CALGARY – A review of royalty rates in oil-rich Alberta will focus on whether the Canadian province is adequately protecting its economy and revenues, regardless of whether commodity prices rise or fall, said the newly appointed head of the panel on Thursday.
Dave Mowat, the chief executive of the provincially-owned financial services agency ATB Financial, was appointed in June by the province’s newly-elected left leaning New Democratic Party government to lead the review of oil and gas company royalties.
The review, an election campaign promise, has unsettled oil and gas industry representatives who warned it could lead to higher costs and job losses in Canada’s energy heartland.
Mowat, who has been an advocate of Al Gore’s views on climate change, said there was a sense of urgency coming from both investors and the population to deliver “measured” recommendations by the end of 2015.
Oil and gas companies in Alberta, home to vast oil sands deposits and the largest source of U.S. crude oil imports, have laid off thousands of workers in recent months, due to slumping global prices.
Canada’s biggest oil and gas industry lobby group estimates recent government moves to increase carbon levies and corporate income tax rates would increase costs by about C$800 million ($618.33 million) over the next two years.
AltaCorp Capital analyst Jeremy McCrea said some U.S. investors might welcome efforts to simplify the complex formulas in Alberta’s royalty regime. But he said the government should protect incentives in the regime to help new projects get started.
Mowat said some existing incentive programs were an important part of a “dynamic” system that also adjusts to cycles when the price of oil rises and falls.
“What everybody wants is a royalty framework that does accommodate various circumstances,” he said. “They (the population) are owners of the resource and they know it’s in other people’s hands to manage and they just want to make sure it’s being done well.”
The panel is expected to outline details of its mandate at the end of July.
Alberta’s royalty rates can now vary between 5 and 40 percent depending on factors that include type of development, oil prices, crude volumes, well depths and speed of cost recovery.
A 2007 royalty review by the Progressive Conservative government of the time resulted in land-sales revenues falling, a drop in the Alberta drilling rig count, and the Canadian energy index underperforming its U.S. counterpart, according to data from AltaCorp Capital.
The NDP won a surprise election victory in Alberta in May, ending 44 years of Conservative rule.
Mowat said he would work with University of Alberta economist Andrew Leach, who is leading a separate review of the Alberta government’s climate change policies, and the two panels would share the same data and statistics to evaluate costs.
($1 = 1.2938 Canadian dollars)
(Reporting By Mike De Souza; Editing by Andrew Hay)
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