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Alberta reignites royalty debate
Gary Park For Petroleum News
The Alberta government is indirectly revisiting its royalty framework, while insisting a comprehensive study of its competitive position in Western Canada has nothing to do with royalties.
Energy Minister Mel Knight has assembled a team of government and industry officials to spend the next seven months to determine how attractive Alberta’s oil and gas resources are to the investment community and how Alberta stacks up against “competing jurisdictions,” notably British Columbia, Saskatchewan and onshore United States.
The draft terms of reference note that industry and investment houses believe Alberta’s petroleum industry is no longer competitive.
Amid festering unhappiness with new royalties that were imposed on Jan. 1 and have been blamed for the loss of billions of dollars of upstream spending, the government will review the full package of fiscal terms, including royalties, taxes, rentals, fees and bonuses.
As well it will compare resource and production profiles in competing jurisdictions; finding, development and operating costs; fiscal terms; and regulatory regimes.
Nothing to do with criticism Knight insists the study has nothing to do with the royalty criticism.
Instead, it stems directly from the government’s long-term energy action strategy released in November, which is designed to achieve clean energy production, wise energy use and sustained economic prosperity.
However, Knight said the inclusion of industry leaders (from the Canadian Association of Petroleum Producers and the Small Explorers and Producers Association of Canada) on the study team is “absolutely necessary” because they understand better than anyone how and where they get the best returns from their capital investment.
He concedes that Alberta’s upstream sector is in a “very grave situation ... and the industry feels it will get even worse if we don’t see some turnaround in commodity price,” suggesting the full impact has yet to be felt in communities that rely heavily on the oil and gas industry.
But Knight argues that the new royalties actually favor many E&P companies because of a price threshold — US$45 per barrel for conventional oil and C$5.50 per gigajoule for natural gas — at which royalties either rise or fall.
Since rolling out its new royalty framework last March, the government has twice adjusted the regime, lowering royalties on new conventional oil and gas wells, offering a C$1.8 billion break over five years and targeting small companies with a separate transitional rate.
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