25 September 2007

Protect What's Ours

Supporting 'Our Fair Share:' Stelmach's opportunity to think like an owner
Oilsands companies walking away with some of the highest profits being earned by resource investors anywhere
Amy Taylor and Marlo Raynolds, Freelance
Published: Monday, September 24 Edmonton Journal

The Alberta Royalty Review Panel has issued its report and its conclusion is clear: Albertans are losing $2 billion every year because we charge embarrassingly low royalties for the right to develop our resources.

That's especially true when it comes to the Alberta oilsands, the second largest petroleum reserve on the planet.

Now it's time for Premier Ed Stelmach to take charge and start fixing the problem. As a first step, he should accept and implement the entire "Our Fair Share" package of recommendations put forth by the Royalty Review Panel. These explain how Albertans, as resource owners, can earn their rightful share of the profits from conventional oil and gas and oilsands development.

We're not talking about leading-edge policy or risky measures here. The panel's proposals are certainly comprehensive, but they will only make Alberta an average performer when it comes to royalties. Places like Norway will continue to capture much more revenue for their citizens.

Nevertheless, in Alberta, improving performance from worst-in-class to average is a big deal, worth about $500 dollars per Albertan per year.

It means that for each day the Stelmach government hesitates over the panel's report, Albertans give up $5 million dollars. The longer we wait, the more we lose.

It also means that if Alberta had implemented these reforms in 2000, the province would be $11 billion richer. If we'd started saving and earning interest on those dollars as soon as they came in, we'd be $18 billion dollars richer. Eighteen billion dollars is four times as much as the budget surpluses projected for the next three years. It's also more than the value of the Heritage Savings Trust Fund.

Albertans deserve every chance to profit from the highly-demanded resources we own, so we can save, invest and plan for the future.

Nowhere is this truer than in the context of the oilsands, where the industry has more than come of age. As conventional reserves dwindle, Albertans are going to rely increasingly on oilsands revenues for long-term investments, but they won't be able to if today's regime stands.

That's because current royalty rates date back to desperate times when Alberta's priority was providing extra incentives for oil companies to invest in an uncertain resource at oil prices less than $20 a barrel.

No one was thinking about how to capture windfall profits if oil prices climbed higher than $30, $50, $70, or as it stands now, $80 dollars a barrel.

A study published by Alberta Energy showed that this leaves oilsands companies walking away with some of the highest profits being earned by resource investors anywhere in the world. At the same time, they enjoy the oilsands' low exploration costs, low risk, predictable long-term production, close proximity to the U.S. market and location in a stable, democratic region.

Thus, as one member of Alberta's Royalty Review Panel (a former executive in the oil industry) put it rather candidly, industry should stop whining. Especially when much of what industry complains about -- increasing costs and labour shortages -- is the direct result of an overheated resource economy.

If anything, low royalties deserve some blame for having fuelled an unsustainable pace of development (kind of like giving Viagra to the already capable).

But beyond that, the whole debate about inflation and costs is a red herring. The decision on royalties is a decision about property rights.

Remember, as owners, Albertans deserve to get a fair share of profits available from resource development.

The Review Panel has clearly demonstrated that this isn't happening, because once developers start making profits, they get to walk away with 75 per cent of the money -- even when revenues soar as a result of windfall resource prices.

The "Our Fair Share" package of recommendations is a good first step in redressing this balance, by increasing Albertans' overall take, maintaining competitive returns for companies, and ensuring that Albertans' share rises when oil prices go up.

By supporting the entire package, Premier Stelmach has a defining leadership opportunity to, as Peter Lougheed says, "think like an owner" on behalf of Albertans and start building the economy of the future.

So far, the premier has been quoted as saying that he "will not be intimidated" by big oil. We should all hope that's true. Because if he chooses the path of leadership and fairness, Alberta will be better off to the tune $2 billion more each year.

Marlo Raynolds is executive director, and Amy Taylor is chief economist at the Pembina Institute. Publications on economic rent and royalty reform are available from www.pembina.org.

That's because current royalty rates date back to desperate times when Alberta's priority was providing extra incentives for oil companies to invest in an uncertain resource at oil prices less than $20 a barrel.

No one was thinking about how to capture windfall profits if oil prices climbed higher than $30, $50, $70, or as it stands now, $80 dollars a barrel.


Why does this not surprise me? Freaking idiots thinking that fuel would stay cheap forever? Man, there is absolutely no long-term planning done anymore. We've known petroleum is a FINITE resource since they discovered it two centuries ago. Even economics would say the price would eventually go up. Why was this a fact not known by the people who set up the royalty programs? Oh right -- they're politicians.

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