An excellent report overall. Excerpt:
Among our greater frustrations with the Panel’s report – and one that we share with many investors and oil and gas producers – is our inability to reconcile several of the Panel’s fundamental assumptions with any real-world examples, particularly relating to development and production costs. In many cases, the differences between the Panel’s assumptions and industry’s are almost surreal. Not surprisingly then, when it comes to impact analysis, the Panel’s forecasts for industry activity and investment are far rosier than what the actual industry members and investors say it would be.
This is seriously problematic. It’s one thing for industry to disagree with the conclusions of a royalty review process (indeed, it’s to be expected), but it is quite another to disagree with the fundamental assumptions that go into the analysis. The stakes for all Albertans are too high to predicate a dramatic policy change on industry analysis that does not accurately represent real industry economics.
Further, the Panel abstained from using land sales or “bonus” payments of approximately $1.8 billion annually in the royalty rates across various fiscal regimes due to the “complexity” and difficulty of collecting the data. Land sales revenue is collected at auctions where oil and gas companies bid for the rights to explore and develop Alberta lands. The more the resource is actually worth, the more the companies competitively bid up the land prices. In this way, the government participates in industry profitability – up front and risk-free. This $1.8 billion is approximately equal to the 20% royalty increase the Panel proposes. This is a major flaw in our view as it does not truthfully compare the government’s take across jurisdictions and leads to a biased conclusion in favour of higher royalties.
No comments:
Post a Comment