Sunday, February 24, 2008

the royalties issue

Economists agree that corporate and investment taxes are the worst taxes to raise. So how could the Alberta Royalty Review panel end up recommending just that, when a respected economist like Andre Plourde is on the panel?

Because the operating assumption of the whole analysis was changed such that all that research on business taxation didn't apply:

...when a govt designs a tax system, it must justify every dollar ... it takes away from wage earners and business... [However,] Alberta's natural resources belong to Albertans, and this is a different proposition. The design of a royalty and tax system for energy resources therefore must justify every dollar that does not go to the owners.

You see? "this is a different proposition", such that every cent that remains in private hands is ripping off the Alberta government unless proven otherwise. Never mind the fact that the value added by these private hands is 100% (and thus akin to every other form of economic output) if one recognizes that the value of oil and gas that remains forever in the ground is no greater than its surrounding rock.

Another problem with positing a massive royalty increase as the consensus of experts is that it implies that Judith Dwarkin, PhD, and all those CFA charter holders who have spent every working day for YEARS examining and reporting on the every last detail of the cost structures and business models of energy firms (you know, the same financial analysts who circulating memos to their clients comparing Stelmach to Hugo Chavez and applauding Saskatchewan's premier for his province's royalty policy) are NOT experts.

Some facts:
- the Panel did not have the Energy Dept's memos.
- they relied on dated and erroneous information (supplied by an American consultant) and incomplete cost models
- they considered jurisdictions like Texas comparable when in fact initial production rates over the last 3 years have been three times higher there than Alberta
- they proposed to increase the govt take from deep high impact gas wells, which will promote the lowest-quality reservoirs with highest chance of success while discouraging exploration for deep high-impact gas pools. Don't even think about developing technology or taking risks to pluck the high-hanging fruit, in other words; this expert panel wants you pick over the low-hanging a second time!
- Encana, CNRL, and Talisman have announced significant cutbacks to their 2008 investment plans in Alberta and many others are cutting back quietly to avoid criticism of our one party rule govt
- the bi-weekly sales of Crown land are the lowest in almost a decade, which cuts into current govt revenue AND means lower royalty revenue in the future. Royalties and land sales are like a see-saw, push the former up and the latter goes down. Oil companies have paid billions to govt for land sales, yet this seems to count for little in popular perception.

For, not to put too fine a point on it, the royalty review was to the oilpatch what BSE was to the beef industry. It's the kind of dumb thing that happens when there aren't enough people around who know a drill-bit from a blowout preventer, that among the gushers, there's always a dry hole, or that in this game your good name is your most valuable asset -- something Hinman alluded to in Thursday's debate.
- Calgary Herald, Feb 23


Anonymous said...

Hi Brian, Thanks for fighting the truth. I am a Completions Supervisor who was working the deep-gas wells. Now, I am working in Louisiana working on deep-gas wells as my 30 years of opportunity in Alberta suddenly dried up. We have 5 children still back in Alberta. What the government has done is a tradegy for our famliy. The two years we were to have with my son-inlaw and daughter have (before the move to Africa) have been taken away by Ed Stelmac...grrrr. My daughter actually had a nightmare about that very thing the other night.

Why do I prattle on with this. Just one mirco example of what happens when incompetants are intentionally put incharge of a society. This man was not voted by the people. Our laws should force all leaders to be impotent to make such huge changes without first having an mandate from all Albertans. What has happened is not reversable, and is happening in other parts of the world where governments are getting greedy because of incompetance.

It is an ugly mess that is getting worse as we speak. The MSM (main stream media) will never investigate what is really going on. The MSM is part of the corporation are all bad crowd.

I did not think that I would see the end of our low-quality Western Sedimentary Basin in my life time. I most assuredly did not think that I would witness my our government bring it to a standstill through greed.

Brian Dell said...

We need to hear from more people like you, Jim. These decisions have real consequences for real people. I've seen reports and data showing a real slow down yet I don't see that story getting mainstream press.