What has Big Oil fed Albertans? Plenty of fear mongering! Here's the real story? The royalty review panel has done our province well
Calgary Sun
UPDATED: 2007-10-19 01:45:09 MST
By RICK BELL
Good question. Why is all the talk about watering down the report of the province's business friendly panel on royalties?
Maybe the panel could have recommended Albertans get more than $2 billion a year in added royalties.
Evan Chrapko thinks so.
But sadly, all the noise is coming from an agitated oilpatch accustomed to making the provincial government jump and collecting extra billions in a bull market because the Tories looked the other way and didn't get us our share, a fact confirmed by Alberta's auditor general who found even the province's bean counters wanted a royalty hike long ago but Ralph's boys wouldn't allow it.
By the way, the auditor general also figured the panel could have recommended a bigger take.
Evan was a member of the royalty review panel, the group slimed by some oil and gas suits as a radical outfit, even though the members were all of capitalist conviction and Evan is a computer guy who sold one company for $800 million.
And he's from up around Two Hills, so nobody can tell Evan to go back to Toronto.
"We came in under some of the advice we got, particularly in the oilsands. I probably would have held out for higher, especially if I knew the ensuing debate was going to be conducted on one side of the equation. We cut a balance and we did it on the low end of what might have been possible."
Actually Pedro van Meurs said 25% on oilsands. And now Judith Dwarkin, the panel member from Ross Smith Energy, has put out a paper that states as its first key point:
"The Alberta Royalty Review Panel's recommended royalty for natural gas (63% versus 58% currently) is too high, in our opinion. Due to the maturity of the resource base, it can't generate the level of economic rent to justify this level of take."
Evan, who laughs even when recounting how he and other panelists have been beaten up, chuckles about what went on in Alaska.
The oil and gas industry wanted to pay one amount and wouldn't move off their number.
The state wanted another higher amount.
Eventually, an adviser suggested the state raise their figure some more.
"So many CEOs flew in on their private jets they were wearing out the runway in Juneau," says Evan, referring to the Alaska capital.
Eventually, the number came in between the state's old figure, the one oil and gas hated, and the state's new figure, which drove them nuts.
And now, as Alaska debates yet another hike, the oil and gas crowd defend a status quo they once predicted would cripple the state.
"He laughs"; oh yeah, this is so funny Mr. Chrapco. Actually the Alaska experience, brought to the people of Alaska by tax-haven living Pedro van Meurs has been a disastor.
See these quotes from the Alaska Petroleum Profit Tax (PPT) Implementation Status Report, August 3 2007
"The tax revenue expectations for FY 2008 are significantly lower than the revenue forecasted when the fiscal note was drafted. This is primarily due to the signficantly higher costs being reported as compared to what was estimated in the fiscal note"
"this is more than $800 million less than what was predicted in the PPT fiscal note."
Pedro dramatically underestimates costs. Have we seen this happen before? Yet he is surprised to see it here? This report is put out in August 2007; he should have been double checking his cost assumptions. He should have been looking at what was submitted to the panel, and looked at publicaly available documents on www.sedar.com.
Here, there has been no such poker playing, only a relentless assault on the panel report, starting with red-baiting and threats and ending with a hauling out of hardhats to plead for their jobs.
"I would feel better if the data was legitimate. I would feel better if the threats weren't there and the fear mongering was less hysterical. I wouldn't mind if the debate was based on fact, not fiction. But it's the same reaction industry unfolds in every jurisdiction raising royalty rates."
Where has industry presented illegitimate data? I would feel better if the data used by the panel was legitimate. Costs were too low. Landsales were ommited. Donald, please fire this Crapco guy.
Even in the world of gas, where the griping is greatest and plenty of dollars have been made in recent years and an outmoded royalty system allowed big bucks to slip through the public purse into private pockets, all is not Armageddon.
Evan says the price of gas is going down but such is the cycle.
"There's not enough room in royalties to act as a magic wand, a buffer against the economy. The business is historically cyclical and royalties can't act as a safety net for capitalists. The rigs have been built up to hunt $12 and $14 gas. Guess what happens at $6 and $7 gas? It kills the Johnny-Come-Latelys who climbed on board," he says.
"What everyone forgets is at $6.20 we take less from 82% of the wells. At $5, 100% of the wells will pay less. Now, as the price goes to $7, royalties go up starting with the most profitable wells. But they want to have their cake and eat it too. They want as much as they think they can get on the upside."
Evan also points out none of the big oil companies are telling us what projects they'd supposedly cancel or the fact they will not commit to plowing their money into all the proposed projects if royalties don't change.
"You can't call them on any of this. It's the commodity prices, stupid. That's what drives these decisions."
Evan isn't done. He goes after those who say the panel's ideas are like the price-controlling National Energy Program as "wilfully deceitful or ignorant of reality."
He speaks of "the corporate deceit whether in the data used or the talk of the potential damage to the economy."
He speaks of oilpatch numbers where no one "has access to look under the hood."
"We did our service to the owners of the resources, Albertans, and that's a story not being told."
The premier is expected to roll out new royalties Oct. 25.
Evan doesn't want Ed to fold as Ralph did.
"It would be a compromise on what is already a compromise. But, in the end, no matter what, we'll be blamed."
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