CAPP President Comes Out Swinging Against Royalty Changes

Report wrong, says industry

CAPP president comes out swinging against royalty changes

http://www.canada.com/saskatoonstarphoenix/news/business/story.html?id=a0f1abb6-a588-43ab-b196-f8fe296a3634

CanWest News Service
Published: Wednesday, October 03, 2007

CALGARY -- Canada's oil and gas lobby moved into high gear Tuesday in its battle against proposed royalty increases in Alberta, with the industry association taking its message directly to Calgary business leaders.

"Changing the current balance would involve trade-offs," Canadian Association of Petroleum Producers president Pierre Alvarez told a Calgary Chamber of Commerce luncheon.
Speaking to a capacity audience, Alvarez described a recent royalty review panel report that recommended Albertans receive $2 billion more a year in royalties for their resources as flawed in its construction and based on incorrect numbers and assumptions.

"The panel low-balled costs faced by industry by billions of dollars and shrank the revenues paid to government by industry, again by billions of dollars," Alvarez said. "When you stick to and consider all of the facts it is clear that the picture does not reflect our current reality."
Citing numerous studies that have reached the same conclusion, Alvarez cited industry cost estimates used by the panel and described them as outdated and far too low.

"When you understate costs by that much, and when the numbers are in the billions, well, that is an easy way to give the appearance of loads of room to raise royalties and taxes," Alvarez said.

Raise royalties: auditor

Meanwhile, Alberta Auditor General Fred Dunn expanded on his scalding annual report, released Monday, saying the oil industry should be paying even higher royalty rates to Albertans than those recommended by the panel report.

"What is the risk that the industry sees which would therefore justify the owners --Albertans -- selling the resource for less than other jurisdictions?" Dunn said Tuesday. "I am somewhat amazed that they are in such a state of agitation," he said of the industry's reaction.

The blue-ribbon royalty review panel recommended last month that royalty rates across the different sectors should increase, hitting 49 to 64 per cent of production.

Overall, that would boost the government's take from oil and gas development by $2 billion, or 20 per cent annually. The oil industry has roundly condemned the report, saying it will spend its money elsewhere if such "draconian" measures are adopted.

But Dunn said the government should consider raising the rates even higher.

"My concern is, does everybody see the royalty review panel as the maximum amount you can go to?"

Dunn's report said the energy department has determined a royalty rate of about 66 per cent would keep the province competitive with other jurisdictions.

Even if the government decided to take a bit more than that, it would be fair, he said. "If you collect 66 per cent, you're leaving 34 per cent for industry."

The Alberta government reaped $14.3 billion last year in royalties and land sales in 2005, including $8.4 billion for natural gas and $2.5 billion combined from conventional oil and the oilsands.

The auditor general's comments came the day after the release of his annual report, in which he said a lack of political leadership meant the government misses out on an additional $1 billion or more in royalties a year.

He said that money could have been collected without stifling the industry.

Dunn said in doing his wide-ranging audit, Alberta Children's Services -- which has to deal with complicated multi-jurisdictional issues, including aboriginal reserves -- was more forthcoming than Alberta Energy.

(Calgary Herald)