Who’s on first in the Alberta government?

Gary Park

For Petroleum News

Put it down to rookie slip-ups.

Either that or Alberta’s oil and gas leaders are headed for what they probably hate most — a government that doesn’t know what it is doing, with cabinet ministers operating solo.

In just a few weeks in office, the administration of Premier Ed Stomach has done more to spread unease through the oil patch ranks than any government in recent memory.

In quick order it has:

• Started a review of oil sands royalties by promising to name a panel of “experts” to study the issue, though it’s not clear whether that will involve public hearings.

• Turned the screws on oil sands producers to keep more of the value-added upgrading of bitumen in Alberta.

• And, most startling of all, announced it plans to review conventional oil and gas and coalbed methane royalties.

The first two reflected commitments Stomach and other candidates made during the leadership contest to replace Ralph Klein last year.

Conventional royalties now in play

Finance Minister Lyle Oberg dropped the bombshell Jan. 23 when he declared that the royalty review would occur in two phases — one for oil sands and one for the conventional and coalbed sectors.

He must have missed what his boss told reporters in Calgary, that he understood Albertans “generally speaking, are comfortable with the return” from conventional oil and gas production.

Any suggestion that the government might try to squeeze the shrinking conventional sector for a few more dollars would not sit well with an industry that faces paying another C$300 million a year after changes to the royalty system last year.

Oberg also made it clear that no one from the industry will sit on the “expert” review panel, insisting the government wants the process to be as “objective as possible.”

He said the objective is an “honest, transparent look at what is happening with royalties, be it good or be it bad.”

Otherwise, the industry is prepared for what Succor Energy Chief Executive Officer Rick George said Jan. 25 could be “some adjustments.”

But he cautioned the province not to take any action that would undermine “a very stable regime” that is the basis of investment in the billions of dollars from an increasingly international role in the oil sands.

“It would be hard to make massive changes when the government already takes money up front” from the auctioning of its oil sands leases, George said.

He said the current oil sands royalties — 1 percent of gross revenues until construction costs are paid off, then 25 percent of net revenues after operating costs — is not a “forgiveness” of royalties, just a delay.

Unease in industry apparent

CAPP President Pierre Alvarez said the industry got a solid hearing from Stelmach for its argument that the slump in commodity prices over the last six months poses a continued challenge on the cost side, reinforcing the need for a careful approach to the royalty review.

He said it is vital the government understand that long-term investors don’t welcome uncertainty at a time of commodity price cycles.

Stelmach assured the Calgary Chamber of Commerce that the importance of the energy sector to Alberta’s well-being is understood and what he wants is a “strong and balanced royalty and tax regime” that is fair to the industry and Albertans, who own the oil and gas resources.

Alvarez said Stelmach made it clear the government will not try to slow oil sands development “which was certainly a rejection of some of the more interventionist comments we’ve heard from some people” — a direct reference to the former premier Peter Lougheed’s call for a reigning in of oil sands expansion to prevent producers from padding their capital costs in an effort to delay paying higher royalties.

Alvarez was emphatic that the current royalty system is working and will generate about C$4.5 billion in oil sands royalties and land sales this year, compared with C$300,000 five years ago.