Another day, another ND P problem for Alberta oil
Another day, another move to shake up the energy business. Marg McCuaig-Boyd, the energy minister in Alberta’s new NDP government, kicked off a review of the province’s oil and gas royalties Friday by announcing banker Dave Mowat, president and CEO of ATB Financial, the provincially owned financial services agency, will run the process.
There were few details on the scope of the controversial exercise at a time of depressed oil and gas prices, how it’s supposed to unfold or who will be a part of it.
What we already know is that it’s coming along with higher carbon taxes and plans for a tougher climate change plan announced Thursday, higher corporate taxes, plans to restructure the Alberta Energy Regulator and a big bump in the Alberta minimum wage. The result is fiscal and regulatory change overload and, for business, unstable-to-worsening conditions.
Here’s the view from the outside: “On balance, upstream investment is likely to remain strong for the oil sands over the longer-term as Canada remains a relatively stable and low risk option for producers,” said Washington, D.C.-based Eurasia Group analysts Divya Reddy and Hilary Novik in a report Friday.
“Short-term policy headwinds under the new NDP government will have a bearing on the economics of projects already underway and could serve as a deterrent to new investments in the 2017-20 time frame if the carbon pricing and tax hikes remain in place and oil prices remain depressed.”
In announcing the review’s kickoff, McCuaig-Boyd said the royalty review fulfils a campaign promise and a desire to return to principles first articulated by the late Peter Lougheed, who insisted on prudent management of natural resources “that belong to the people.”
“There was a concern from Albertans (about whether we) are getting our fair share,” she told reporters. “Could it be different? Could it be better? So we are delivering on that promise and reviewing.”
Mowat, who’ll be on loan from ATB Financial, a Crown corporation, said he’ll pick a panel of “smart people who understand the issue and have inquiring minds” to help him get feedback across the province on payments made by the oil and gas industry for developing provincially owned resources. There will be consultation with industry, the public and other stakeholders.
The panel is due to make recommendations before the end of the year and will work with another panel appointed Thursday and headed by University of Alberta professor Andrew Leach that will recommend a broad climate change plan for the province. The government will consider the recommendations of both panels before making decisions on the royalty structure.
On the upside, Mowat struck the right note when he said he’s aiming to “optimize” rather than “maximize” fiscal terms, given the industry is already dealing with increased taxes and competition from other jurisdictions.
“The goal is to find an environment where the province is successful, the companies are successful, and the communities of Alberta are successful,” he said.
McCuaig-Boyd said oil and gas companies have asked for a review that looks at the provincial take in its entirety, and they’re pleased to be engaged and to be consulted.
She said the panel could also look at ways to encourage more refining and upgrading in the province.
But Tim McMillan, president of the Canadian Association of Petroleum Producers, said the current royalty structure was already doing the job.
“An appropriate royalty structure attracts investment, creates jobs, generates government revenue and builds Alberta communities,” he said. “Put in place just five years ago, (it) has helped achieve those goals by being responsive to the ups and downs in the industry — and that’s been good for Alberta and Albertans.”
Indeed, the structure reflects many of the changes recommended by the last royalty review in 2007, plus big fixes required to stem the migration of capital to other jurisdictions.
Reflecting widespread concern about the road ahead, one senior oilman, who asked to remain anonymous, wasn’t as diplomatic: “The eco-activists and big labour will do their very best the next four years to squeeze the living hell out of our sector. The socialists have scored the keys to the castle, the biggest per capita economy in Canada, and Alberta will be home for one very grand social experiment. We’re going to suffer immensely.”