Easy Numbers

The market is completely under-reacting to the news.

Now, WHAT will be done is a bit up in the air. I suspect the Premier will adopt MOST of the changes, and pretend to throw a bone to the industry by not adopting some.

Perhaps people don't believe that they'd be stupid enough to do this?

After the initial report release, market analysts are saying things like a present value reduction on oilsands of 4%. Bullshit; it will be WAY HIGHER.

My estimates indicate the impact will be FAR worse. For example Oilsands impact 30 to 40% of BTNPV. Conventional impact 10 to 20% of BTNPV. How’d I come up with that?

Say an oilsands project. Currently paid out; ie Syncrude (although interestingly enough Syncrude has a current contract and isn't affected until 2015 I believe)

Current, WTI about $80 and C$ about $1 US

Sales price of upgraded bitumen - $80/bb

Less:

Operating cost - $25/bbl
Royalties at about 23% - $18.40/bbl (some cost deductions on the 25% are allowed, just guessed a number; might actually be a bit lower)


To yield current BT Netback = $36.6/bbl

Under the proposed regime, WTI $80 and C$ about $1.0 US

Sales price of upgraded bitumen - $80/bbl C$

Less:

Operating cost - $25/bbl
Royalties at about 33% - $26.4/bbl (not sure exactly what is deductible, might be a percent or so different)
Severance tax at 4.5% - $3.6

Proposed BT Netback = $25/bbl

The change in present value will be directly proportional to netback impact. In this case, the netback (and NPV) will be down 31.6%.

Note this is equivalent of the Alta gov’t confiscating a third of the value from the owners.

If they can do that to oil and gas; what is next?

If they do that to oil and gas, the value of many things will fall in this province including the value of your house. Is this really a wise course? Or is the rash act of some people who don't know what they are doing, and are wrong?

Perhaps they need to come up with a bit more detail as to how they calculated government %'s. The earlier post showing that the government + royalty owner take in Texas to be 40% is a dramatic difference than what the Royalty Review Panel posted.

I think they are simply wrong in many items in the report. Future posts to cover that ground.