Opinions

Editorial: Stelmach hardly Chavez

Compromise needed as province discusses royalty review

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Two weeks ago, Imperial Oil was the first to make threats regarding their future in Alberta in the event that the royalty board report recommendations are fully enacted. Not content to sit idly by while their competitors make idle threats, EnCana promised to remove $1 billion from the Alberta economy given similar conditions. This is in the midsts of an auditor general report which states the Klein government failed to collect $1 billion in royalties annually.

Geez, you'd think there's no money in oil anymore.

While the response from EnCana and Imperial is expected given they have a vested interest in preventing the adoption of the report, it shouldn't cause the hysteria it is. EnCana's press release--a narcissistic doom-mongering piece of hyperbole if ever there was one--notes their capital investment plan for 2008 could ostensibly be cut by 30 to 40 per cent, from about $3 billion. EnCana's CEO, Randy Eresman, states this is not something EnCana wants to do but has to in order to remain competitive. Furthermore, earlier Wednesday, ex-Talisman CEO Jim Buckee warned that firm could potentially cut $500 million if the recommendations of the report were enacted, and Crescent Energy threatened to move $150 million to Saskatchewan. The entire oil sector seems to have adopted a malicious attitude towards the report, even if they say they're only arguing in Alberta's best interests.

Meanwhile in Edmonton, the Liberals called for an immediate election after the auditor general announced the board in charge of collecting royalties has been suggesting a $1 billion increase since 2004. I'm not going to say the Conservatives actually ignored the recommendations year after year, depriving the province of potentially billions of dollars, but they most certainly didn't listen to them.

Regardless, Alberta Liberals leader Kevin Taft seems determined to take this issue straight to the polls. He has the popular support behind him; a poll by the Edmonton Journal and Calgary Herald published this week indicated 88 per cent of Albertans polled believe they're "not getting their fair share." A further question showed 67 per cent of respondents either strongly or somewhat strongly believe the report should be adopted in its entirety.

Unfortunately--and like the report--the poll fails to define the subjective "fair" in any meaningful capacity. One could logically argue that aboriginal Canadians were the first people in the province and thus they're entitled to all royalties generated by natural resources. If we were at all serious about the concept, we'd do exactly that. "Fair" does not necessarily mean "politically popular" or even "scientifically feasible." Furthermore, is a 20 per cent increase "fair" at all to the oil companies and the small local oil exploration ventures, the very ones who will be adversely affected by such an increase? Frankly, if we actually did try and get totally "fair" royalties, we'd be a lot worse off. It's a loaded political term which really does more harm than help in this case.

But there's also a reason the report doesn't rely on the word "efficient" either. Even though classical economists will argue increased royalties will inherently lead to greater market inefficiency and reduced quality of living overall as a result, the numbers produced by Big Oil are still suspect. Even giving them the benefit of the doubt and assuming they're being totally honest, one would be silly to expect huge multinational corporations to give a low-end estimate of their potential losses when potentially able to avoid them via political confrontation. They have shareholders they are legally responsible to and, frankly, anyone who expects CEOs to willfully give money to the government is delusional. At the same time, however, it's very tempting to ignore the threats of a generally malevolent political and economic entity altogether and imagine the industry won't be adversely affected.

What's needed is compromise all around the table. A lot of people don't like oil companies beyond the economic benefits they bring the province, and the oil companies really dislike it when people start tossing fairly socialist terms like "nationalization" and "fair share" around in reference to their livelihood. That said, Ed Stelmach is hardly Hugo Chavez's long lost brother to the north as some pundits in the local media have postulated. If he's "conservative" at all in any way whatsoever, he'll pursue the route which brings the most wealth to the province without jeopardizing the industry. For this to happen, however, both Big Oil and the people of Alberta need to accept the fact that neither side is going to get exactly they want.

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Comments

The authors picture tells me that he is not old enough to remember what happened in 1980-81. Im sure anyone old enough, that lived here then will have a differant opinion. Hey that might be about 20% of us.

Well, as a child of oil money, I'm very well aware of the "horrors" of the National Energy Program. I'm also aware that the entire reasoning behind keeping royalties relatively low compared to other oil-producing areas was to foster production, especially during the lean '80s when things were touch-and-go. Production eventually sky-rocketed and the provincial government didn't want to jack up royalties and be perceived as "gouging" the producers that came in when Alberta was dead-broke. And so royalties have remained well below Alberta's oily competitors and development has been remarkably high.

Needless to say, it's completely possible for the province to push royalties up a bit without harming production. It's just a bit of a shame that they're choosing to forgoe a crapload of money in the name of 20-year-old politics.

I have a hard time trying to figure why people try to differentiate Albertans with Oil companies.

We are all tied to the oil industry in one way or another. Considering the general public is partially retarded, they will be kicking and shouting for a government change, when they realize all the money leveraged on there homes will bankrupt them,as the city is devastated by the decrease in investment.

The royalty review has to also understand that finding more oil and gas is getting harder and harder each day. This review is based on historical data, before billions of cubic feet of gas have already been processed.

Anyone who compares the royalty review to the NEP (the guy who referenced the 80s, the guy who said 100s of thousands of lives hang in the balance) needs a reality check.