Smaller oilpatch players join big oil in fighting royalty increases

Smaller Firms Fighting Royalty Increases

CALGARY - Unsure of how Big Oil's procession of multibillion-dollar warnings is weighing on Alberta Premier Ed Stelmach, small energy players appear ready to play a more prominent role in the lobbying effort against royalty increases.

Over the past week, four major energy companies have come out with vocal opposition to a recent royalty review report that says Alberta should boost its take by nearly 20 per cent or $2 billion annually.

Firms like EnCana Corp. (TSX:ECA) and Talisman Energy (TSX:TLM) even put a price on the plan, saying they'd hack between $500 million to $1 billion in annual spending from the province if royalties rise.

Others like Petro-Canada (TSX:PCA) and ConocoPhillips (NYSE:COP) were more vague, warning that they - and the rest of the industry - would simply take their money and go elsewhere.

But with a decision from the Alberta government expected within about a week, it's unclear whether the missives from Calgary's tallest oil towers are being taken as stark reality or fear-mongering threats.

"Mr. Stelmach is a proud man who doesn't react well to threats," says David Taras, a political science professor at the University of Calgary.

Speaking with a common voice in public, energy executives concede privately that the recent lobbying by the oilpatch's largest and most lucrative players could have the opposite effect by angering Stelmach and ordinary Albertans.

Particularly when a recent report by Alberta's auditor general also said the province has lost billions annually in recent years for not boosting royalty rates sooner.

"They're trying to punch Big Oil, and they're going to end up hurting the little guys the most," says one industry player.

And while Stelmach himself has been relatively quiet in the two weeks since the royalty report, entitled "Our Fair Share" was released, the unofficial word is that some type of royalty changes are coming. But what exact shape those changes take remains unclear.

In recent days, several developments have occurred to smaller plays in junior energy companies and services companies involved.

A new website called "Get it right Alberta!" that claims to be financed by private citizens, small oil and gas companies and members of the investment community states that "more royalties does not mean more for Albertans."

And a "Grassroots Oilworkers Rally" on the grounds of the Alberta legislature is being planned by tiny Quattro Energy Services Inc. for Oct. 17.

"Bring your hard hats and let's show them what Alberta is about," states Quattro president Derrick Jacobson.

Gary Leach, executive director of the Small Explorers and Producers Association of Canada, says just like the bigger companies, the suggested royalty hikes "will be quite devastating" on his members. "And their budgets will be cut back in a major way next year if these proposals go ahead."

Leach says the perception that the oilpatch is trying to blackmail the Alberta government into not increasing royalties is simply not helpful.

"We think Albertans really need to understand the consequences of this."

Leach says the junior companies are already finding it harder to raise cash from jittery investors as everyone awaits Stelmach's decision.

Last week, Stelmach reiterated earlier promises that he will strike a balance.

"I promise you we will make a decision that is fair, realistic and one that recognizes the need for long-term competitiveness of our energy sector," Stelmach said during a speech in the northwestern Alberta city of Grande Prairie.

"So I would encourage everyone to calm down, take a deep breath and let's find the right balance."

Taras says there's widespread "populist support for the report" as many Albertans are tired of the growing negative side to the white-hot economy and frankly wouldn't mind if higher royalties led to a slow-down.

And while he expects Stelmach to try and find a compromise, such a solution might simply annoy everyone.

"The problem is that he could get clobbered by both sides - that he's angered the oil companies and he's angered the public."