CanPol - Alberta edition

[notyoueither]

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Again, the approach of the Royalty Review Panel has been criticized for using outdated cost and foreign exchange assumptions.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.

Talk about dishonest. I have not said there would not be decreased investment. In fact, I have said repeatedly that if there is too much of a decrease, the Province should be prepared to step in and develop the resource via a Crown Corporation or a public corporation like Statoil.

What I have been arguing with you about (lately) is the legality of what the Province did with Syncrude and Suncor.

You have claimed that other oilsands projects have contracts with 'the royalty numbers printed in exact numbers'. That is bull****, Captain Bull****.

[Asher]

You are un-****ing-believable.

Talk about dishonest. I have not said there would not be decreased investment.

The noise [from oil companies] about the royalties and effects on investment were bull****. It's pretty easy to complain about new levels of taxation when you were planning to shut down for other reasons.

This is (seriously) it for me in this thread. You've spun such a web of dishonesty in this thread you can't even remember your position on the matter even days ago.

[notyoueither]

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.

You are certifiable, Captain Bull****. Did you catch this bit from Flubber's link? He bolded it for you.

Oilsands development isn't part of the probe.

[SlowwHand]

So...this is what caused the wadded pantaloons?

[notyoueither]

You are un-****ing-believable.

Talk about dishonest. I have not said there would not be decreased investment.

The noise [from oil companies] about the royalties and effects on investment were bull****. It's pretty easy to complain about new levels of taxation when you were planning to shut down for other reasons.

This is (seriously) it for me in this thread. You've spun such a web of dishonesty in this thread you can't even remember your position on the matter even days ago.

And the context of that second quote? We were discussing the oilsands, dip****.

I have argued many times that companies were cancelling/delaying oilsands projects for reasons that have zero to do with royalties.

I am being borne out in that now that conditions are more stable, financing is available, and oilsands projects are getting going again at the new rates that are not being reviewed.

[notyoueither]

So...this is what caused the wadded pantaloons?

CanPols are like a box of chocolates.

[Grandpa Troll]

Where is Ben when he can actually help.

the whole problem as I see it is San Diego is not part of the solution, they were jerked around by sorry officiating..and then he will throw a comment on topic in, yes, entertainment at its best

[Flubber]

I have argued many times that companies were cancelling/delaying oilsands projects for reasons that have zero to do with royalties.

I am being borne out in that now that conditions are more stable, financing is available, and oilsands projects are getting going again at the new rates that are not being reviewed.

Careful with your rhetoric --- "zero to do with royalties" since that claim clearly goes too far

Royalties matter. They are a big enough item that the amounts are significant. Since I was not privy to the NPV calculations on any of the oilsands projects, I don't know how much of an impact that the royalty changes for oilsands would have had on those calculations and the decision to delay or cancell certain projects but it definitely would have been part of the calculation. Some or all might have been cancelled or delayed without the royalty changes anyway OR some or all may have been cancelled or delayed because the royalty changes were a fundamental shift in the economics of the projects that was too much when added to changes in other parameteres. I don't know and neither do you. But I do know that each and every project would have had a better outlook at any relevant time under the old regime compared to the new one .

The fact that certain projects are moving ahead now doesn't mean that royalties had no impact. What it means is that the new royalty regime is one under which at least some of the projects are economic under current price and costing forecasts. So it appears that it works (at least for some projects) . In that sense it might even be a good regime--I have no objection to slowing the pace of oilsands development. In fact its probably a good thing for environmental reasons and for keeping costs more reasonable .


That said, I am largely in accord with asher with respect to the Suncor/Syncrude contract negotiations at least philosophically. When a company invests many billions of dolars in a risky project ( and these were very risky when they started-- recall oil prices around $10 in 1999) they should be able to expect that their contracts will be honoured by any Canadian governmental authority. While the legislature is supreme and can legislate as it pleases within its authority, doing things like imposing additional taxes would be a cheap and transparent tactic to effectively break a contract. EVen if its legal it doesn't mean it is right

Imagine if a legislature decided it wanted to impose a 95 % tax on newspaper revenues.( inn the background Stelmach hates the press he is getting) Would that be ok?

My bottom line is that yes governments can change things. Its called 'political risk" and by not honoring its deals (from the companies perspective) the political risk number in Alberta went up. Each company will calculate it differently but what has happened is that projects in Alberta will now need to be that much better to get done because the government has already demonstrated that it is willing to appropriate some of the upside despite its contractual commitments.

Some may say "good' but there is a cost

[Asher]

That's a terrific summary

[notyoueither]

Careful with your rhetoric --- "zero to do with royalties" since that claim clearly goes too far

Royalties matter. They are a big enough item that the amounts are significant. Since I was not privy to the NPV calculations on any of the oilsands projects, I don't know how much of an impact that the royalty changes for oilsands would have had on those calculations and the decision to delay or cancell certain projects but it definitely would have been part of the calculation. Some or all might have been cancelled or delayed without the royalty changes anyway OR some or all may have been cancelled or delayed because the royalty changes were a fundamental shift in the economics of the projects that was too much when added to changes in other parameteres. I don't know and neither do you. But I do know that each and every project would have had a better outlook at any relevant time under the old regime compared to the new one .

The fact that certain projects are moving ahead now doesn't mean that royalties had no impact. What it means is that the new royalty regime is one under which at least some of the projects are economic under current price and costing forecasts. So it appears that it works (at least for some projects) . In that sense it might even be a good regime--I have no objection to slowing the pace of oilsands development. In fact its probably a good thing for environmental reasons and for keeping costs more reasonable .

The last part, fine. Can't quibble about it.

The first part, I say 'zero to do with royalties' because some projects were being shelved or cancelled before the royalty review completed and decisions on new rates were being announced.

That said, I am largely in accord with asher with respect to the Suncor/Syncrude contract negotiations at least philosophically. When a company invests many billions of dolars in a risky project ( and these were very risky when they started-- recall oil prices around $10 in 1999) they should be able to expect that their contracts will be honoured by any Canadian governmental authority. While the legislature is supreme and can legislate as it pleases within its authority, doing things like imposing additional taxes would be a cheap and transparent tactic to effectively break a contract. EVen if its legal it doesn't mean it is right

Imagine if a legislature decided it wanted to impose a 95 % tax on newspaper revenues.( inn the background Stelmach hates the press he is getting) Would that be ok?

This I can't agree with in any significant measure. You suggest an extreme example to make your point. The only problem is that governments have come up with taxation levels of 95% or so in the past.

Things change. The need for government revenue in Alberta is not part of some stick up of the capitalists because they are evil. The government faces a severe shortfall in revenues because of decreasing royalties from gas and conventional oil.

Look at it this way, the government could have forced Syncrude and Suncor into the 25% royalty rate by denying any further expansion or development prior to 2016, or whatever date their contracts expired. Would that have been OK? Would that have been good for these companies and their shareholders?

What if the government simply brought in new taxes that neither company had any say in? No threat, but potentially damaging since they would have been a cludge that might not have been geared to production and hense revenue the way the royalties are. Would that have been OK?

Nobody (practically) has any guarantee that they will not be taxed in new ways.

My bottom line is that yes governments can change things. Its called 'political risk" and by not honoring its deals (from the companies perspective) the political risk number in Alberta went up. Each company will calculate it differently but what has happened is that projects in Alberta will now need to be that much better to get done because the government has already demonstrated that it is willing to appropriate some of the upside despite its contractual commitments.

Some may say "good' but there is a cost

I simply do not buy that the need for mature oilsands projects to begin paying into government revenues in a more significant manner and how the GoA approached the issue truely increases political risk as much as I think some would like to make out, if at all.

These projects take 20 or more years to pay out. Do the oil companies pay attention to the fact that Alberta's political neighbours frequently elect NDP governments and that there is significant immigration into the province? Do they really bank on Alberta's politics never changing? That seems a poor bet, to me.

Furthermore, the scale of the changes are not that great. Yes, after a $15 billion expansion, Suncor might have to pay 9% royalties while waiting for pay out... on $120 oil. On $60 they will pay 1.62%, on $70 they will pay 2.85%, on $80 they will pay 4.08%. In other words, at reasonable costs for oil they will have to pay an extra 0.5 to 3.0%. I don't think these increases fall into the same category of 'political risk' that the oil industry routinely face outside of the Continental United States.

I'm not sorry about it. I am not buying political risk arguments over this when war, outright expropriation, and large-scale organized theft are things the industry deals with on a regular basis.

Yes, the changes will affect calculations of profitability, but political risk? Pull my other leg for a while, I am developing a limp.

[notyoueither]

I don't want to start a new thread, but these articles touch on some of the difficulties facing the Province of Alberta depending on natural gas royalties going forward.

http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/us-gas-producers-eye-ontario-market/article1478908/

U.S. gas producers eye Ontario market

Shawn McCarthy

Ottawa — From Wednesday's Globe and Mail
Published on Tuesday, Feb. 23, 2010 7:56PM EST
Last updated on Tuesday, Feb. 23, 2010 8:01PM EST

Canadian pipeline companies are considering requests from U.S. producers to reverse the flow of their export lines to bring natural gas from the prolific Marcellus shale into Ontario, displacing some Alberta suppliers who have dominated the Central Canadian market for half a century.

TransCanada Corp. (TRP-T34.930.280.81%) and Chatham, Ont.-based Union Gas Ltd. (UNG.PR.C-T50.25----%) have issued “open season” calls to determine the interest of Marcellus producers in supplying natural gas to the Ontario market from Pennsylvania and West Virginia.

The companies, together with New York-based Empire Pipeline, would use existing pipelines that now move Western Canadian gas to Southern Ontario and the U.S. Northeast. “The Marcellus shale is a game changer in terms of our markets and how we serve them,” said Andrea Stass, spokeswoman for Union Gas, a subsidiary of U.S. giant Spectra Energy Corp.

Union Gas's so-called “open season” will gauge interest among shippers to move gas from the border at the Niagara River, through a TransCanada line and then westward to its Dawn hub near Sarnia, where Union has major natural gas storage facilities.

TransCanada vice-president Steve Pohlod said the company is responding to requests from Marcellus producers that want to supply the Ontario market. But, he added, it is too early to say whether there is enough interest to justify reconfiguring the export pipeline.

“We're holding an open season to determine the interest and the volumes that parties may be interested in committing – and where they may be interested in transporting gas to,” he said.

Ontario consumes an average of roughly 2.5 billion cubic feet per day, though demand swings dramatically according to the season. The vast majority of Ontario gas supply comes from Alberta and Saskatchewan through the TransCanada main west-to-east pipeline, as well as routes through the United States.



The massive Marcellus structure extends through the Appalachian region from West Virginia, through Pennsylvania and New York. As a result of advances in drilling techniques, the industry has dramatically reduced the cost of producing gas from the deep pools trapped in tight, shale-rock formations.

Estimates of potential production from the Marcellus formation range wildly, from a minimum 2.5-billion cubic feet to up to 10 bcf per day by 2020.

The development of huge shale gas structures is radically changing the North American market for natural gas, said Peter Tertzakian, chief energy economist with Calgary-based ARC Financial Corp.

U.S. pipeline companies are proposing major expansions to deliver Marcellus gas into the East Coast markets to compete with Canadian production, he said.

“This is the first major export proposal to pit Pennsylvania gas head-to-head with Western Canadian gas on Canadian soil,” he said.

In 1958, Prime Minister John Diefenbaker supported the construction of the 3,500-kilometre TransCanada line from Alberta to Central Canada in order to ensure the development of western resources and provide secure supplies for Central Canada.

Until recently, security of supply remained a concern for eastern consumers. Now, production is increasing among a variety of sources,

In addition to the Marcellus gas, eastern consumers are also seeing new supply from the Canaport liquefied natural gas terminal, located in Saint John, N.B., and owned by Irving Oil Ltd. and Spain's Repsol YPF SA.

As well, there is growing excitement about the Utica shale gas play in Quebec, where Calgary's Talisman Energy Inc. has been reporting promising results from its drilling program.

As Canadian producers see their grip on eastern markets loosened, Mr. Tertzakian said they will need to refocus on western markets. He suggested production from large shale gas formations in northeastern British Columbia could compete with high-cost conventional gas in the western U.S.

“It's all very competitive and the gold medal winners will be the ones who have the mindset to bring the gas to market most efficiently at the lowest cost,” he said.

Analyst Richard Zarzeczny, president of energy information and consulting firm Canadian Enerdata Ltd., said loss of market share in Ontario could undermine the economics of shipping western gas to eastern markets. Declining volumes would drive up pipeline tolls, which would further encourage consumers to turn to Marcellus sources.

That's quite a large gas field.

[notyoueither]

http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/quebec-shale-gas-find-could-redraw-canadas-energy-map/article1478900/

Quebec shale gas find could redraw Canada's energy map

Nathan VanderKlippe
Calgary — From Wednesday's Globe and Mail
Published on Tuesday, Feb. 23, 2010 7:57PM EST
Last updated on Tuesday, Feb. 23, 2010 8:11PM EST

Seventy-five kilometres southwest of Quebec City, in the farm country that lines the St. Lawrence River, natural gas is surging from the ground.

In a province so distant from the petroleum industry that it does not yet have its own system for distributing oil and gas leases, the sight of a producing natural gas well is as unusual as it is important. Thousands of kilometres from the traditional heart of Canada's energy industry, this well could represent a significant redrawing of Canada's energy map.

When it was first brought on stream in late January, it produced 12 million cubic feet of gas a day, a gusher by gas well standards, and a huge boost to Calgary-based Questerre Energy Corp., (QEC-T5.051.3536.49%)which has partnered in Quebec with the much bigger Talisman Energy Inc. (TLM-T18.890.311.67%)

After Questerre released news of the well on Tuesday, its shares climbed 36 per cent, and a series of other companies with stakes in a new play known as the Utica shale followed its rise.

Investor excitement erupted for a simple reason: If the Utica can match some of its early promise, Quebec could begin to seize some of the West's importance as Canada's energy piggy bank.

The oil patch has come to New Brunswick, too, to probe rocks that may parallel some of North America's biggest natural gas plays. The most daring companies have even begun to look at Nova Scotia and Newfoundland as new energy sources.

Fifty kilometres south of Montreal, a drilling rig is burrowing deep beneath the pastoral farm country that lines the St. Lawrence River.

The promise of big eastern finds is particularly compelling since they are so close to the U.S. Atlantic seaboard, where gas sells at a premium.

“It's kind of like real estate: location, location, location. The best place to have these assets is closest to the market,” said Jim Fraser, senior vice-president of shale operations at Talisman, which has a 75-per-cent interest in 400,000 hectares of Questerre's land.

Though the output at Talisman's first Quebec well has fallen to less than half its original strength in the three weeks it has flowed, a rapid decline is typical in shale gas production, and Talisman is moving ahead with three more wells like it this year.

The play is incredibly young, and is seductive in part because so little is known about it – a fact that has even its backers preaching caution.

“You always like best what you know least about. And we don't know a lot about Quebec yet because we're still in the early phases,” said Talisman chief financial officer Scott Thomson.

Industry generally measures shale gas wells by the average of their first 30 days of production. The first major shale play in North America, the Barnett, produces 1.5 to three million cubic feet a day. British Columbia's Horn River averages 15 million, while the Marcellus, which is geographically near the Utica, averages about five million.

How the Utica will ultimately stack up against those plays remains very much an open question, since the well has not flowed long enough to prove how much gas will actually come to the surface.

But Questerre believes Quebec's Utica shale could contain more than 20 trillion cubic feet of recoverable natural gas – far higher than gas estimates in Canada's Mackenzie Delta. “We think it's a top 10 shale deposit in North America. The only issue has been to prove that it's commercial,” said Questerre chief executive officer Michael Binnion.

It will take many years, and many more wells to see whether those estimates are correct, Mr. Binnion admits. The Talisman well is “only one well and it's certainly not proof that you can take down to the bank and get a loan with,” he said. “But it's a very positive indicator.”

And what's clear is that the shale gas revolution, which has already shredded beliefs that North America is running short of natural gas, is now set to transform the way Canada thinks about energy.

“I've never seen anything like it in terms of what it could mean for gas flows,” said Stephen Paget, an analyst with FirstEnergy Capital. “The idea that Quebec could be a gas-producing region is quite something.”

For Quebec, the possibility of a large natural gas deposits inside its borders is pushing the government to look at creating an infrastructure for the industry. All the province has to offer are mining licences.

It is a similar situation in New Brunswick, where natural gas has been largely overlooked since the early 1900s, when a small discovery spurred the construction of a pipeline that fed Moncton for 80 years.

But the province was never considered especially prospective, in part because earlier exploration attempts did not take into account shale rocks, which hold onto gas molecules so tightly that they barely flow to the surface when tapped by a well.

Now, new rock-fracturing technology has allowed companies to free enough gas that Calgary-based Apache Canada Ltd. plans to drill two horizontal wells, each with multiple underground fractures, this year in New Brunswick, to test its potential. Apache came in to the Frederick Brooke through an agreement with junior company Corridor Resources Inc.

It is early days, and the companies know they're not plumbing traditional territory. But for a company such as Apache, an early move into a relatively unknown area is a risk worth taking. The first one in can pick up more land at a cheaper price.

“The winners in this game will be the ones that identify and actually control the best fields,” said Robert Spitzer, Apache Canada's vice-president of exploration. “And that's what we're doing.”

Can't even bark about leaving Eastern bastards to freeze in the dark anymore.

[Asher]

This doesn't help.

http://www.calgaryherald.com/business/Alberta+least+competitive+report+says/2607579/story.html

Alberta least competitive in oil and gas: report

EDMONTON — A University of Calgary research paper released Wednesday ranks Alberta dead last in terms of competitiveness for oil and gas.

Jack Mintz, director of The School of Public Policy, ranked oil and gas producing jurisdictions in terms of their competitiveness and the ability of their tax and royalty structures to attract investment, comparing Alberta, Saskatchewan, British Columbia, Nova Scotia, Newfoundland and Texas.

In most cases, Alberta trailed the other jurisdictions. The conventional oil and gas industry faces a higher tax and royalty burden on new investments than do other sectors of the economy, he said. Further, at higher prices per barrel of oil, Alberta’s tax and royalty regime becomes even less competitive`

Mintz added that contributing significantly to Alberta’s lack of competitiveness is the current royalty regime, which creates a burden on investment that is twice as high on oil and gas compared to other sectors in the Alberta economy.

“Contrary to some public perception, the oil and gas sectors, including the oilsands, are much more highly taxed than other sectors in the Alberta economy,” said Mintz in a release.

More-competitive environments are found in Saskatchewan and British Columbia. The burden is higher in Saskatchewan than in British Columbia in part because the latter is harmonizing its sales tax with the federal goods and services tax (GST) and thereby removing significant taxes on business purchases of capital.

Marginal investments in oil and gas in Newfoundland and Labrador and Nova Scotia bear a very low tax and royalty burden — in fact, they obtain a fiscal subsidy with a “negatively” measured burden — due to both a royalty structure that provides excessive deductibility for investment costs and the federal Atlantic investment tax credit. “In my view, that’s just too distortionary; it’s not necessary,” said Mintz.

Finally, in Texas, while the tax system is quite different, it is competitively structured. The overall tax burden compares to B.C. and Saskatchewan, and is significantly more competitive than Alberta.

The paper, called “Taxing Canada’s Cash Cow: Tax and Royalty Burdens on Oil and Gas Investments,” argues for significant reforms, including the abolition of the federal Atlantic investment tax credit and a restructuring of royalty systems with a single rate applied to the equivalent of rents as in the case of Alberta’s pre-2009 oilsands royalty.