Oil change

Albertans hungry for a fair slice of our petrochemical pie

Originally published in FFWD October 4, 2007 by Drew Anderson in Viewpoint


There has been a great deal of debate, gnashing of teeth and pulling of hair since the provincial government-appointed panel on oil royalties released its report: Our Fair Share. Oil companies are dusting off their doomsday arguments, left over from past royalty reviews, while regular Albertans wait patiently for the government to answer the report sometime in October.

Premier Ed Stelmach, in an attempt to demonstrate his Conservative government’s commitment to transparency and democracy, convened the panel to avoid the government confronting the oil sector on its own; a clear step away from the shoot-from-the-hip, thoughtless and perpetually destructive style of the former leader. Now we see the kinder, gentler, wimpier leader, always looking for an excuse to act.

That excuse came out with a bang on Tuesday September 18, with the proposal (gasp) to increase the royalties paid out by multibillion dollar corporations to us lowly Albertans; or as the report succinctly defines us: owners. There would also be some royalty reductions for low-producing conventional oil and gas wells, but increases would be seen across the board. In all, if approved, the higher rates should mean an extra $1.9 billion for the province’s coffers annually.

It turns out we’ve been getting a bum deal for quite some time, though exactly how badly we’ve been ripped off can’t really be answered, because the government, apparently, isn’t doing such a good job of keeping track of things like that. What we do know for sure is that we are below Texas, Alaska, New Mexico, Colorado, Wyoming, Norway, the U.K.; well, just about everybody. With the increases, we would still be near the bottom of this list.

It surely doesn’t come as a surprise to anybody that the government in Alberta is cozy with the oil interests that dominate our economy, but surely there was the assumption that it was keeping track of it all; adding up the figures. It wasn’t, particularly in the tar sands. This also leads to a situation where the royalties that were supposed to be collected may not have been.

According to the report: “In clear language, it seems that achievement of expected, intended royalty collections falls short of the actual amounts collected.” In other words, the report’s authors think we lost out on even more money, but they don’t have accurate enough numbers to know for sure.

In a testament to the lack of transparency and the sense of entitlement endemic to the Alberta Conservative dynasty, the panel isn’t even sure, given the lack of pertinent data, how decisions are being made in the tar sands.

“How the administration or public leaders make informed decisions in this vital arena is open to question,” says the report. That’s a polite, government panel way of saying things are insanely messed up with relation to one of the largest and most environmentally destructive industrial developments in the world. This is unacceptable.

The panel also took issue with the fact the same government department (Alberta Energy) is responsible for “maximizing activity in the energy sector and also ensuring that Albertan’s receive their ‘fair share’ from energy development….” This is seen as a fundamental conflict of interest.

To hear the oil companies tell it, these increases would spell the end of the “patch.” Billions of investment dollars would pull out and head for other territories. It seems too obvious to point out that the cost of production in these other oil and gas producing jurisdictions is greater than it is here. As well, almost all, including Angola, Nigeria, even Mexico, lack Alberta’s political stability and quality publicly funded infrastructure.

There is one concern that may prove accurate, and one the panel itself acknowledges: development in the tar sands may slow down as a result of the increase in royalty payouts. The panel wasn’t sure why this was such a bad thing, and I’m sure most Albertans will agree.

It’s only natural that an industry accustomed to reaping enormous profit would decry losing some of that income, but it’s not credible. It will continue to profit handsomely. Even if costs continue to rise, these will be considered a business expense. The oil and gas industry in Alberta has the advantage of operating in an environment that is not only stable, but in the case of the tar sands provides no exploration risk. As stated in the report: “In Alberta, we already know where the deposits are.”

In terms of cost, the panel called for both the government and the industry to improve their reporting and accountability of what constitutes a true business expense. As it stands, the regulations governing appropriate costs are ineffective.

“…Albertans need and deserve much more information on how costs are accounted for, and verified, in this system,” according to the report. These costs, after all, remove money from royalty payments. This applies as much to expansion of operations as it does to the gold watch given to the foreman on his last day. I hardly think Albertans want to pay for that. Though if this government refuses to implement the recommendations laid out in the report, we could spring for a few more after the next election.