CanPol - Alberta edition

[Flubber]

Why yes, yes I do.

The companies took a risk. The risk was the projects would fail. If the risk paid off they would have their plant paid for.

If they didn't want to do the project, in time someone else would have and those people would have enjoyed the payoff.



.

The problem with this line is that at 25% royalty from the start, I doubt any oilsands project would have gotten done. Having 24% less revenue in those crucial first years extends the time to payout substantially and the ROI gets too low.

and yes the oil companies want a high anticipated ROI to invest billions and billions in projects with risk

[notyoueither]

Not getting paid a royalty on resource revenues (or getting a small royalty) is not equal to expwending those sums yourself

Do you seriously want a crown corp trying to run an oil business?? Do you find that Canadian crown cops are generally well run businesses

Conceptually I always find the idea to be plausible but in reality crown corps far too often become total cluster****s run by cronies of government and they end up doing all sorts of things for political reasons (ahh- cannot lay off now, an election's coming)-- They tend to become bloated bureacracies encumbered by freedom of information requests, bound up by government red tape and rarely run by business folks.

Hell I already see it in NL where they created a crown corp just to own a piece of equity in their offshore projects. There's more political bullcrap than you can imagine and the copr cannot take a crap without the ok from the premier

I would accept the bullcrap that comes with a Crown corp if private industry does not continue to develop the resource.

I think we should be considering this to move ahead with nuclear power.

[Jon Miller]

Wow -- talk about mission impossible-- what fee does the company get for say 15 billion invested in infrastructure that only makes sense if you look at 25 to 30 years for returns

Lets say I make a proposal:

--------------------------
I want to buy land to take its oil!

Expected Total Revenue:
5 yr = 0b
10 yr = 20b
15 yr = 40b
20 yr = 60b
25 yr = 80b
End of lease

Expected Total Investment:
5 yr = 5b
10 yr = 10b
15 yr = 15b
End of Investment

Proposal renewed every:
10 years

Fee for Early Cancellation:
20b + 1b per year left in proposal

Initial purchase price:
5b + 1b per year

----------------------------

Just a mock up of course. Obviously the government won't cancel the contract unless it had a really bad deal. Generally the contract will go forward, if the company is making a huge profit then it will be renegotiated up (because the company won't want to cancel as they will make more by keeping the contract). If the company is making considerably less money than expected, then they can renegotiate it down.

JM

[notyoueither]

Oil companies will play politics no doubt.

But as I said repeatedly. royalty change is the reason there has been a larger impact in Alberta than in BC and sask. You have never addressed that. Do you disbelieve the statement?

Oh and money got moved more into the US as well but that must have been price and recession too since the States of course had neither

I was under the impression that technology change led to resources in other jurisdictions being more attractive.

fe, the gas that is being drilled in the US is cheaper, but wasn't possible to extract 10 years ago. That has affected the price of gas.

This is another example of what I mentioned. A certain major player in the gas industry made plans to do a lot of drilling in places other than Alberta long before the royalty review. They then blamed the royalty review for them doing what they planned on doing anyway.

[notyoueither]

yes I worked at Asher's fathers company for about a year so he would have some personal knowledge gleaned from that source. I can also add as someone that works in the industry myself that most of what he is saying is a very accurate assessment of what the oil companies are doing-- They are NOT all flocking to Canada

I do not disbelieve either your or Asher's father's credentials.

I do not accept what is said as the gospel though. It's one point of view, and one with a lot of self interest.

[Asher]

I was under the impression that technology change led to resources in other jurisdictions being more attractive.

fe, the gas that is being drilled in the US is cheaper, but wasn't possible to extract 10 years ago. That has affected the price of gas.

This is another example of what I mentioned. A certain major player in the gas industry made plans to do a lot of drilling in places other than Alberta long before the royalty review. They then blamed the royalty review for them doing what they planned on doing anyway.

If they weren't planning on staying in Alberta why would they ***** about the royalties here?

I'm somewhat alarmed you buy into this nonsense the government is spewing. It's a bunch of retards who spend way too much money and they did the royalty change for a cash grab. It was ill-conceived and it DID hurt the industry in a major way. Why do you think they temporarily cut the royalties for new wells last year? They know exactly what happened after the fact.

If it had been a proper review -- which it was not -- they would have forseen this. The review, if you actually read it (it's in PDF form online somewhere), essentially said raising the royalty would result in nothing but free money for the province. It was a joke.

[Asher]

I do not disbelieve either your or Asher's father's credentials.

I do not accept what is said as the gospel though. It's one point of view, and one with a lot of self interest.

This doesn't make any sense.

The company is leaving Alberta. I know why they are leaving Alberta. You refuse to believe it because it's "self interest"? Do you think they were bluffing when they laid off 90% of their employees or something?

The decision's already been made. We know why. You refuse to believe it. At this point Alberta could reverse the royalty decision and it won't make any difference. The capital is being spent outside of Alberta for the forseeable future, and the Alberta government burned many bridges and scared off other people.

At this point the companies who have left or are leaving due to royalties have nothing to gain for saying why they left. If the government restores the royalties and they come back, it only proves the point about the royalty change scaring them away.

[KrazyHorse]

Sometimes it isn't the time to sell an asset, because there is no buyers. Or few buyers.

I am getting first hand experience with that now, I have given away a lot of things, and for my major assets will be glad to get 500-1000 less than they are worth. This is because I have to sell now, because I leave the country next week. If I had 2-3 months to sell my stuff, I would get thousands more dollars...

No, in all likelihood your **** is simply not worth what you think it is.

There are many reasons why the government may sell when it isn't an advantageous time to sell:
1. Politicians are commonly short sighted, particularly in democracies. They are looking at what will keep them in power now.
2. Politics are often crooked. They are looking at what can provide advantage to their backers, not to the people who elect them.
3. Ideology, many groups think that the government shouldn't be holding property/companies/etc. As such they will sell, because they think they are suppose to sell, and not necessarily wait until it is an advantageous time to sell.

Seriously, this is an extraordinarily weak argument. How much money do you think has to be lying there before a competitor comes and picks it up? The government is never going to be as informed about the market as the people it's selling to are. It DOESN'T MATTER.

There's no ****ing shortsightedness involved in selling assets which the government has neither the wherewithal nor the expertise to develop on its own. If the project is so enormous that there is no competitive market, then the project should be broken up into more manageable chunks. Either way, creating the uncertainty of a 10 year lease on a 50 year project is absolutely ****ing retarded.

All three points make the government often much more likely to sell, even when it isn't an advantageous time for them to sell.

What absolute claptrap.

For any ideological proponent of privatization there's one of "government development". ****, look at NYE, an Albertan Tory voter, claiming that the government could just develop the oilsands itself.

So yes, in a perfect market there are few issues. However, in the real world there are rarely perfect markets when you get to a few number of players or the government.

How few a number of players, Jon? Even with two you can assure yourself of getting the lower of two true revealed values (through a second price auction). If the government is forced to negotiate with only a single possible purchaser then things become a bit hairy.

If the profit is expected after 50 years, than there would be a large penalty if the government doesn't renew the lease.

Errr....yeah. Which is why the thought of the gov't having that hammer would discourage any serious investment in the project.

****, even office buildings get multi-decade ground leases, and they're operational within a couple of years.

I actually think that all asset buying from the government should be in terms of proposals. Companies submit what they want, what they plan to use it for, and what profits they think they will see when in the proposal. At times when the proposal/lease is renewed, the current situation is compared to the proposal. If much greater profits than the expected are being realized, then that serves as a basis for renegotiation. If fewer profits are being realized, than that can also serve as a basis for renegotiation.

[notyoueither]

If they weren't planning on staying in Alberta why would they ***** about the royalties here?

They still operate here.

[Asher]

They still operate here.

They are shopping their share of the project. They're getting out. Totally.

The 2nd expansion of the AOSP was also cancelled as the company refused to invest more in the province. That alone was going to be $15-20B injected into the economy beginning in 2012.

Edit: In July of this year they put the Ells River in situ operation on hold as they couldn't find a buyer for their share of the project, too.

[Jon Miller]

No, in all likelihood your **** is simply not worth what you think it is.

Not according to bluebook/craigslist/etc.

It is basically that the people who I am trying to sell to (other physicists, who will understand that I will actually have 1 day to sell the car before I leave) have ended up not being interested in it. I would guaruntee that if I put it up on Craigslist or something like that and took 1-2 months it would sell for 500+ what I am offering right now.

I don't have time for people to come look at it/etc, or to buy it right now (I need a car right now). So due to my lack of time to sell, I will have to take a big loss.

My piano is even worse, and people aren't always looking for a piano and it is a nice one.

JM

[Jon Miller]

Do you think that the people of Russia (or the like) got a fair price when it sold all of it's assets off in the 90s?

There were a limited number of people who could buy them, they did, and they made a killing off of it.

The market shows noticeable problems when there are only a few players involved.

JM

[Jon Miller]

Also, almost all people I know personally have paid way more for something because they didn't want to shop around/wait a few months/etc.

Your disregard for the time of sale argument is not reasonable.

JM

[KrazyHorse]

Jon, are you still talking? My brain fell asleep an hour ago on this conversation.

Grow up and learn to be as analytic about this as you are about physics.

[notyoueither]

They are shopping their share of the project. They're getting out. Totally.

The 2nd expansion of the AOSP was also cancelled as the company refused to invest more in the province. That alone was going to be $15-20B injected into the economy beginning in 2012.

Edit: In July of this year they put the Ells River in situ operation on hold as they couldn't find a buyer for their share of the project, too.

Sorry, I was thinking of a different company.

The one involved in gas.