Tristone's Comments

Alberta Royalty Review

Tristone Capital hosted a conference call for institutional investors and oil and gas producers on Oct. 1/07 to discuss our report entitled “Our Fair ‘Economic’ Share”, in response to the Alberta Royalty Review Panel proposals.

George Gosbee, Chairman, President and CEO, led the discussion, accompanied by Chris Theal, Managing Director, Institutional Research, Tom Ebbern, Managing Director, Investment Banking, Cristina Lopez, VP and Director, Institutional Research and John Tasdemir, Principal, Institutional Research.

A replay is available until Oct. 8/07. Dial (800) 633-8625, passcode 21351622.

Related article:


Royalty hikes could cost province $10B: Tristone
Investment bank says Albertans being misled

http://www.canada.com/calgaryherald/news/calgarybusiness/story.html?id=890dd79a-f004-4664-a671-568d87898f85

Geoffrey Scotton, Calgary HeraldPublished: Tuesday, October 02, 2007

Calgary's Tristone Capital Inc. has joined the chorus of threatening corporate voices decrying Alberta's recent resource royalty review, suggesting it could cost the province as much as $10 billion in investment and calling for the dismissal of the panel that put the report together.

"We believe the analysis and recommendations made by the panel are very misleading to the citizens of Alberta," said George Gosbee, president, chief executive and chairman of Tristone, a mid-sized Calgary brokerage and investment bank that specializes in the energy industry.
Gosbee is also vice-chair of Alberta Investment Management Corp., which manages $73 billion of Alberta public funds and pensions.

George Gosbee, president and CEO of Tristone Capital, warns Monday against 'catastrophic' changes to energy royalties.

"It would be catastrophic to the development of our resources," Gosbee said of recommendations in the Sept. 18 resource royalty review.

On Friday, EnCana Corp. said if the report is implemented, the Calgary-based oil and gas giant will chop its Alberta investment spending by $1 billion a year.

The Canadian Association of Petroleum Producers has also questioned the royalty panel's finding, suggesting the recommendations will decimate the industry -- and other industry groups have followed suit. CAPP president Pierre Alvarez is expected to reiterate his industry's views at a speech today at the Calgary Chamber of Commerce.

The Tristone analysis landed just minutes before Alberta Auditor General Fred Dunn released a report Monday revealing the government has known for years it is collecting too low a share for Alberta taxpayers, who own the resource. Dunn said provincial officials were aware Alberta's royalty take could have been $1 billion higher per year without harming the industry.

"Neither this information, nor the reasons why changes have not taken place, have been made public," Dunn's report said.

Similarly, the Sept. 18 review concluded Albertans have for decades been receiving too low a royalty take for the resources they own and recommended increasing the take from both conventional oil and gas and from oilsands projects through a series of adjustments that would add $2 billion a year to Alberta government coffers while, the review panel argued, having no negative effect on industry.

Flanked by Tristone's executive team, Gosbee released a 70-page analysis of the recent royalty review compiled using the firm's researchers and analysts in Calgary, Houston, London and Denver that reaches a diametrically opposed conclusion. Gosbee said Tristone's leadership brought their concerns forward "as fellow Albertans when we wrote this report."

"The $2-billion-per-year increase in government take is an absolute fallacy. As activity falls, we see lower production royalty revenues and lower associated provincial taxes more than offsetting the projected increase by the panel, all the while Alberta supply falls by over half a million barrels of oil equivalent per day," Gosbee added.

Gosbee's colleague Chris Theal said investment losses in the wake of implementing the review panel's recommendations could reach into the double-digit billions, citing expectations Talisman Energy Inc. of Calgary will also cut Canadian expenditures by as much as $1 billion

"EnCana, I think, is the tip of the iceberg . . . . I think you can measure that number in the $5-billion to $10-billion range," said Theal, Tristone's managing director of institutional research.

"What you're going to see is a reallocation of capital outside of Alberta," he added.

"Yes, there is more room for government take in Alberta, but the reality is we think the panel focused too much on government take and not enough on actually the rate of return that an oil and gas company will make," Theal emphasized.

Gosbee slammed the royalty review panel, which included forestry executive Bill Hunter, veteran energy economist Judith Dwarkin, University of Alberta economist Andre Plourde, University of Calgary taxation economist Kenneth McKenzie, electricity executive Sam Spanglet and technology executive Evan Chrapko.

"These people on the panel might have had blue ribbons in their past careers, but definitely don't deserve a ribbon of any colour for the results . . . . This report has misled Albertans. This is not the gold standard, it is a hugely misleading document," said Gosbee, calling for the panel -- whose members have been touring the province to defend their findings -- to be dismissed.

However, the panel's work is completed and its members have been touring at their own expense, Chrapko said in a meeting with Herald editors Monday.

"If someone at Tristone is unhappy with the panel's credentials, they might have spoken up sooner," Chrapko said.

"It's a 180-degree turn from where the industry was when the panel was announced in terms of our credentials and criticisms coming from other quarters, non-industry quarters, that seemed to suggest that we were a rigged jury," he added. "It's somewhat maybe disingenuous or maybe, itself, ill-informed."

gscotton@theherald.canwest.com