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Alaska, Norway held up as royalty models for Alberta University think-tank finds province is losing billions with low royalty fees; government, industry say critique doesn’t add up Gary Park PNA Canadian Contributing Correspondent
What is good enough for Alaska and Norway should be copied by Alberta when it comes to oil and gas royalties, says a University of Alberta research organization.
But, in accusing Premier Ralph Klein’s government of giving away the province’s resource riches at bargain basement prices, researchers at the Parkland Institute have ignited a fire storm.
They say the government gave up C$20 billion over a four-year period of the 1990s by changing its royalty rules to spur up to C$30 billion of new development in its vast oil sands and heavy oil leases.
In the process they have calculated that Alberta collects much less in royalties and taxes than the other two energy jurisdictions — crediting Norway with charging 2.6 times more for each barrel of oil equivalent from 1992 to 1997 and Alaska with taking in 1.6 times as much in so-called “energy rent” over the same period.
Alberta losing C$5 billion a year The bottom line, the institute said, is that Alberta “loses” about C$5 billion a year.
Anticipating the rebuttal that higher taxes and royalties could kill investment, the study said its numbers prove otherwise.
“What is critical is both Norway and Alaska have realized greater returns (royalties and taxes) for every barrel of oil and gas produced while still retaining and sustaining a healthy and prosperous energy industry,” it said.
The researchers estimated Alberta received an average of C$2.41 a barrel of oil equivalent over the 1993-96 period compared with C$6.41 for Norway and C$3.74 for Alaska (all figures being in constant 1996 dollars). From 1972 to 1985 years, Alberta collected C$4.67 a barrel, using the same yardsticks, but that mostly covered light crude recovered at lower development costs.
“We’re not saying the government should collect that (extra money),” said Parkland executive director Bill Moore-Kilgannon. “We’re just trying to open the debate as to much money is coming back to the citizens of Alberta on our natural resources.”
He didn’t have to wait long for the discussion to erupt.
Government scoffs at findings Klein scoffed at the findings, insisting that cut-rate royalties initially charged to oil sands producers is the province’s only way to attract massive investment over the next 20 years if Canada is to maintain is current oil production level.
“This is a royalty holiday,” he said. “It’s not a forgiveness of royalties. When the oil comes on stream and the costs of production decline, the royalties they pay will become higher and higher. We will get our pound of flesh at the end of the day.
“When companies embark on multi-billion dollar capital programs, like Suncor Energy and Syncrude Canada, there is a royalty holiday to accommodate their capital expansion.”
He said the findings also ignored the corresponding job creation figures and income taxes collected.
Findings called flawed, unfair Greg Stringham, the Canadian Association of Petroleum Producers vice-president of markets and fiscal policy, brushed off the Parkland findings as flawed and unfair.
“They have chosen a couple of comparisons (Alaska and Norway) at the high end of the spectrum,” he said. “It doesn’t seem like an apples-to-apples comparison.”
Stringham said comparisons with heavy-oil jurisdictions, such as Venezuela, would have been more valid.
He described Alberta’s generic oil sands regime as “competitive,” ranking about 90th of 300 regimes around the world.
To extend its criticism of Alberta’s resource management, the institute also noted Alberta’s Heritage Fund of C$12 billion collected from surplus petroleum revenues is nowhere near as large as Alaska’s Permanent Fund of $40 billion or Norway’s $30 billion Petroleum Fund.
But, unlike Alaska’s annual payment to citizens, Alberta chose to invest its fund money in infrastructure — again grounds for the critics to dismiss the study as simple-minded.
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