| Alberta’s oil and gas royalty system is a sweet deal for big business, but needs a major overhaul if it is to properly benefit Albertans and the environment, charge critics and industry analysts.
Amy Taylor, director of ecological and fiscal reform at the Pembina Institute, says the royalty rates for the oilsands reflect a time when the province wanted to jumpstart development, and are no longer relevant in today’s overheated economy.
"We certainly think the rate is facilitating a pace of development that is unsustainable," says Taylor. "Instead of liquidating the resource as quickly as possible, we need to improve sustainability, then the resources will benefit future generations as well."
Under the current oilsands royalty regime, companies pay one per cent of their net earnings to the province until their project costs are paid out, at which point the development becomes more profitable and companies pay 25 per cent. Conventional oil and natural gas tend to pay higher royalties, but rates vary depending on the project.
In May, the Pembina Institute released a poll, conducted by Winnipeg-based Probe Research, indicating that a large majority of Albertans (84 per cent) believed there should be a public review of the oilsands royalty regime to ensure they are getting maximum benefit for the resource. More than 60 per cent of those polled believe they are being shortchanged.
Though Alberta’s surpluses are enviable, with three quarters of the province’s wealth coming from natural resources, critics consider royalties paid to the province low. But the Canadian Association of Petroleum Producers (CAAP) says Alberta’s gas and conventional oil royalty system is more demanding on industry than most other regimes around the world.
"There is an industry report that looks at 200 oil regimes around the world. (It found that) our conventional oil regime is fairly aggressive," says Greg Stringham, vice president of the CAAP.
On a scale of one to 300, one being the most accommodating to industry, and 300 the most taxing, Alberta’s gas and conventional oil royalty regime was rated between 200 and 240, Stringham says. Oilsands, however, have a different royalty system altogether and that regime was ranked at 100, slightly more laissez-faire than most regions.
The CAAP points out that royalties are separate from provincial and federal taxation, meaning oilsands producers pay around 58 per cent of their gross revenue to the government.
A change to the royalty system will have a significant impact on future development of the oilsands, according to Stringham, and could potentially scare off investors. "Certainty is a very critical factor with the oilsands."
Taylor doubts a royalty adjustment will bring an end to Alberta’s oilsands production — expected to account for three quarters of the province’s oil and gas production by 2012.
Last year Alberta received $14.3 billion in resource royalties and land sales. Natural gas accounted for $8.4 billion and oil $2.5 billion.
"We have to remember we are talking about the second largest oil deposit in the world," Taylor says. "It’s hard to imagine industry will walk away from that."
Environment minister Greg Melchin has drawn fire recently after announcing that a review of Alberta’s royalty regime has been conducted and that the province is receiving its fair share of royalties.
Tory leadership hopeful Ted Morton, however, said that the review had been dropped. Given the secretive nature of the review, opposition critics called on Melchin to come clean on whether a review took place at all.
Premier Klein himself backed minister Melchin, saying he thinks the royalty regime is fine, and that he doesn’t give a "tinker’s damn" whether a review took place or not.
Opposition critics are pressuring the government to make the review public.
Liberal energy critic Hugh MacDonald says change is clearly necessary, pointing out that while prices for natural gas and crude oil have increased, the royalty percentage received by Albertans has actually declined.
"All we’re asking is for the Tory government to prove to us that this is a fair royalty structure," says MacDonald. "Even members of caucus want a full public review. Albertans will make up their own mind."
"By hiding the results of the royalty review the government just fuels suspicions and doubts in the public mind," says Alberta Liberal leader Kevin Taft. "This is so typical of the Tory government. It is the most secretive government in Canada. It has developed a compulsion to hide information from the public." |
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