Wednesday, October 24, 2007

Odd Story on Bloomberg: In Favour of Boosting Royalties

WTF indeed; isn't it odd that pro-business Bloomberg and supposedly a realtor who should be pro-business are saying what they are? Alberta real estate will be hammered. In addition, the CEO of Weatherford advocating the royalty increase.

Does the American Elite have an interest in Alberta slitting its economic wrists?

Albertans Rally to Levy `Porsche' Taxes on EnCana, Petro-Canada

Oct. 23 (Bloomberg) -- Alberta Premier Ed Stelmach may be about to bite the hand that feeds Canada's fastest-growing province by ordering an increase in royalties on oil and gas. Calgary real estate adviser Stefan Schulhof says it's about time.

Schulhof stands with a majority of Albertans who support a plan to raise taxes on energy companies by as much as 20 percent to help ease a shortage of roads, schools and hospitals. The companies say the levies will cost 19,000 jobs and slash oil- sands investments by C$28 billion ($28.6 billion).

The industry is ``crying wolf'' while reporting record profits, said Schulhof, 53. ``I just don't like the way oil companies are playing games with people's heads.''

Rising oil prices boosted Alberta's population by 10 percent in the past five years as workers flocked from eastern Canada, Mexico and Venezuela for oil-sands jobs in an area estimated to contain the world's second-largest reserves after Saudi Arabia. That's strained the province's public services and housing, putting pressure on Stelmach to find new revenue.

Stelmach's decision on royalties could dominate an election if he decided to call a vote seeking a tighter grip on power for the Conservatives.

``This has the potential to be the defining moment for Stelmach,'' said Harold Jansen, an associate professor of politics at the University of Lethbridge. ``The companies ratcheted up their pressure and rhetoric, which increases the political payoff for him if he shows that he stands up to them.''

Rising Prices

Though the province is debt-free and has run budget surpluses for 13 years, costs for public services are rising. The estimated price to build a Calgary-area hospital doubled to C$1.25 billion this year from 2005 because of higher wages and equipment prices. The province is also short more than 1,000 doctors, according to the provincial medical association, and Calgary's school board estimates the city needs 30 new schools to meet population growth.

The province's auditor-general earlier this month estimated at least C$6 billion is needed to replace or repair hospitals, schools and roads.

Albertans say Calgary-based EnCana Corp. and other oil and gas producers need to contribute more. About 88 percent of respondents in a Leger Marketing poll support higher royalties. The survey of 903 Alberta residents was done from Sept. 28 to Oct. 1 and has a margin of error of 3.3 percent.

`Money to Be Made'

``It's not being tough, it's being fair,'' said Tom Shanks, 42, a foreman at a fabricating shop near Edmonton. ``There's money to be made in Alberta and somebody's going to make it. If it's not these companies, let them go'' because others will replace them.

EnCana earned a record $5.65 billion last year.

Stelmach, 56, a former farmer, has pledged to make a decision on royalties this month. He will address the issue ``in a general way'' as part of a televised speech scheduled for tomorrow, spokesman Tom Olsen said.

Stelmach will respond to a report by a government-appointed panel that last month called for higher royalties to bring in C$2 billion more a year for the province, whose annual budget is about C$33 billion. The government's share of oil-sands revenue would rise to 64 percent, from 47 percent, and its take from conventional oil and gas wells would rise 5 percentage points to 49 percent and 63 percent, respectively.

The proposals would lower the global ranking for companies' return on investment in oil-sands projects to 73rd out of 104, down from 61st, according to an analysis by the Edinburgh-based consulting firm Wood Mackenzie.

`Fair Economic Rent'

``The status quo is not an option,'' Stelmach told reporters in Calgary on Oct. 19. Royalties must provide a ``fair economic rent'' for Alberta's natural resources, he said.

EnCana, North America's largest publicly traded gas firm, and other Calgary-based producers such as Petro-Canada and Talisman Energy Inc. have taken out newspaper ads or issued public letters to lobby against the proposals, which they say will derail the province's economy.

If Albertans are ``upset with regards to the number of Porsches driving around, this isn't the way to solve it,'' Tristone Capital Inc. Chief Executive Officer George Gosbee said. Tristone, a Calgary-based investment bank that works for the oil industry, spent more than C$100,000 on newspaper advertisements. The proposal will have ``catastrophic'' impacts on jobs and provincial revenue if implemented, Gosbee said.

`Pendulum Has Swung'

With 25 years of experience, Shanks said he isn't worried about running out of work even if higher royalties stifle growth. Other industries need skilled tradesmen, he said. The father of two teens estimated that his annual income in recent years averaged about C$100,000.

``I'd be lying if I didn't say it was OK money,'' he said. ``It's just not enough compared to the increased cost of living.''

Slowing the rush to develop Alberta's oil-sands may allow time for new technology to reduce the environmental impact of exploiting Alberta's tar sands, Schulhof said.

``The pendulum has swung too far in a boom direction, so we need to calm down,'' said Schulhof, a real estate adviser at 20/20 Group Inc. ``You can't always be rape, pillage and plunder.''

To contact the reporter on this story: Ian McKinnon in Calgary at imckinnon1@bloomberg.net

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