CanPol - Alberta edition

[Asher]

Good God almighty. I give up. There's no reasoning with you. You're not even being internally consistent.

You're either trolling or Ben is rubbing off on you. Either way, it's not funny, nor fun, and I'm getting terribly tired of schooling you if you're not even going to pay attention. I have -- MANY TIMES -- discussed that labour costs, oil cost, etc have ALSO played roles in cancellation of projects. You keep saying that is the case like it DISPROVES my statement that a massive increase of royalty rates also impacted project investment in Alberta. THAT MAKES NO SENSE.

...

You're completely right, of course. An increase in royalty rate from 1% to what, 28%? No impact at all on business viability of projects worth tens of billions of dollars. 'cause that's just solid reasoning.

[notyoueither]

I worked at Lehman Brothers as it collapsed. My father manages Chevron's role in the Alberta oil sands.

I'm out of gas here. I'm not going to lecture you about world financial markets or how Alberta's energy sector works because I don't think you actually ****ing care. You've made no effort here to learn anything new or think this through at all.

Yes, there was a recession (it was not a Great Recession, whoever said that was probably a dip**** journalist), and yes, oil prices fell, but YES, an unpredictable and government that shows a lack of respect to business combined with dramatically increased royalties (and therefore exposure to risk) AND uncertain environment legislation ALL COMBINED to resulted in the massive pull-back of investment in Alberta.

It was a perfect storm. The royalty thing was just the last straw for many. It cannot be understated how much what Alberta did pisses off businesses and scares them for future investments. These deals are massively complex and analyzed in insane amounts of detail. Huge models are built and many, many factors and variables analyzed. The royalty rate is a massive modifier applied to the viability factor of these projects, and a subtle variation in that could dramatically impact the fiscal viability of the projects. And it went up...BY A LOT.

Is a recession. Keep up with the news. Not everyone is out of the woods, and there are uncertainties where things are going well.

I completely accept that the GoA has annoyed the industry. I fully accept that some are more severe in their reactions than others. What I do not accept is that the GoA has seriously damaged the industry in Alberta. Neither reports nor reason back that up.

[notyoueither]

Good God almighty. I give up. There's no reasoning with you. You're not even being internally consistent.

You're either trolling or Ben is rubbing off on you. Either way, it's not funny, nor fun, and I'm getting terribly tired of schooling you if you're not even going to pay attention.

You're completely right, of course. An increase in royalty rate from 1% to what, 28%? No impact at all on business viability of projects worth tens of billions of dollars. 'cause that's just solid reasoning.

Do you actually understand the new royalty structure?

[Asher]

**** off, Ben

Is a recession. Keep up with the news.

Yes, there was a recession

.
I suggest you look at current economic indicators.

Do you actually understand the new royalty structure?

Yes. And you don't, which is probably why you think it's no big deal. You also have displayed nothing but absolute ignorance about how royalties work in the Alberta Energy sector. I've not seen anything from you which demonstrates you did basic ****ing research on it yet. Hell, you're still showing reading comprehension issues in the context of this thread alone.

The royalty rates on net revenue range from 25% to 40%, depending on the price of oil.

At current oil prices, the royalty rate is 28%. WHICH IS WHAT I SAID.

[notyoueither]

As I thought, you have no idea what you are talking about.

Oilsands:

http://www.energy.gov.ab.ca/Org/pdfs/RoyaltyTerms_OilSands.pdf

Payout definition: When an oil sands royalty project reaches payout, its
cumulative revenue equals or exceeds its cumulative costs. Costs include
specified allowed capital and operating costs related to the project, plus a Return
Allowance. Gross revenue for a project can be based on either bitumen (no
upgrader) or synthetic crude oil (project includes upgrader).

Pre-payout: The gross revenue royalty rate applies.

Post-payout: The royalty payable is the greater of the gross revenue royalty
based on the gross revenue royalty rate or the net revenue royalty based on the
net revenue royalty rate.

Gross royalties range from 1% at < $55 CDN oil to 9% at $120 CDN + oil.

Thank you for playing, and good night.

[notyoueither]

Net is after they get a sweetheart deal of 1 to 9% while they recover the costs of the project.

IOW, what you were saying about return on investment earlier? Yeah, that. Crock of ****.

[Asher]

As I thought, you have no idea what you are talking about.

Oilsands:

http://www.energy.gov.ab.ca/Org/pdfs/RoyaltyTerms_OilSands.pdf

Payout definition: When an oil sands royalty project reaches payout, its
cumulative revenue equals or exceeds its cumulative costs. Costs include
specified allowed capital and operating costs related to the project, plus a Return
Allowance. Gross revenue for a project can be based on either bitumen (no
upgrader) or synthetic crude oil (project includes upgrader).

Pre-payout: The gross revenue royalty rate applies.

Post-payout: The royalty payable is the greater of the gross revenue royalty
based on the gross revenue royalty rate or the net revenue royalty based on the
net revenue royalty rate.

Gross royalties range from 1% at < $55 CDN oil to 9% at $120 CDN + oil.

Thank you for playing, and good night.

You're quoting from the GoA propaganda PDF. It's very pretty with lots of pictures and other bull****, I'm sure.

Key phrase there:

specified allowed capital and operating costs

The problem here is the "specified" allowed capital and operating costs are a fraction of the real world costs. They'll typically cover the cost of the extraction and basic in-situ operation, but not cover the supporting infrastructure where a massive chunk of the money actually goes -- building power plants, distribution networks, pipeline construction, and even large parts of the upgraders (which are the real money). Note that they do admit there are two classes of projects (one with upgrader, one without) implying there is a distinction, but they don't elaborate in the PDF on what it is. They also don't cover cost overruns, which always happen.

Why do you think the GoA doesn't publicly break down the nebulous 'specified' costs?

Read the ****ing fine print. Those royalty rates run out far faster than you think. And even then, they're up to 900% more than what they used to be.

It's charming you think a 900% rise in early-development royalties that last far shorter a time than they used to is a "sweetheart deal". What a ****ing joke.

It's 1am and I'm going to bed.

[notyoueither]

Aww, poor muffins.

9% at $120 oil. I am sure it will break them.

What is that? $10.80 out of $120?

Do you think they would prefer $0.80 out of $80 (a high price when the previous regime was developed)?

Which would you prefer, Asher? Run it through your model.

[Asher]

The summary is this:

OLD SYSTEM:
Until COMPLETE cost of development of a project is complete: 1%
AFTER: 25%

NEW SYSTEM:
Until the government's definition of cost of development of a project is complete: 1-9%
AFTER: 25%-40%

Why would this significantly impact project economics??? I KNOW. CRAZY, RIGHT? It clearly is no big deal the fact that the royalty rates are now incredibly ****ing variable and also the fact that they're up to 9x higher than prior.

You do not seem to comprehend the massive costs and the massive amount of time it takes to recoup those costs and why a difference of even 1% in royalty rates during the cost-recovery phase significantly impacts the economic feasibility of the project. You also do not seem to comprehend how ridiculously complex and unpredictable and risky the variable royalty rate model makes trying to evaluate potential projects in Alberta now.

The GoA did a major screwjob on the royalty market at the worst possible time. The re-start of a couple of the smallest oilsands projects that were put on haitus before does not have anything at all to do with the royalty scheme. Your logic is ridiculously flawed and immensely retarded.

That is all...

[notyoueither]

At $80 they'll be paying ~$3.20 now. $0.80 to $3.20.

I can see why the business press has pressed the snooze button on the conniptions coming out of Calgary.

What the business press would be aware of is that royalties from gas and conventional oil in Alberta have fallen off a cliff that has zero to do with the royaltiy rate going up. The cash to run the province with ultra low taxation has to come from somewhere. It is simply time that the oilsands start to pay some of the freight.

[Asher]

At $80 they'll be paying ~$3.20 now. $0.80 to $3.20.

Now go ahead and multiply that by $1B.

That's a massive amount of money. You act like it's almost nothing. Are you ****ing kidding me?

Jesus ****ing christ.

Alberta is predicting billions of dollars more per year in revenue. Where does that money come from, nye? We're talking about massive amounts of money here, not a couple bucks. If an oil company needs to give another billion dollars a year to Alberta for the privilege of dealing with the headaches of the oil sands, that is a MAJOR deal. That's what you don't understand.

[notyoueither]

The summary is this:

OLD SYSTEM:
Until COMPLETE cost of development of a project is complete: 1%
AFTER: 25%

NEW SYSTEM:
Until the government's definition of cost of development of a project is complete: 1-9%
AFTER: 25%-40%

Why would this significantly impact project economics??? I KNOW. CRAZY, RIGHT? It clearly is no big deal the fact that the royalty rates are now incredibly ****ing variable and also the fact that they're up to 9x higher than prior.

$120 was an impossible level for the price of oil when the old regime was designed.

The government is asking for 26% to 31% after project payoff under then realistic oil prices.

[Asher]

$120 was an impossible level for the price of oil when the old regime was designed.

That's why there's ****ing percentages. It's not like they were charging fixed prices per barrel. The fact is the province got greedy when they noticed the prices going up. That's all there is to it, don't pretend otherwise.

The government is asking for 26% to 31% after project payoff under then realistic oil prices.

The government is asking for 25% to 40%. Don't lie or mislead any more. This is pathetic enough as it is.

[notyoueither]

Now go ahead and multiply that by $1B.

That's a massive amount of money. You act like it's almost nothing. Are you ****ing kidding me?

Jesus ****ing christ.

Jesus ****ing Christ indeed!

Some ****ing Christ has to pay for the roads, schools, hospitals, and other services.

The ****ing Christ of natural gas is feeling under the weather and can't do the same old miracles, sorry. The oilsands are going to have to actually pay something! God forbid!

Like I have said, multiple times. There were too many projects. Too much boom. If $2.40 slows things down, then that is fine.

[Asher]

Jesus ****ing Christ indeed!

Some ****ing Christ has to pay for the roads, schools, hospitals, and other services.

The ****ing Christ of natural gas is feeling under the weather and can't do the same old miracles, sorry. The oilsands are going to have to actually pay something! God forbid!

Like I have said, multiple times. There were too many projects. Too much boom. If $2.40 slows things down, then that is fine.

As long as you're now admitting that the royalty structure has slowed project development, then we're fine. You think it's ****ing great. I don't.

None of the engineering firms are hiring in Calgary, which means I'm getting shafted because you thought the province was growing too fast.

Outstanding. Now we can all move at a slow pace with walkers.