[R-G] Stelmach doles out billion dollar welfare

[Anthony Fenton]

http://www.canada.com/edmontonjournal/story.html?id=915c98fb-eee0-4f90-9c0e-10eb94da7b11&k=78771

Billion-dollar royalty break
Five-year holiday bid to attract new energy investment

Renata D'Aliesio
Calgary Herald; Canwest News Service

Friday, April 11, 2008

CALGARY - The Alberta government is giving oil and gas producers a $1- 
billion break on royalties over the next five years in a bid to  
attract investment it fears is being chased away.

Energy Minister Mel Knight revealed in Calgary on Thursday that the  
province has tweaked the new royalty regime to address the "unintended  
consequences" of its plan announced in October.

The government was assailed over that plan, set to take effect next  
year. The energy sector charged it made some oil and gas plays  
uneconomical, while opposition critics contended it shortchanged  
Albertans on resource riches.

"These (new) programs will help generate hundreds of millions of  
dollars in royalties and countless new jobs for decades," Knight said.

"I believe this is good news for most of the industry."

However, in its attempt to calm the storm of criticism, the  
government's changes have ignited a furore from all quarters.

"We predicted that once the election was out of the way, they would  
start going through and reducing even the modest royalty increases,"  
NDP Leader Brian Mason said.

"With oil soaring well over $100 a barrel, these breaks should be  
unnecessary."

Gary Leach, the president of the Small Explorers and Producers  
Association of Canada, said the royalty holidays will only benefit a  
handful of large oil companies. He predicted the number of Alberta  
exploration wells would continue to decline.

"It wasn't nearly what we had hoped for. Overall we're disappointed,"  
Leach said of the government's announcement.

The financial community also expected a bigger royalty overhaul  
favouring the energy sector, said Martin Pelletier, an analyst at  
Blackmont Capital Inc.

Pelletier anticipated capital will continue to flee Alberta to oil and  
gas development in Saskatchewan and British Columbia.

"The competition for capital goes to where the strongest economics  
are," Pelletier said. "I'm not sure the government of Alberta realizes  
that."

The energy minister, though, believes the added royalty breaks will  
stem the tide.

The provincial government is giving oil and gas producers who are  
chasing reserves buried deep underground a $237-million a year holiday  
for the next five years.

Knight said the cost of the incentives will be offset by the  
development they'll spur, netting the province $830 million in  
royalties over 10 years.

He added that the changes will help Alberta "achieve or exceed" the  
revenue expectations laid out in its October royalty plan, when the  
government committed to hiking royalties 20 per cent to reap an  
additional $1.4 billion in 2010. The increase was nearly $500 million  
less than an expert panel recommended in a government-commissioned  
review last year.

"I have no doubt that you will have people who will say this doesn't  
go far enough," deputy premier Ron Stevens said of the changes for  
deep oil and gas wells.

"By spending the money on these programs, we will produce jobs. But  
more importantly for Albertans, we will be able to increase the  
royalty for this area and if we didn't do it, we wouldn't have the  
business."

The province didn't have a figure for its new resource revenue  
expectation. During the election campaign, the Alberta Liberals called  
for a revamp of the royalty regime. They argued the natural gas sector  
should get a break, but developers of the lucrative oilsands could  
afford to pay more.

"I think at this point the deep natural gas program is needed,"  
Liberal MLA Hugh MacDonald said.

"But I don't think with oil trading over a $100 per barrel there's any  
need for deep oilwell programs."

The latest revisions came after several months of closed-door  
consultation with the energy industry.

"There isn't any bowing to anybody with respect to this issue," Knight  
said. "We have said all along that we would address the unintended  
consequences and that's what we are doing here today."

Canada's oil lobby isn't certain it got the changes it wanted.

"I can say I'm happy that they recognized the two high priorities, but  
I can't tell you how happy or sad until I've done the analysis," said  
Greg Stringham, a vice-president with the Canadian Association of  
Petroleum Producers.

The Pembina Institute, an environmental think-tank, is also uncertain  
whether Albertans are getting a good deal.

Amy Taylor, an energy specialist with the Alberta-based organization,  
said the province has released too few details to judge the outcome.  
She said transparency and accountability over royalties is an ongoing  
problem.

"The question remains were these changes required in order to ensure  
Albertans receive their fair share that they deserve from their  
resource," she said.

"We are in the position where we can't judge, which means Albertans  
can't judge that."
© The Edmonton Journal 2008