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Alberta royalties, taxes a disincentive
Gary Park For Petroleum News
Not that it needed any more prodding, but the Alberta government has been told it needs to rework its royalty and tax policies, or risk losing investment to other energy hotspots in North America.
Alberta’s new royalty regime is “hurting, especially with respect to conventional oil and gas investment,” said Jack Mintz, a tax expert and economist, and co-author with Duanjic Chen of the study. Both are in the University of Calgary’s School of Public Policy.
The study rated Alberta last among Canadian provinces from British Columbia to Saskatchewan and the Atlantic Canada region, as well as trailing U.S. states.
Mintz said Alberta is worse off because “it’s not entirely clear the government is going to collect as much new revenue as it had hoped because of the investment impacts.”
Changes are needed to the fiscal framework for Alberta to be competitive in a global environment, he said.
Government review due soon The findings precede results, expected in March, from the Alberta government’s review of its competitive standing, with expectations high that there will be modifications to existing royalties.
Mintz urged Alberta to be “more brave” by using the report to implement major changes, including a royalty formula for conventional resources that is similar to the oil sands regime which applies to profits only after capital costs have been paid off.
He said the so-called Alberta Advantage — a slogan touted by the province over the past decade — is no longer accurate because Alberta’s effective tax rate and royalty rates on new investments are higher than the rest of Canada and Texas.
Mintz said the impact by 2012 on investment of combining corporate taxes and royalties shows the conventional oil and gas industry is taxed at roughly twice the rate of other industries in Alberta.
Because the playing field is not level, Alberta has discouraged investment and is “hurting the golden goose.”
Combined marginal rate By tying royalties to commodity prices, the combined marginal effective tax and royalty take rises to 45 percent at US$95 per barrel, compared with 28 percent in British Columbia and 31 percent in Saskatchewan, the report said, advocating a flat royalty for conventional oil and gas.
Mintz said it is vital the Alberta government strike the right balance with its upcoming decisions after tampering with the royalty framework on several occasions since 2007.
In response, Alberta Premier Ed Stelmach said only that his government wants to ensure “we’re the best place to do business in the North American continent.”
But a spokesman for the Alberta Energy Department flatly ruled out an oil sands-type regime for conventional oil and gas.
He said the government is well aware of the challenges identified in the study and is “working to address them.”
Greg Stringham, a vice president of the Canadian Association of Petroleum Producers, welcomed the Mintz-Chen report as a chance to get Alberta to reduce the flow of investment to British Columbia and Saskatchewan and rebuild employment.
“The industry simply wants to be competitive,” he said. “Alberta has the resource and potential to be able to grow.”
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