, of money being diverted to neighboring provinces or out of Canada altogether and of a possible C$26 billion loss in the commercial value of oil sands projects, Stelmach is in a tighter corner than any premier in Alberta’s 102-year history.
For now he likely draws his greatest comfort from a Leger Marketing poll for the Calgary Herald and Edmonton Journal that suggests 88 percent of Albertans support the premier’s view that they are not getting their “fair share” from royalties; 67 percent want the government to adopt a royalty review panel’s findings in their entirety and 54 percent don’t believe companies will withdraw or reduce investment in Alberta.
In the thick of what is likely to determine the fate of the fledgling Stelmach government and 36 years of Conservative party rule in Alberta, the premier says he “won’t be intimidated,” telling those who think he will weaken they are in for a surprise.
“The decision on the royalty report will affect Alberta and our energy sector for decades to come,” he said. “While the formal consultation is over, we have not stopped listening.
Stelmach said he understands the need for stability and certainty for the industry and the importance of ensuring competitive fiscal and regulatory regimes.
Equally, he said Albertans expect to receive long-term benefits from their energy resources.
When the government issues its formal response to the review panel’s proposals this month, these perspectives will be balanced, Stelmach promised.
Industry urging caution The industry’s leading lobby group is urging the premier to move with caution rather than haste.
Pierre Alvarez, president of the Canadian Association of Petroleum Producers, said “rushing to meet artificial deadlines” resulted in Canada agreeing to Kyoto greenhouse gas emissions targets “without anyone understanding what the implications were going to be.”
Hopeful the government is ready to conduct a detailed fact-finding exercise, he said “nobody wants to make a mistake … the costs of failure are simply too high.”
Stelmach, while insisting the process will not drag on forever, has set in motion a review that raises questions about whether the government can take a definitive stand in October.
Deputy Premier Ron Stevens has been named the cabinet’s point-man to open up communication between the government and industry and Energy Minister Mel Knight is heading a technical analysis of the independent panel’s report, which will be considered along with public and industry feedback.
The government said it wants to “ensure there is a shared understanding and clarity on the panel’s recommendations and government’s review process.”
Achieving such lofty goals in such a short time is widely viewed as unrealistic.
Conoco would cancel C$500M ConocoPhillips has reflected that mood by calling for a commission of government and oil experts to carefully weigh the various proposals, including an average 20 percent hike in royalties.
Kevin Meyers, president of ConocoPhillips’ Canadian unit, said in a letter to Stelmach and members of the provincial legislature that unless changes are made his company will cancel about C$500 million in spending next year for both natural gas exploration and oil sands projects.
He also predicted C$8 billion worth of oil sands spending planned for the next three years by his company will be postponed.
“It’s not bluffing; it’s not posturing; it’s not threatening; … it’s informing the government and our shareholders of the potential impact,” he told the Calgary Herald.
Meyers said ConocoPhillips is not saying it will give up on its projects, but he described the proposal to hike taxes on oil sands profits to 33 percent from 25 percent as “insidious” and said it would result in a sharp setback.
Ignoring warnings ruinous Stelmach would have difficulty complying with ConocoPhillips’ proposal without conveying a message that he is, in fact, buckling under industry pressure.
At the same time, ignoring the warnings of ConocoPhillips and the other leading producers such as Imperial Oil, EnCana, Talisman Energy and Petro-Canada could be ruinous to the Alberta economy.
The seriousness of the matter was captured at a private meeting Oct. 5 of Stevens, Knight and representatives of leading Canadian and U.S. oil and gas investors, who control upwards of C$1 trillion and called for a watered down tax and royalty package.
Michael Tims, chairman of investment dealer Peters & Co., which organized the session, told reporters the investment leaders did not rule out change.
“People are saying that some change is possible,” but emphasized that the room for change is less than suggested in the review panel’s report.
What troubles supporters of the higher royalties is that the government is even holding private talks with the industry, although the government said a list of the people who met with Stevens and Knight will eventually be published.
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