CanPol - Alberta edition

[Flubber]

But NYE my comments and approach about services from government is rational. If a US juruisdiction has low taxes generally but you ahve to health insure all your workers, you have to consider that. If in an African state you have to hire mercenaries to protect your folks thats relevant too.

Right, and US states have simlar takes to Alberta, and then they pay for health insurance... Nigeria's take is off the charts, and then they pay for mercenaries...

The point?
.

I was being balanced. If the take number is lower somewhere you have to look at why and any additional costs. I was pointing out and admitting that the take in some US states may be unnaturally low and the additional costs have to be factored in. ITs called being balanced. You are accustomed to talking with ASher about this stuff so anything other than wholeheartedly advocating one side of a debate may be new to you

[

They ****ed it up as it applies to gas, but gas was ****ed up before the royalty changes kicked in. I am unsure how to apportion blame there.

Despite your comments, there is still a reasonable natural gas industry. Price meant it wasn't doing great but the government f***d it all up

[The comparisons that matter are not to other provinces in Canada. BC does not have a billion barrels of oil. I doubt SK does either.

The inter-provincial comparison is pretty much ALL that matters to those hundreds of small oil companies that might drill one to 10 wells a year. Leaving aside oilsands (which is of interest to a different brand of player-- a pretty small number of the very large actually ) both Sask and BC have significant resources. They are big enough to matter.

BC in particular has massive shale plays so to blithely assume their resource is too small to matter in the competition for resources and investment is simply wrong

[Flubber]

[I'm not sure what to make of what you are saying. Yes, Alberta has low corporate taxes. So what? What does that have to do with the royalty we should charge for the resources that we own?

The point of comparing take would be to see where we should set the royalty bar to get as much as possible for what we own while remaining a competitive seller, including our other taxes. If we have lower taxes, we should charge higher royalties.
.

hmmm it seems you arer saying that oil companies should not be subject to the same general levels of taxation applicable to everyone else. Why ? Would you use "take" as the only number??-- hmm that would mean if Alberta taxes go up or down that would not apply to the oil companies since it would change the "take" that has been so "carefully" set.????

Thankfully even the Alberta government wasn't quite that simplistic. They appreciate that Albertas is a pretty mature basin. Most of the big stuff which is easily extracted (again leaving aside oilsands which I am almost never talking about since it is unique to itself) is already gone. There are still good plays out there but most of it is nowhere near as prolific or as cheap to extract as some of the worlwide competitors you named.

Much of it, if slapped with a a higher royalty, could never be developped. The government knows this now because Industry has showed them their production profiles and costing. Would you slap your higher "take" on the various lower margin plays out there?


There MANY facets to setting an appropriate royalty. In private industry when we farm out lands to each other I have examples where the royalty on one deal was a little more than quadruple that of another deal for lands a few miles apart. One was a known shallow gas play,very cheap to access (lets say 800K a well) and well known as a pretty prolific play so exploration risks weere relatively low. The other was a deep gas play, far less proven and requiring far more expensive drill rigs to complete appropriately (lets say 12 million a well) and once completed , likely to produce at a relatively low rate (but for a reasonably long period). Did the farmor get screwed by accepting less than one-quarter the royalty rate of the nearby play?


Absolute numbers around take can be a fools game-- Oh and the breakdown of royalty and general taxation will always matter. Most royalties in the world are 'gross'-- payable off the top on production regardless of profitability while other taxes are paid on profits. So in a low tax jurisdiction increasing royalties to make overall "take' equivalent will mean you have less and less of your take being sensitive at all to the profitability of the industry compared to your competitors. So in a downturn you pay more that those jurisdictions where more of the "take' is general taxation.

[Asher]

..and 'broke the law'?



Why is there no court case?

Yes, contract violation. The contracts were "renegotiated" because the companies had no other such choice if they wanted to continue to keep their shareholders happy. Call it blackmail, whatever you want...in your own words: "Renegotiate or face a government pissed off.". In this case, the government pissed off could destroy their business and certainly piss off their shareholders to immense degrees. I'm not sure why you think this kind of action is legal. If anything, it's the GoA attempting to game the system...

I'd already explained why there was no court case. Such a case would drag out for years between trials and appeals and during the process Suncor and Syncrude would probably have their hands tied in terms of expansions, upgrades, new projects, etc. At the very least, the gov't would not rubber-stamp anything they wanted to do. Surely you know this.

They didn't "renegotiate" their deal out of the goodness of their hearts, they were left no other choice. They were essentially blackmailed into renegotiating a perfectly valid contract.

This is in violation of the law.

[notyoueither]

I was being balanced. If the take number is lower somewhere you have to look at why and any additional costs. I was pointing out and admitting that the take in some US states may be unnaturally low and the additional costs have to be factored in. ITs called being balanced. You are accustomed to talking with ASher about this stuff so anything other than wholeheartedly advocating one side of a debate may be new to you

You are correct. I should ease up.

Despite your comments, there is still a reasonable natural gas industry. Price meant it wasn't doing great but the government f***d it all up

I think the gas industry in Alberta is and was truely ****ed regardless of royalty changes.

There is a lot of shale gas closer to US consumers. In the early days of developing it, it is likely cheaper to produce than new, harder to get sources in Alberta.

Furthermore, the supply of cheaper, closer gas has increased dramatically and that has led to the entirely expected collapse in the price of gas.

So, we have expensive gas that needs transport over a long distance and it now sells for lower prices. The GoA could give it away to keep some jobs, but then where do the revenues come from?

The Royalty Review was a product of the realities of the situation. For years natural gas and conventional oil paid the bills. The oilsands enjoyed large government investment in research and development as well as infrastructure and human resource development. It has come time that the oilsands start kicking in, significantly.

What the royalty regime should be for nat gas and conventional oil, I am not sure. I don't know enough yet. I do know that I am not in favour of near zero royalties for the sake of sour gas wells near population centres, and that is about where we are arriving at in an effort to squeeze the last nickle.

The inter-provincial comparison is pretty much ALL that matters to those hundreds of small oil companies that might drill one to 10 wells a year. Leaving aside oilsands (which is of interest to a different brand of player-- a pretty small number of the very large actually ) both Sask and BC have significant resources. They are big enough to matter.

BC in particular has massive shale plays so to blithely assume their resource is too small to matter in the competition for resources and investment is simply wrong

My comments re BC and SK are in relation to oil. I think that should be obvious. You mentioned you not being like Asher. Fine, then don't act like him.

[notyoueither]

Yes, contract violation. The contracts were "renegotiated" because the companies had no other such choice if they wanted to continue to keep their shareholders happy. Call it blackmail, whatever you want...in your own words: "Renegotiate or face a government pissed off.". In this case, the government pissed off could destroy their business and certainly piss off their shareholders to immense degrees. I'm not sure why you think this kind of action is legal. If anything, it's the GoA attempting to game the system...

I'd already explained why there was no court case. Such a case would drag out for years between trials and appeals and during the process Suncor and Syncrude would probably have their hands tied in terms of expansions, upgrades, new projects, etc. At the very least, the gov't would not rubber-stamp anything they wanted to do. Surely you know this.

They didn't "renegotiate" their deal out of the goodness of their hearts, they were left no other choice. They were essentially blackmailed into renegotiating a perfectly valid contract.

This is in violation of the law.

It is not illegal for governments to tax, or to raise taxes.

Suncor and Syncrude were told that they they were going to be paying more taxes, one way or the other. They chose to renogotiate the contracts. I suppose they did this so that they would have some input in the formula, and so that they would know the rates once settled and not have to deal with the uncertainty of not knowing what the GoA would do.

There were no violations of any laws.

[Asher]

It is not illegal for governments to tax, or to raise taxes.

Oh, for **** sakes. Are you this ****ing obtuse?

I have NEVER said this was illegal. It IS illegal to strongarm people into nullifying an existing, perfectly legal contract in order to extort money out of them.

You should look up basic ****ing tort law. If you have a legal contract, it is NOT legal to blackmail or otherwise force a company to "renegotiate" the contract (the euphemism you and the government both choose). It is not an act of good faith.

You are seriously ****ing delusional if you don't see the problem in what Alberta did to Syncrude and Suncor, and if you don't see the ramifications of what Alberta did to them in the calculations oil companies do to analyze risk of all of their future plays.

By the way, it is illegal for governments to raise royalty rates on companies that had a signed contract guaranteeing the royalty rates. Just so you know. It's no different than your bank raising the rate on your fixed-rate mortgage.

[Asher]

I don't think it's worth it for me to explain to you why a strongarming companies to "renegotiate" perfectly valid deals is not an act of good faith.

I don't think you understand the importance of good faith in tort law.

Perhaps you should read this PDF: http://www.mcgill.ca/files/maritimelaw/goodfaith.pdf

[notyoueither]

Oh, for **** sakes. Are you this ****ing obtuse?

I have NEVER said this was illegal. It IS illegal to strongarm people into nullifying an existing, perfectly legal contract in order to extort money out of them.

You should look up basic ****ing tort law. If you have a legal contract, it is NOT legal to blackmail or otherwise force a company to "renegotiate" the contract (the euphemism you and the government both choose). It is not an act of good faith.

You are seriously ****ing delusional if you don't see the problem in what Alberta did to Syncrude and Suncor, and if you don't see the ramifications of what Alberta did to them in the calculations oil companies do to analyze risk of all of their future plays.

By the way, it is illegal for governments to raise royalty rates on companies that had a signed contract guaranteeing the royalty rates. Just so you know. It's no different than your bank raising the rate on your fixed-rate mortgage.

It is not in the least bit illegal to inform a sector or an industry that they will face new or greater taxation.

Take a pill, dude. You are being silly.

[Asher]

It is not in the least bit illegal to inform a sector or an industry that they will face new or greater taxation.

It is when it is a violation of the contract.

Are you deliberately misrepresenting my position Ben-style, or are you failing at basic reading comprehension Ben-style? I cannot decide.

Raising royalty rates is legal, strongarming companies into "renegotiating" legal and valid contracts which guaranteed certain royalties is not. Contracts need to be entered into under good faith. The GoA could legally jack royalty rates such that companies without contracts guaranteeing certain rates for certain times would pay the new rates. When the contract for the other companies come up for renewal, they would then pay the new rates. You cannot legally jack the royalty rates for companies that had royalty rates explicitly defined in their contracts with the government. That is a contract violation if they do, and if they strongarm the company into renegotiating it is not an act of good faith.

It's as simple as that.

[notyoueither]

There is no clause of any contract that assured Suncor and Syncrude that they could not be subject to new taxes.

It's a simple as that.

[Asher]

There is no clause of any contract that assured Suncor and Syncrude that they could not be subject to new taxes.

It's a simple as that.

Do some basic ****ing research, for **** sakes.

The royalty rates were explicitly in their contracts. You CANNOT raise those royalty rates without violating that contract.

Why the **** do you think the government had to resort to strong-arming the companies into "renegotiating" a new contract? If what they did was legal under the existing contract, THEY WOULD NOT HAVE TO DO THAT.

This is basic ****, nye.

The following are ESTABLISHED FACTS:
1) Suncor and Syncrude had explicitly defined royalty rates in their contracts
2) The contract contained NO provision to permit for renegotiation
3) The contract contained NO provision for the GoA to raise the explicitly-defined royalty rates for Suncor and Syncrude as they saw fit

The GoA did raise royalty rates, but they did NOT apply to Suncor and Syncrude because of the contract they had. That's why the GoA essentially blackmailed them into renegotiating a new contract.

Suncor and Syncrude had a SEPARATE CROWN AGREEMENT pertaining to royalties and as such were NOT affected by the GoA "raising taxes" (as you phrase it, which has its own set of problems...technically it is not a tax).

[notyoueither]

Who said royalty?

Basic **** is a property tax on oilsands surface mines with an exemption for projects with lifetime revenue below a certain threshhold.

Basic **** is a sales tax on transactions involving bitumin from surface mines with similar exemptions.

There are any number of ways that the GoA could have taxed Suncor and Syncrude that have nothing to do with royalties, and left other projects exempt.

Stop being silly.

[Asher]

Who said royalty?

HOLY ****ING ****.

Basic **** is a property tax on oilsands surface mines with an exemption for projects with lifetime revenue below a certain threshhold.

Basic **** is a sales tax on transactions involving bitumin from surface mines with similar exemptions.

There are any number of ways that the GoA could have taxed Suncor and Syncrude that have nothing to do with royalties, and left other projects exempt.

Stop being silly.

You are talking about something else completely ****ing different yet again.

Holy ****ing ****. You are seriously far dumber than I ever anticipated with the intellectual honesty rivaling Ben.

NEVER HAVE I SAID IT WOULD BE ILLEGAL FOR THE PROVINCE TO RAISE TAXES.

IT IS, HOWEVER, ILLEGAL FOR THE GOVERNMENT TO FORCE EXISTING CONTRACTS TO BE RENEGOTIATED UNDER THREAT. THIS IS NOT AN ACT OF GOOD FAITH, WHICH IS CENTRAL TO VALID CONTRACTS UNDER TORT LAW.

In addition to it being ethically despicable, it also shows an alarming lack of maturity and rationality in the provincial government -- which is why Stelmach is getting ****ing hammered with approval rates lower than George W. Bush's at their worst. This act of petulance and stupidity has damaged Alberta's reputation in ways you cannot even imagine.

It is also one of the many reasons Stelmach may've killed his entire ****ing political party. The Wildrose is on track of kick them out of power, and in Alberta (historically) once you're kicked out of power, you never return.

Good ****ing riddance. It's high time you stop defending these ethically bankrupt douchebags.

[Asher]

To be CRYSTAL ****ING CLEAR because you are having one hell of a time understanding what I am saying here...I AM NOT and I HAVE NOT EVER discussed taxation in this thread.

THE WHOLE TIME I HAVE BEEN EXPLICITLY TALKING ABOUT ROYALTIES. I MENTION ROYALTY SPECIFICALLY IN EVERY ****ING POST. This could NOT BE MORE CLEAR.

Do you understand?

[notyoueither]

I understand what you want to talk about. Unfortunately, what you want to talk about is not reality.

When discussing competitiveness with other jurisdictions, which you have, entire tax load (government take) is a factor. Not just royalties. That may be why the industry talks in these terms, and Flubber (an industry participant) is perfectly happy to discuss the issue in those terms.

When discussing the Suncor and Syncrude contracts, other taxes are part of the background. The GoA told the two that they were going to have to start paying more to the government. They could renegotiate their royalty deals or the government would come up with other levies. Again, other taxes are and were part of the discussion, whether you want them to be or not. The fact is that Suncor and Syncrude chose door number 1. I understand why they did. There decision resulted in them having a lot more control over the issue, since they would know what was coming and they would have some input.

In short, stop being an idiot, Asher.