CAPP: Alberta Royalty Review Panel Energy Royalty and Tax Regime Report Flawed

November 16, 2007 // Published as a news service by IHS

The report, conducted by an independent panel of experts, determined that "Albertans do not receive their fair share from energy development and they have not ... been receiving their fair share for quite some time.

"Royalty rates and formulas have not kept pace with changes in the resource base, world energy markets and conditions in other energy-rich jurisdictions."

According to the Canadian Association of Petroleum Producers (CAPP), the report promises a future that the oil and gas industry sees as unrealistic.

The report calls for significantly higher royalties and taxes, but suggests there will be no overall impact on industry investment, activity and growth, said CAPP.

Alberta Premier Ed Stelmach decided to consult with Albertans on the panel's report, a decision the CAPP welcomes.

Industry will share its concerns with government during the consultation process. Some of CAPP's concerns are:

• The panel acknowledges increased royalties and taxes will slow oil sands investment and activity, but suggests this will be balanced by an upswing in conventional oil and natural gas activity. The panel claims that 82% of gas wells will actually pay lower royalties under their approach. According to CAPP, this is only true at low and uneconomic prices. At prices expected over the next year, all gas wells will pay higher royalties which will only make the current drilling downturn worse, said CAPP.

• The panel points to a single report to back its argument that Alberta's share of revenues is low in comparison to other jurisdictions. This report was not raised for discussion during the public hearings. In fact, the report was only released after the close of public hearings. Reports prepared by other independent and qualified consultants are readily available. One report that was given to the panel shows Canada providing the lowest return on oil and gas investment, said CAPP.

• The panel ignores the real costs facing the industry. For example, the costs for a typical oil sands project are stated to be CAD$5 - $6B by the panel, but the actual costs are CAD$10- $11B. These costs, such as the price of steel, are largely driven by global factors and are not within control of the industry, said CAPP.

"The basic assumption is that the size of the 'pie' will not change," said Pierre Alvarez, CAPP president. "Past experience, in this country and around the world, just doesn't support the panel's view."

"This debate is often painted as industry versus government or the public," said Alvarez. "The truth is that we are all in this together. One in six Albertans work for or alongside the industry. Industry revenues are reinvested in the economy, generating further prosperity and growth. We all know this issue is too important not to get right."

To read the full Royalty Review Panel Final Report,Our Fair Share visit the Alberta Royalty Review web site.

Source: Canadian Association of Petroleum Producers (CAPP).