CanPol - Alberta edition

[notyoueither]

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.

Maybe the day of the independant, small player are near done. If it is not economical for them to develop the resource and pay a reasonable return to the GoA in exchange for the product, what then?

Maybe it is time for Petro Alberta to be chartered to keep these industries going. Oil and gas are very important for jobs and other economic activity, but they are also important for government revenue the way things are done around here.

Before you call me a communist, you should consider that there is a history of government getting involved and ensuring critically important industries in this province as well as nationally. We have a strong streak of red (if that's what you want to call it) going way back.

[Asher]

I've never seen you squirm so much in a single thread as this before, nye. It was quite a show.

One that I've no interest in seeing any further. This started off as a discussion of royalties, and once you realized you were wrong there you've now warped the discussion into something else, continued talking about something else while others focused on the original point of discussion. I'm embarrassed for you.

Simple fact is the GoA forced/blackmailed two of the largest players in Alberta's oilsands into "renegotiating" contracts to pay substantially more in royalties. You are attempting to avoid this issue, invariable because it's fairly black and white and you are clearly in the wrong, by now discussing something completely different and irrelevant to the discussion: overall levels of taxation in Alberta compared to various third-world countries.

There's no point in continuing this discussion if you're not even going to provide us the courtesy of partaking in the actual discussion at hand.

[notyoueither]

This is pretty pathetic, Asher.

This thread has been all over the place. New political landscape in Alberta, discussion of a sales tax, etc, yet you are focused on a couple of posts from 12 pages or so ago.

The exchange.

It's all about the bitumens (to steal a phrase). Suncor and Syncrude were cramming in extra billions of dollars of expantions on their existing contracts. All to be paid for by the people of Alberta in royalty forgiveness (for those outside who are interested, we forgive royalties to early producers until capital paid back). All at the lowest royalties anywhere on the planet at $120 oil... I don't think so.

All that safe, secure oil that isn't being sold for the lowest royalities on the planet (or among them).

to which you replied:

Average royalty rates for oil are 10-20% around the world. The US charged 12.5% in the Gulf of Mexico, for instance, until recently til it was raised to 16.7% (in 2007). (source: New York Times)

Congratulations. You provided info about a single other jurisdiction with a lower royalty rate than Alberta. Note I played fast and loose with language. I said 'lowest' (wrong) and 'among them' (AFAIK, correct).

In searching for information on royalties in various places I have found very little, which is frustrating. What I did find are references to 'government take.' It is not my problem that you are unhappy with the material that is available for discussion. You may feel free to provide it anytime you can come up with it.

Then there is the discussion of the royalties paid by the two pioneers in the oilsands. Taxes other than royalties are part of that discussion, since it was non-royalty taxation that the GoA used as the prod to get Suncor and Syncrude to renegotiate existing contracts. Of course the royalties went up, Asher, because the companies chose to renegotiate the contracts rather than face the uncertainties of those other taxes.


Now, if you do not feel you want to discuss the issues of the new royalty scheme, or whatever else comes up, feel free to STFU. Your hysterics are tiresome. The strings of bull**** you have been spouting are more so. Your mischaracterisations of arguments and positions are dishonest, yet you throw around insults about others.

No point? Indeed, sir. However to see the absense of point, merely look in the mirror.

[Asher]

I'm not reading what you are posting...you are on my ignore list for at least the next month. Sorry, guy, I just can't handle your dishonesty.

[notyoueither]

[Flubber]

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

I don't agree. It will not see comparable prices to oil but prices even currently are economic for many plays. The lowest cost developpers will do ok

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.

I also do not favor a race to the bottom but there are resources that are less lucrative and for these higher royalties mean they are uneconomic. Its either develop at lower rates or leave it in the ground for now. Both options have pros and cons

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.

Hmmm-- Although oilsands have been the focus between you and asher you generally spoke about "royalties" and "take" without making that clear.

Reading you past comments in that light, I think it is absurdto think that the cumulative "take" on an oilsands project can ever ever come close to most of the other jurisdictions in that report. Oilsands development are fundamentally different than conventional plays. hell ebven a shale gas play, you can drill a well and then start producing. With revenue so closely following expense, royalties of 30%, 40% can be supported at the outset by some plays.

Oilsands? Foe a mine development like the first two, you spend billions and billions and then it is years before you even get simple payout, let alone a reasonable rate of return to just bring you back to even. Any regime has to allow this payback and in fact HAS to have enough return for the investor even beyond that. THink about it. If a royalty regime takes away too much of the upside, a project might have a projected rate of return of 6%. Do yiou think an oil company or any investor would invest billions, take significant risk, if that were the potential payout?

So you can look at "take" all you want but the reality is that the system that can work for a drill and produce resource is very different than that which would work for more long term projects. The old oilsands royalty regine was not that dissimilar from that used elsewhere for large offshore projects. For new projects I could see the value in a more variable regime. The way Newfoundland did it was to inpose super-royalties that kick in once the project has achieved certain rates of return in excess of the long term government of Canada bond rate. Industry squaked a bit but since any project would be happy to achieve the specified rates of return, it didn't kill the industry.

[Flubber]

The latest--

A s the province's sweeping oil and gas review nears completion, several political observers are voicing concern that Albertans, owners of the lucrative resource, are being shut out.

Critics contend the Stelmach government's approach to the competitiveness study is an unsettling departure from its 2007 royalty review, which saw a blue-ribbon panel tour the province to hear from oilpatch executives, municipalities, environmental groups and regular Albertans.

Back then, the panel held 14 days of public hearings over three months and posted hundreds of pages of documents online. This time, meetings between the province and representatives from the energy and financial sector have occurred behind closed doors.

"The contrast between the 2007 review and this one couldn't be more profound. Transparency and accountability are completely absent," said Chris Severson-Baker of the Pembina Institute, an environmental policy think-tank.

While the oilpatch argues the government's current probe is vastly more transparent to the eyes of industry, University of Calgary professor Nigel Bankes believes Albertans should be concerned they've been excluded from an important debate on publicly owned resources.

"One of the challenges with reviewing competitiveness is it's usually a race to the bottom," said Bankes, who specializes in natural-resource law. "At some point, we have to say to ourselves, does it make more sense to leave the gas in the ground until prices improve?"

A report on the review's findings is expected in a few weeks, likely next month.

"There is no intention now to launch into a public-consultation process," Ron Liepert, the new Alberta energy minister, recently told reporters in Calgary. "What we need to do is act, and if there are things that need to be fixed, then fix 'em, and then get out of the way and let business do what business is supposed to do and create jobs in Alberta."

The public, he said, is being represented by the government, which is leading the review comparing the province's natural gas and conventional oil sectors to those in British Columbia, Saskatchewan and energy-producing American states. Oilsands development isn't part of the probe.
Premier Ed Stelmach, whose popularity has nosedived in part due to contentious royalty changes, last week publicly acknowledged for the first time his Conservative government should've done a better job in 2007 of consulting the energy sector.

"Remember, this is a partnership," the premier said. "The partnership is that as Albertans, we own the resource. We depend on people to put money up, risk capital, to develop those resources. And that partnership has to be one that is trusting."

Trust between the energy industry and the Tory government has improved through the province's handling of the competitiveness review, said David MacInnis of Chevron Canada. Now he and others in the oilpatch are waiting to see what influence their input has on expected recommendations affecting regulations, royalties and other taxes.

"The future economic well-being of Alberta is at stake," MacInnis said. "The government needs to send a clear signal, not just to those currently invested in Alberta, but those thinking about doing so, that the province has a framework that will provide for clarity and certainty on a host of fronts."

Since the Conservative government announced a major overhaul of the royalty structure in October 2007, the regime has been altered five times. Most of the changes took effect last January, amid a global recession and tanking commodity prices. At the same time, an explosion in U.S. shale gas production has reduced that country's desire for Alberta's natural gas exports.

Indeed, drilling rates reflect the downturn in prices and demand. In Western Canada, drilling fell in 2009 to its lowest mark since 1992. Alberta's well count dropped 50 per cent to 5,802 from 11,687 in 2008.

"Alberta is an expensive place to operate," said David Yager, who is co-chairman of the Wildrose Alliance's energy policy review.

Yager, who is also chairman of the Petroleum Services Association of Canada, said the Conservatives' previous royalty review was too political. This study, however, has been more collaborative, he noted.

The government's competitiveness review team includes two industry advisers, former Nexen vice-president Roger Thomas and ex-Royal Bank of Canada investment banker Chris Fong. The energy and financial sectors have been asked for a slew of data, which has been analyzed by external auditors, said Alberta Energy spokesman Jerry Bellikka.

Liberal energy critic Dave Taylor believes the province must avoid introducing another "piecemeal patch job" to oil and gas royalties and rules.

"Every time (Stelmach) backpedals and brings in another patch, he just adds to the uncertainty that drives companies crazy because they can't get people to invest," Taylor said.

University of Alberta economics professor Andre Plourde -- a member of the 2007 blue-ribbon royalty review panel -- argues Albertans should get a say before those decisions are made, even though the issue is complicated.

[notyoueither]

I don't agree. It will not see comparable prices to oil but prices even currently are economic for many plays. The lowest cost developpers will do ok

Then develop those plays. Lowering the royalty rates on all of it to allow a few at the margins does not seem like a good plan.

Hmmm-- Although oilsands have been the focus between you and asher you generally spoke about "royalties" and "take" without making that clear.

Reading you past comments in that light, I think it is absurdto think that the cumulative "take" on an oilsands project can ever ever come close to most of the other jurisdictions in that report. Oilsands development are fundamentally different than conventional plays. hell ebven a shale gas play, you can drill a well and then start producing. With revenue so closely following expense, royalties of 30%, 40% can be supported at the outset by some plays.

That is why they pay 1 to 9% pre-payout, and the royalty scales to the price of oil both pre and post-payout.

Oilsands? Foe a mine development like the first two, you spend billions and billions and then it is years before you even get simple payout, let alone a reasonable rate of return to just bring you back to even. Any regime has to allow this payback and in fact HAS to have enough return for the investor even beyond that. THink about it. If a royalty regime takes away too much of the upside, a project might have a projected rate of return of 6%. Do yiou think an oil company or any investor would invest billions, take significant risk, if that were the potential payout?

I suppose we have an answer in the recent batch of projects moving forward.

Perhaps they see the returns as being good.

So you can look at "take" all you want but the reality is that the system that can work for a drill and produce resource is very different than that which would work for more long term projects.

That's why they treat oil, gas, and bitumin differently.

[notyoueither]

re gas, I was under the impression they had multiple treatments for different sorts of developments. If so, where did they get it wrong?

[Asher]

That latest article you posted, Flubber, pretty much should be the end of this discussion.

Stelmach now admits he ****ed up with the royalty changes (what nye is still defending, I imagine), and he's altered it 5 times prior and is now in the process of introducing much larger changes. He has realized, and nye has not yet, that pissing off the people who pay the bills in this province is not wise.

[notyoueither]

You are incredible.

First, you keep avoiding the Suncor & Syncrude issue. I'm going to assume you admit this was a major cluster**** and mistake on behalf of the GoA, since you refuse to address the issue.

Second, you are ****ing crazy if you think oil companies don't get the royalty numbers printed in exact numbers on every contract they sign for projects worth many billions of dollars. That is one variable that needs to be set in stone for a fixed period of time. If it's a variable that is completely up to the government, they could theoretically legally jack the royalties to 100% at any time. Think about it.

Speaking of bull****...
The opinion of a law firm

As noted, there will be no grandfathering
for existing projects. The Royalty Review
Panel itself stated that changing the rules
may not be “best practices” but added
that it is definitely not best practice for
government to accept something less
than its fair share. This, of course, begs
the question of what, if anything, “fair
share” really means. Clearly, with respect
to conventional oil and gas, the Mines and
Minerals Act reserves that royalty which
may be prescribed by regulation from
time to time and the government has the
authority to change the regulations. The
oil sands generic royalty is embedded in
the Mines and Minerals Act itself. Changes
to the generic oil sands royalty will require
the legislature to enact amendments of the
statute. Ultimately, the Province has the
legislative authority to change the rules.
The manner in which it does so rests on
policy and political considerations.

[Asher]

Suggest you read the whole PDF you are quoting.

The royalty framework is just that, a framework. Of course the government can change it, and it would impact people who do not have specific royalty numbers in their contract. No one said that was illegal.

The government has the authority to change the rules, but does not have authority to retroactively change contracts that have been signed at specific rates. That is not what the PDF says, and to imply that is does say that is further dishonesty from you.

This is what I get for reading your post. I knew I shouldn't. Please stop replying to me on this issue, there's no point. We're done.

[Asher]

By the way, you again engage in blatant dishonesty. This is just a couple paragraphs up from your quotation:

Stability in fiscal regimes is a desired goal and, fortunately, Alberta has benefited in the past from the stability of its royalty regime. Whether the new Alberta policy will be successful remains to be seen. Early indications are that the new policy may result in decreased investment, resulting in less exploration and development and, ultimately, lower production. Several companies have already announced decreases in capital expenditure budgets in the wake of the new policy. This may be an early warning signal that the new policy may have unintended, adverse consequences for the Alberta economy.

Again, the approach of the Royalty Review Panel has been criticized for using outdated cost and foreign exchange assumptions. The result may be that the increased royalty burden will be a disincentive to the development of the oil sands sector, yielding less royalty revenue and other economic benefits than anticipated by the new policy.

Which is exactly what Flubber and I have been saying and you've been arguing with us about.

Why would you go out of your way to omit this if you were having an honest discussion? You found a good source, one reputable enough for you to quote it as some kind of expert opinion, then you only cite the couple sentences that you (incorrectly) perceived as backing you up. You intentionally did not provide the segments of the PDF which completely back my argument throughout this entire thread.

Classy.

[notyoueither]

Nobody but Syncrude and Suncor had those contracts that I have ever heard of. That is why your bull**** is so spectacular.

I would be pleased to read a source that says AOSP and other projects have those contracts. Your blatherings do not count as a source.

Also, suggest you figure out what "conventional oil and gas" is and how it does not apply to the oil sands.

Figures you are still being dishonest.

If you believe what you are posting, you lack sanity.

[Asher]

You're not going to trick me again.

You have been summarily schooled in this thread by every single person other than you posting in here. Your opinion is apparently not even backed by the Stelmach government, as they've scrambled to try to un-**** themselves because the royalty changes were clearly a mistake. They've changed it 5 times so far since and are about to complete a massive review again.

You're on an island of insanity and you've even lost basic reading comprehension skills as you have flailed around trying to defend your position. When that failed, you've constantly moved the goalposts and now you've finally completed the Ben impersonation by citing selective sources, misinterpreting what they are saying, and ignoring the majority of the document which contradicts the claims you've been spewing all throughout this thread.

Well done, but I suggest you take a break for a while. You are clearly going insane. I can't even stand reading your posts anymore, they're too crazy. KrazyHorse was on to something when he went to town on you recently.