[andyt]

The Alberta government, a one party state for 41 years, now heavily subsidizes foreign oil companies to extract bitumen in the oil sands says a public interest group.

The Parkland Institute, a left-leaning Edmonton-based research network, reported that the government has received less than 20 per cent of the wealth generated by oil sands production since 1997 even though its original target was 35 per cent.

"Albertans have never received more than 20 per cent of the rent in the tar sands, and since 1997 have averaged only nine per cent," says the Parkland report.

Since 1986 industry has taken home $260 billion in pre-tax profits while the public, the owner of the resource, has received less than $25 billion or less than six per cent of the total value.

"If the long-standing trend of low royalty rates in the tar sands industry and the oil and gas sector as a whole continues, Albertans can expect to forgo significant and increasing amounts of potential revenue," warns the report.

Low royalty rates spur production



The Alberta government now offers the world's richest companies such as Exxon Mobil and Shell, unprecedented profit sharing arrangements in the oil sands.

Until these foreign companies recoup their original multi-billion investments, they pay between one per cent to nine per cent royalty on bitumen. Companies that have earned their capital and building costs must pay a royalty ranging from 25 per cent at $55 a barrel to 40 per cent at $120 a barrel.

But companies do not pay a royalty on the global price of oil but on bitumen, a viscous crude, based on a valuation system developed by the Canadian Association of Petroleum Producers. The government does not publish these prices.

Alberta's weak royalty regime for the oil sands as well as its natural gas resources has been the subject of many reports as well as a driver of rapid industry development.

"Alberta has relatively low royalty and tax rates for the oil sands, which promotes greater production," found a 2008 report by the US Council on Foreign Relations. Moreover the Organization for Economic Cooperation and Development warned that both Alberta and Canada were giving their petroleum resources away in 2008.

The OECD report found that international oil companies operating in Norway received 22 per cent of net revenues from oil production while companies in Alberta took home 53 per cent.

From 2007 to 2011 Alberta's former auditor general Fred Dunn routinely faulted the government for missing or ignoring its royalty targets or the public share of industry profits.

In 2011 Dunn noted once again that the government had lowered all of its conventional oil and gas royalties to encourage investment and failed to establish clear and consistent targets for the oil sands.

"Until clearly stated oil sands royalty regime targets and measures are in place, the Department will not be able to readily demonstrate the effectiveness of its oil sands royalty regime," reported the auditor general.

Canada gets lower percentage than other countries: expert

Jim Roy, an Edmonton-based royalty expert who used to work for the government of Peter Lougheed, says he agrees with the basic conclusion of the Parkland report but not all of its calculations.

He says that Albertans are not earning their fair share and that low royalties are indeed driving development at unsustainable levels: 21 mining projects and 137 steam plant or in situ operations over the last decade.

Roy says that public account records show the total government share (both provincial and federal) from all hydrocarbon resources in the province amounts to less than 50 per cent of industry profits. He recommends that share should go up to 70 per cent. "No country other than Canada has a maximum rate below 50 per cent," says Roy.

Alberta's new royalty system for natural gas, introduced in 2009, has also been a total disaster for citizens, says Roy. The government said it would raise royalties by $740 million but their new regime delivered a $4 billion loss.

The Alberta government compounded its error by giving drilling incentives worth $1.1 billion in 2010 and 1.8 billion in 2011.

"Albertans pay for these billion dollar gifts to the gas industry," adds Roy.

Alberta, allegedly the wealthiest province in confederation, has run three budget deficits in a row.


http://thetyee.ca/News/2012/04/05/Low-O ... ign=050412

[BeaverFever]

Alberta should take a lesson from Danny Williams. The experience in Newfoundland basically proves oil companies don't need to be pampered and kowtowed to in order for them to invest. Sure, they pretended to walk away for a year and a half, spread propaganda about him and called him "Hugo Chavez of the North" but at the end of the day, they completely caved in to every one of Danny's demands because they need every drop of accessible oil they can get their hands on, and they'll pay almost any price to do so.

[bootlegga]

Well, comparing the Alberta oil sands to Nroway or even Newfoundland is like comparing apples and oranges for lots of reasons, with the biggest one being that this province is dyed in the wool conservative and by nature, prone to cave in to the business sector unlike other locales. That's why ALberta's corporate tax reate is the lowest in Canada and one of the lowest in North America too.

Another is that Klein's brainstorm in the mid '90s was to offer 1% royalty rates on NEW oil sands development to get the patch going. He saw it as a long term resource play - get them here and create jobs, expand the industry for the future of this province. Until then, the oil sands was nothing like it is today - production was minimal at best. That was mostly because oil prices were quite low and there was no way to make much, if any, of a profit up there. The new oil sands royalty rates, however made it somewhat profitable.

The low rate backfired when companies began to claim that expansions of existing facilities qualified for the 1% rate (the goverment of course disagreed) - which was one of the reasons for the royalty review in 2009.

Yet another cause is the scale of investment in the oil sands - you can't go in there with a drill and a crew of a couple dozen and make money like you can with other more conventional deposits - investments in the oil sands are multi-billion facilities built (over the course of several years) and run by hundreds of employees. That type of investment is a long term approach that only major oil companies can undertake, and no major company (in just about any industry) operates without some sort of corporate welfare.

In all honesty, I'd like Alberta to get more royalties from the oil industry, I really would, but the problem here is that many Albertans think the oil industry is our only industry and don't want to kill the golden goose, as well as every time there is mention of changes to the royalty system, oil companies go into crisis mode and start firing off press releases and holding press conferences and put the government on its heels. No corporation ever wants to see its profits shrink and they fight tooth and nail to avoid it.

That's one of the reasons for the emergence of the Wildrose - they are promising oil companies even more and as such, their fundraising is close to matching the PCs. I think the oil industry here wants to see the Wildrose in power to see if they can get a better deal - it's just another reason I don't want them forming our next government.

[Thanos]

The real benefit to Alberta is the long-term jobs that the industry provides. The payroll taxation from these jobs is the genuine golden goose in this situation, not the royalty rates. Seeing that the industry tends to backlash against higher royalty rates by slowing down activity, an increase in rates is hardly worth the bother it creates.

I find it more than amusing when folks elsewhere in Canada say to Alberta "you're getting ripped off, you should be saving more!". It gets even funnier when one realizes that the saving plans of other provinces usually don't consist of anything more than living off of Ottawa in perpetuity. It's like taking financial advice from the 30-something slacker cousin whose path forward through life consists of nothing more than watching Beavis & Butthead from the couch in mom's basement and never straying more than a few feet away from the waterbong and bag of Dorito's on the coffee table.

[BeaverFever]

Thanos Thanos:

The real benefit to Alberta is the long-term jobs that the industry provides. The payroll taxation from these jobs is the genuine golden goose in this situation, not the royalty rates. Seeing that the industry tends to backlash against higher royalty rates by slowing down activity, an increase in rates is hardly worth the bother it creates.

See I don't buy that. It's like when the reforma-cons say if you dare tax the rich they'll all quit their jobs and take our jobs with them. By slowing down activity the companies are slowing down their own profits and their own supply. For example, would you rather keep 99% of a million dollars or 95% of a billion dollars? These companies have shareholders who demand return and they have downstream operations that need supply. The world isn't making any more oil.

Any slowdown in response to higher rates would just be a pressure tactic and a game of chicken- maybe a year or two max but they wouldnt be able to hold out for long.

[Thanos]

Hmmmm. The last industry slowdown occurred when Premier Stelmach brought in a revised royalty regime that really hammered the junior players, the drillers, and companies on the natural gas side (who were BTW already getting clobbered by fallking gas prices). The industry as a whole was getting quieter well-before the worldwide economic meltdown happened in 2008. Activity exploded when Premier Klein reduced royalties, and the converse happened when Stelmach increased them. Industry is willing to spend now but a couple of years ago it was the corporate bean counters who were really the ones dictating terms.

Royalties are a hot-button issue that can be manipulated in any direction. What seems to be factual is that the industry has a negative reflexive response to them that really has nothing to do with any other external factors. Maybe someone can put together a strong argument that Alberta isn't getting enough out of it. But the bigger issue really should be that since the days of Premier Lougheed the provincial government has had some really bad spending habits. Not overspending as such, as I've made it quite clear around here on numerous occasions that I'm an opponent of austerity budgetting and slash-and-burn spending cuts, but more of a case of dumb spending. After decades of royalty revenue it is really kind of unforgivable that Alberta keeps ending up in situations where infrastructure/health/education/etc keeps getting hurt because too much money has been wasted or literally disappeared somewhere else. This seems to me to be a far more serious endemic problem for Alberta than any alleged lack of royalty return.

[BeaverFever]

That's called a Capital Strike; just like when Unions strike and withold their labour as a bargaining tactic, companies strike and withold their investment. But just as wokers can only strike for so long before the bills pile up, a company that must rely on increasingly scarce natural resources doesn't have much alternative, as was the case in Newfoundland. They caved after 18 months and gave Williams everything he wanted.

Now, I get why there may have been a need to entice devolopment a decade ago with low rates. The oilsands weren't really viable when oil was below $30 a barrell because of significantly higher production costs and the US wasn't really on board with oilsands because they didn't know much about it and they were generally risk-averse as the US was in economic doldrums at the time. Add to that the uncertainty of what oil prices would do in the future. But the question is whether there still should be 1% royalties. Remember, its not the oil company's oil and gas, it Alberta's oil and gas. If Alberta is really to be run like a "business" as Klein and company wanted, what other business charges a 1% royalty for its product, other than as a limited time offer? I guess like any entitlement program, once you roll out, the beneficiaries get use to sucking on the teat and its hard to wean them off. Frankly, I don't think Albertans have the stones to weather a capital strike, it'll just sweep the Wild Rose Alliance into power.

But there are costs to low royalties, and as you alluded to, its puts pressure on the tax system and public services and the user fees that follow. Every time an Albertan pays $330 for an ambulance (reference: Toronto is $45) you are IMO effectively subsidizing the oil industry's profits.

[SivVulk]

Peter Lougheed's slow and steady i/e sustainable development plan for the development of the tar sands was what the Norwegians used to come up with their own plan. Norway's citizens have managed to benefit a great deal more because of their commitment to gradual development as well as the establishment of a heritage fund.

Klein and Stelmach abandoned Loughheed's philosophy for a "develop as fast as you possibly can in the shortest amount of time possible" which is one of the reasons why Fort McMurray went from boom to bust real fast. Not to mention Klein and Stelmach bow to the will of US oil companies. Comparing Alberta with Newfoundland may not be an apt comparison to some but I think at the very least it should be conceded that Danny Williams had some backbone when he stood up against Chevron and Exxon.

[JaredMilne]

As valuable as Alberta's oil resources and the industry they've created have been, I think they've led to complacency in some cases. The attitude has come across to me like "the oil's going to last forever, so why do we need to do anything?"

That attitude has led to Alberta paying for most of its infrastructure and social programs with resources dollars. When the price of oil goes down, so does our treasury, and we all end up suffering as a result. As other people in this thread have noted, Lougheed created the Heritage Fund as something we could use to build a more diverse economy so we wouldn't be as reliant on fossil fuels, but his successors tended to treat it more as a piggybank to pay for whatever projects they had in mind.

The funny thing, though, is that Albertans can be just as economically nationalist as any other part of Canada when we want to be. Ralph Klein would never have convened the royalty review if the NDP and the Liberals were the only ones who wanted it, after all. Not to mention that there's widespread support for upgrading more of our resources here in Alberta, or at least in Canada, rather than shipping the raw product outside our borders.

If the Wildrose forms the next government, it'll be interesting to see how they handle these issues. Doing more of the upgrading here and trying to diversify our economy are popular issues in Alberta these days, even if they seem to go against the laissez-faire grain. It'll also be interesting to see how they implement their platform, since I'm curious to see if cutting the civil service is going to be enough to balance the books and pay for the Wildroses' other major promises.