Thursday, September 20, 2007

Stelmach and the Royalty Review

Ed Stelmach has just been handed his first leadership challenge as Premier of Alberta - a Royalty Review Report that has the oilpatch getting positively "scared" (read - they are dragging out the "nobody will invest" zombie from the closet). You'd have to be the village idiot to believe that one. Alberta's oilsands represent one of the largest sets of reserves for fossil hydrocarbons in the world - the world's need for that energy in the short to medium term is such that it cannot afford to not invest.

Stelmach has a bit of a sticky problem though. If he overhauls things too radically, he will annoy the oilpatch which has been rather generous in its funding of the Alberta PC's. On the other hand, if he doesn't stop the perceived giveaway of resource revenues into foreign-held oil firm coffers, Stelmach stands to look as though he is beholden to the oilpatch and not to Albertans.

Alberta's royalty regime has long been one of the cheapest in the world for oil companies, and in recent months people have started to ask (rightly so) whether or not we are getting our collective "fair share" in this province.

A lot of what I've seen in the reports on the royalty review leaves one particularly vile little wart in the mix - keeping the 1% royalty in place on tar sands projects until "capital costs" have been recouped. The problem with doing this is simple - it's far too easy for the accounting to be juggled and shuffled in order to make it look as though there is a great deal of unrecovered "capital cost" for a very long time. Unless oil prices suddenly crash to pre-1990 levels, which seems quite unlikely, the tar sands remain profitable - even at full royalty costs.

There is a fundamental dishonesty in the claim that "investors won't invest" - it's a form of threat that has little or no validity. While a change in the royalty regime might cause some ripples for a while, it's not like the province can't do with a small slowdown right now.

4 comments:

Niles said...

Well, we can guarantee that *these* guys won't support improved royalties.

Off a billboard between Calgary and Strathmore...

http://www.unitedwestrepublic.com

Stephanie said...

Niles,

That cartoon is hilarious. I can't believe they are still moaning about metric conversion. That was a generation ago!

Grog said...

The cartoon is funny - the website behind it isn't.

It's more bleating from Alberta's "wannabe Texans" - bleah!

Anonymous said...

Those who desire to be Texans should get their green cards and move south. I'm sure the Yanks need more cannon fodder for that debacle called Iraq.

E.