ALBERTA READIES ROYALTY REGIME FOR UNCERTAIN TIMES
AS OIL PATCH STRUGGLES, ENERGY MINISTER VOWS NEW RULES WON’T MAKE THINGS WORSE
The blows keep coming for Canada’s beleaguered oil and gas sector, but at least changes in Alberta’s oil and gas royalty regime shouldn’t strike as hard as feared when details are announced next week.
In an interview Friday, Alberta Energy Minister Marg McCuaig- Boyd said the new regime is a better match for the technology changes impacting the sector, will be more transparent so it’s better understood, and will provide some incentives – but will not worsen Alberta’s already tough industry conditions.
“I don’t believe it’s going to be a hurdle at all,” McCuaig-Boyd said. “The biggest hurdle moving forward is the world price of oil, and ( uncertainty about) when that rebounds. Right now it’s just difficult for decisions to be made because it’s just so low, but this will be another tool.
“This new system won’t take place until 2017, so it gives companies options to do their scenarios now and be ready for when the price rebounds,” she said.
Rachel Notley ’ s NDP government launched the royalty review soon after its election last May, after promising in the election campaign to squeeze more money out of oil and gas companies. “The PCs have ... refused to implement realistic oil royalties that the people who own the resources — all of us —deserve,” she said, fuelling a loss of investor confidence in the province.
But her government’s tone softened as energy prices kept tanking and as alarm increased that her left-leaning government was being reckless by announcing major policy changes during a severe oil shock, including a 20 per cent increase in corporate taxes and a climate change plan that will collect $3 billion a year from an economy-wide carbon tax.
Alberta Environment Minister Shannon Phillips told an oil and gas conference last week that she hoped the carbon tax won’t have to be collected forever as emissions decline. Yet discussions are just beginning on how to phase out Alberta’s coal- fired power plants, as well as how to allocate a cap on emissions from the oilsands.
McCuaig- Boyd said the royalty review announcement would reflect conversations with industry and input from ordinary Albertans.
There will be linkage with the climate change plan, she said, after industry asked that higher environmental costs be offset in the royalty regime.
The review is also expected to provide ideas and incentives to diversify the provincial economy.
Asked whether she is satisfied the regime will give Albertans their fair share, McCuaig-Boyd said: “I think we have a system that we can trust and know that it will reflect the rise and fall of prices and it addresses the technology.
“I have grown to understand through the royalty review how the industry works, and the levers that we need to get benefit from Alberta, but also incent employment and incent investment.”
Royalty reviews have been acrimonious in the province because they involve dividing income from oil and gas development between industry and government.
But the latest oil shock has left little to fight over.
Government income from royalties has collapsed, contributing to recent downgrades of Alberta debt by credit rating agencies.
McCuaig- Boyd said any incremental revenue from royalties would be funnelled into Alberta’s Heritage Fund, though she acknowledged it will be a while before that happens.
A former schoolteacher representing the rural ridi ng of Dunvegan- Central Peace, McCuaig- Boyd, 63, consulted widely to avoid making the mistakes of the past.
The last royalty review, under the Conservative government, resulted in an investment pullback and was eventually overhauled.
Oil and gas royalty fights are somewhat unique to Canada because mineral rights are owned by the provinces. In the U. S., they mostly belong to landowners.
Expected at the end of last year, the latest royalty review’s results were held back a month because “we are going to get this right,” McCuaig Boyd said.
The announcement will i nclude a “well thoughtout document” based on an already submitted report from a panel chaired by Dave Mowat, president and CEO of ATB Financial, t he Alberta- government owned financial institution; and panel members energy economist Peter Tertzakian, managing director of ARC Financial Corp.; Annette Trimbee, former Alberta deputy minister of finance and president of the University of Winnipeg; and Leona Hanson, a businesswoman and mayor of the northern Alberta town of Beaverlodge.
When first appointed, Mowat said his goal was to optimize government returns, investments, and management of the provi nce’s natural resources, rather than maximization, which he said tends to come at the expense of something else.
McCuaig- Boyd said it wasn’t easy to conduct the review during such a severe downturn.
With lots of family in the industry, “it’s pretty important to me,” she said.