The take home message?
The existing structure is pretty good. It’s fair to Albertans, the owners of the resource, and fair to the companies extracting the resources. There is really no need to make major changes to the existing royalty framework.
So eight months after the NDP won an election running on a platform that told Albertans they weren’t getting their fair share, that past governments had mismanaged their resources, and that they would make things right, their own expert panel has told them the exact opposite.
And I will give the NDP credit. While they haven’t admitted to misleading Albertans, they have at least acknowledged that they were wrong. The Premier admitted that she didn’t fully understand how the energy economy has shifted, that US oil production now exceeds their imports and that the US is therefore our biggest competitor as well as our primary customer. It reveals a staggering lack of understanding of the global economic forces underlying our number one industry.
The review has some positive aspects. Consolidating multiple drilling incentive programs into a single permanent formula is a good move. Increasing the transparency of allowable costs for oilsands projects is also a positive step. The ten year freeze on royalties for existing conventional wells gives some certainty. Retaining the current structure and royalty rates for the oil sands is also, I suspect, a huge relief for those investors, companies, and workers for those firms.
But the new royalty framework for conventional oil and natural gas is yet to “be calibrated”. More uncertainty, more delays. Details of the incentives for value-added programs are still unclear. Oil & gas producers will be able to write off the carbon tax as an allowable expense. Will that same competitive advantage be offered to everyday Albertans? To farmers? To forestry companies? To tourism operators?
The Royalty Review Panel has done excellent work and provided the government with a balanced set of conclusions and recommendations. Much of it was news this government didn’t want to hear. I give them credit that they are moving forward with measures that directly contradict what they campaigned on last May. It will mean that some of the support base will feel betrayed, but that’s their problem.