September 20, 2007
Oil suits reeling at royalty report
By NEIL WAUGH
They didn't actually have grief counsellors standing by in the Calgary oil towers yesterday morning.
But there was enough outrage and anguish for the Bow River to burst its banks with crocodile tears.
"At first blush," gulped Canadian Association of Petroleum Producers spokesman Greg "Sky is Falling" Stringham, "this is far worse than anticipated."
He branded Bill Hunter's insightful probe into Alberta's oil and gas royalty troubles and ways to fix them a "bad report."
And warned darkly of political consequences.
Expect Ghost Resources or Mirage Oil and Gas to announce the never-was Phantom Project is on hold any day now.
"It's only a report so far," he said. "The real crunch comes when they decide what to do and what to take out of the report."
Which, in a sentence, is Big Oil's strategy as the Stelmach Tories attempt to claw back $2 billion a year in energy revenues - largely from Calgary's oilsands aristocrats,who have been awarding themselves multimillion-dollar annual salaries while the owners of the resource get a penny on the dollar payout until the massive capital costs are recovered.
Hunter and his panel revealed a disturbing problem when they recommended "ring fencing" around each oilsands project to make it "absolutely clear, transparent and auditable" what are the "eligible expenditures."
Hunter is upfront and explicit about what the problem is.
"Albertans do not receive their fair share from energy development," he spat in his letter to Finance Minister Lyle Oberg, who still appears to be a royalty review skeptic.
"And they have not been receiving their fair share for quite some time," he added.
Former Tory energy ministers Pat Nelson, Murray Smith and Greg Melchin should hang their heads in shame. Even Premier Ed's energy czar, Mel Knight, appears to be in trouble here. His defence of the indefensible at the Energy and Utilities Board has not impressed the premier's office.
And now he and his bumbling bureaucrats will be tasked with cleaning up this mess of their own creation.
Hunter complained at his press conference of the morass of regulations and royalty rates which he branded "patches on patches."
He said their entire department was in a conflict of interest as both development promoters and royalty collectors.
There was also a sweet smell of vindication wafting through the legislature yesterday as Hunter's report pretty well confirmed everything this column has been saying for the last three years.
Oilsands royalty rates are ridiculously low.
The report recommends the rate after payout be jacked up from 25% to 33%. And there should be a "severance tax" that kicks in when oil hits $40 US a barrel and rises at 0.1% per buck increase. Plus the above-mentioned "ring fencing."
The panel went beyond its mandate and recommended an upgrader tax credit to encourage more bitumen refining. The premier and his caucus will make the final decision.
Maybe Stelmach already has done so, despite distressing reports of intense lobbying (I thought these guys were supposed to register?) of government MLAs by the oil tower spin doctors.
NDP Leader Brian Mason scolded that the report doesn't go far enough. But he privately admits the Tories just chopped off one of his platform legs.
Alberta Liberal energy critic Hugh MacDonald confessed "everything we have touched on has been addressed in this document."
And yesterday the premier warned the oil suits that if they think he's going to blink after they started leaning on the MLAs, "they're in for a surprise. I won't be intimidated," Stelmach snapped.
Expect the premier to outline his royalty plans to Albertans on his Ed TV broadcast in late October, and to make royalty reform his Bill No. 1 in the spring session.
That will be followed by a budget speech from Treasury Board president Lloyd Snelgrove (Oberg will have worn out his welcome by then) announcing a nice personal tax cut thanks to new oil- sands billions. The election will soon follow.
