The report, Preliminary Fiscal Evalutation of Alberta Oil Sands Terms, found that Alberta’s take from the oilsands is between seven per cent and 17 per cent lower than international standards, and that the province could be making significantly more money from the industry. If the government raised the rate to match international levels, it could stand to make more than $1 billion dollars more in annual revenue.
Pedro van Meurs, an economist who specializes in oil and gas, wrote the report for the provincial government last April, but the government didn’t release it until last week, when it was simply posted without fanfare on the website of the provincial Energy Ministry.
Under the current royalty regime, oilsands companies pay one per cent of their revenue to the government until they’ve finished paying off their startup costs, after which they pay 25 per cent of profits. That regime was brought in 10 years ago to stimulate investment in the oilsands when prices for oil were low. Since oil prices have since risen, van Meurs suggests bringing in a new regime that would allow the government to collect more money when prices are high.
“The report reinforces the need to reform the oil sands regime to get more money for the people of Alberta,” says Amy Taylor, senior economist with the Pembina Institute, an environmental think tank. “It reinforces the message that there is room to change the regime without affecting profits.”
However, Greg Stringham, vice-president of the Canadian Association of Petroleum Producers, doesn’t think that upping royalty rates is realistic for the province. The cost of setting up an oilsands operation is higher than the report says it is, he notes, and collecting more money from the industry could stop companies from investing.
“They’re looking at a nine to 10 per cent rate of return. We want to make sure that they take that into account,” he says.
Brian Mason, leader of the Alberta New Democrats, says big oil companies are ripping off Alberta and the provincial government isn’t doing enough to stop it.
“When they’re dealing with other provinces or the federal government, they act like tough guys, but when it comes to big American energy companies, they’re complete patsies,” he says. “The government has to set royalties at a level that gets fair value for the resource.”
Last spring, the government set up a panel of economists, academics and businesspeople to review the current oil royalty rates and recommend whether the province should raise them or not. Van Meurs wrote the report for the panel, which will present its recommendations by the end of the month. The panel and the Energy Ministry have reviewed the report but can’t currently comment on its significance, says department spokesman Jason Chance. “Reviewing royalties is part of our ongoing business. We just have to let the (panel) finish its work,” says Chance.
The oil industry maintains current royalty rates are fair, while some policy analysts argue that they are low by international standards and the government could raise them without losing investment. Last year, former Tory premier Peter Lougheed criticized oilsands development and chastised his successors for not collecting enough money from oil.
