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Alberta government puts oil and gas royalties under review Return after taxes, operating costs, general expenses close to 20 percent; Alberta looks at 25 percent Gary Park Petroleum News Canadian Correspondent
The Alberta government wouldn’t make such a concession, but it appears to be answering criticism that it is under-selling the province’s oil and gas reserves.
Energy Minister Greg Melchin said a decision will be made this fall on whether to hike royalties from net oil and gas production revenues (after taxes, operating costs and general expenses) closer to its high-end objective of 25 percent of net oil and gas production revenues from the current return that is close to 20 percent.
He told the legislature’s energy committee that a review is under way covering the “whole question of fair share” for Alberta.
Whatever happens, Melchin said the government will not waver from its overall goal of a balanced and stable relationship with the industry to promote development.
The action comes a year after the Pembina Institute for Appropriate Development issued a scathing report, accusing provinces in Western Canada, the Yukon and the Northwest Territories of “not providing maximum compensation (to their residents) for the development of oil and gas resources.”
The report, covering the 1995-2002 period, said “big machinery, shiny logos and business suits often overshadow the fact that provincial oil and gas reserves are public — not corporate — resources.”
But the institute was emphatic that “we are not getting nearly our money’s worth,” especially when measured against Alaska and Norway. CAPP says royalties could hit C$14B Provincial energy ministers and the Canadian Association of Petroleum Producers said the institute did not understand the complexity of developing oil and gas resources and was essentially dead wrong in its conclusion.
The review coincides with an association forecast that royalties for 2005-06 could soar to C$14 billion, up 84 percent or C$6.4 billion from the budget forecast in March, so long as commodity prices remain close to US$66 per barrel for oil and C$9.50 per thousand cubic feet for gas.
On the issue of oil sands royalties, Melchin was disinclined to meddle with the current structure, which offers a 1 percent incentive royalty on new projects, climbing to 25 percent once construction costs are paid off.
He said frequent changes to oil sands royalties are not desirable when the current regime has been “successful in accomplishing what it was designed to do,” noting that oil sands capital spending will climb 40 percent this year to C$8.5 billion.
Melchin said Alberta is anxious to encourage even greater investment, while ensuring that royalties don’t force operators to abandon wells prematurely because of declining flow rates.
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