This farmer had better not do anything that sends the oil men packing. He will regret it dearly.

Alberta has given the oil boys more than a fair shake for a long time, now it's time for big oil to spread a little grease around.

It's getting embarrassing how bad the infrastructure is right now in Alberta, considering the prosperity the oil boom is supposed to bring.

I don't support massive royalty grabs or nationalization, but when we are taking in a fraction of what Texas does, somebody is getting fleeced.

...greed is an amazing motivator.

The last time somebody played with the oil companies this way it killed both Alberta's economy and also Canada's as well. I beleive they have to do something but not 20%, an increase like that will scare business away. If any Country or Province says they will raise taxes 20% just see how fast business will find other places to put their money. Money goes where it can make the best return for the owner of the money. I have worked in the patch for 25 years and I am scared about this proposal. The people asking for this just don't seem to remember the NEP and the havoc it caused us in the 80's.

To: John West. Where will they go?? Russia? Does anything change when thr price of oil goes up by $10.00 per barrel?? And it is Alberta's oil, not Shell's or Exxon's. John! we need to do the same and retain what is rightfully ours. Stelmach is a lot smarter than he looks!!

This 20% increase is after the industry takes all the risk, invests their own money and expertise, navigates all the other rules the government has put down, etc. It is out of their before tax net. They then have to pay taxes and benefits just like every other business in the country. We will see whether it is the straw that breaks the back or not.

I don't really agree with much of the tar sands development in the first place, but with oil approaching $100 a barrel I would surmise that oil extraction in Alberta is more than economically viable. Where there's a buck to be made oil companies will be. It's the people's resource, this they should be fairly compensated for it.

This should be interesting although I'm afraid that the Alberta PC government is stuck on stupid and it has been that way for a long time.
Full marks for balancing the budget and eliminating the debt but then Ralphie and Fast Eddie start making decisions and spending like drunken sailors(no offense to the senior service). It's like buying prime steak and making meatloaf; a waste.

they should cut the royalty to 0 at the wells and charge 15% at the border. collect the royalty at all the exits from the province.
. all refining , upgrading , liquid extraction and chemical plants would flock to Alberta creating jobs.
the admininstration would be cheaper and more efficient and only the free hold royalties would have to be calculated.say about 10% of the wells.

the infrastructure suffers because they have been banking the money to the tune of a 8 billion surplus a year, most of which comes from oil and gas.

as an aside.
there are hardly any state royalties in texas, texas is mostly freehold, so I dont know where that high texas royalty crap comes from. most texas freehold royalties are 12.5% , they dont flow to the state except on school sections .

Eddie better not destroy the oil industry or the Wild Rose Party will make the Progressive Conservatives join the Social Credit, United Alberta, and Liberals in the ruins of former governing parties in Alberta.

Ah yes "The people's resource". Just by living in a judristiction the government is entitled to the revenue even though they do nothing to produce the wealth.

Explain to me why the province needs to raise royalties, last time I checked both the Alberta and federal governments are running surpluses which means governments are already getting too much revenue.

Don't think because they rase royalties that you will see an increase in government revenues.

Let Saskatchewan be your example. Sask lowered our royalties and gov't revenues are higher.

The most comical part of this is the math, and why it will escape the simple servants and other public sector hangers on, to their own detriment as stupidity always does. Can we agree that this will not change the price of a barrel of oil, i.e. something set in international markets? I think we can, since it is so obvious. Therefore, what is being discussed is a different division of the same pie, one which increases government's share, and decreases the oil companies'. So far, I expect universal agreement, since this is both very basic, and does not cross ideological self imposed blinders.

The question then becomes winners and losers. Clearly, the losers will be oil companies, but since oil companies are legal constructs made of paper, they can't lose, rather their owners collectively lose. So who owns the oil co's? A quick perusal of their investor relations websites and the sites of OMERS, Ontario Teachers Pension fund, etc. etc. reveals that these oil companies are mainly owned by pension funds, the bulk of those being public sector union pension funds. This would be truly delicious, except that the morons will shut down whatever meagre critical faculties they posess, and scream "No war for oil!", and "Kyoto forever!" as thinking is far too painful, thus shooting themselves in their own feet.

It was ever thus.

The gov of Alberta needs to set up a fund to sock the bucks away for the future and to help the province keep taxes low to attract business because of a low tax regime using the fund to support gov programs.

I lived in Alberta 20 years ago and the Heritage Fund was $15B then and still is!!! What did King Ralf do with the money!!!?? Alberta's gov spending is , if you read the news (for what it's worth) is out of control.

Canadians, not just Albertans, have to realize what the monopoly health care and education systems in this country are costing us way more than they should and are not sustainable. Alberta has shown that no matter how much money is thrown at these programs as they exist, there will be no improvement, the reason being that there is incentive to improve.

We have politicians that are less than willing to push an infrastructure project over some some monument to the party/cause du jour etc, because of the "vote value" per dollar.

There are too many Canadians who "expect" the government to solve their problems for them and are more than willing to let others pay the taxes so they can have what they want and politicians more than willing to deliver for their vote.

As far as the royalty issue is concerned, I have no idea what is fair but you don't change things mid-stream by bumping rates by 50% or more and expect no effect.

As a worker in the oilpatch, I can tell you that I have been experiencing the chill already. Projects have been shelved, investment money has been pulled and everyone seems to have forgotten that NG drilling makes up the bulk of Alberta well drilling. Which had already experienced a pullback as a result of low pricing and demand. Add the threatened environmental policies to appease the AGW crowd, the high wages demanded by labor (and threats of unionization!) and increased costs of resources...we will see how they react after tonights speech but I anticipate that this stumble will take considerable time to recover from.
I've already began to make preparations for international opportunities in Russia, India and the Middle East 'cause oil is the same wherever you are in the world and these Co. have alot of irons in the fire to choose from.

Only an idiot for making this a political issue in the first place ...

a lot of speculation and name calling so far.

let's hear what Fast Eddie has in store, Thursday.

a royalty adjustment is due.
lower for gas.
higher for oil sands.

Suncor had the cost of production down to $10/bbl in the late 90's Looks to be room for higher royalties.

Think of it this way, higher royalty rates just means NFLD will take more of our money.

It was a stupid promise to make and to keep. It was a no (political) win promise in the first place.

Everyone is talking about a "fair" royalty without defining what is fair!

So the oil/gas companies get to
-speculate on land,
- rent the mineral rights from the government
- pay landowners / residence to do seismic (who then pay taxes to the government
- Do the seismic (paying a seismic company who pay taxes, then the employees pay taxes
- Analyse the results (employees get paid who then pay taxes
- Pay to drill a well (drillers/employees pay taxes)
- hopefully discover marketable reserves
- Pay to design and build facilities to produce reserves (companies/employees paying taxes all the way along)
- Give the government their royalties
- Find a buyer for the "peoples" energy
- Final, if they should turn a profit.....pay corporate taxes.

So Eddie Strom er Stelmach wants to upset the apple cart to score points the the socialists.

Alberta is ROLLING in taxes.

The larger the oil/gas producer the easier their capital will leave the province for better rates of return. It all about RoR, which includes costs of production(very high in Alberta) and Risk (was Low in Alberta but is now increasing).

The report was incomplete anyways and always bad policy to go off of incomplete information

As an armchair economist it's always amusing to hear people ranting on about "Big Oil" presumably vs those "mom and pop" offshore drilling and tar sand upgrader projects we all reminesce about. Since the tar sands belong to "the people" perhaps a compromise can be reached whereby for every 100lbs of tar sand mined by "Big Oil" a 100 lb bag of tar sand can be shipped to the home of every Canadian who wants one to do with as they please. As for being "exploited" by "Big Oil", my brother, who works in the oil patch has in turn "exploited" "Big Oil" over the years to the tune of a two storey house, maintenance for a wife, four children and several dogs, cats and hamsters, cars, minivans, vacations and a pension. Numerous others have done the same. Given a choice between the exploitation and the bags of tar sand delivered to the basement, I as a low tax paying Albertan will take the exploitation thank you very much. The fastest way to kill the economy out here will be to morph overnight into another tin pot, business unfriendly jurisdiction in which contracts and government business agreements are worth less than the toilette paper in the washrooms. That's not to say it won't happen. I saw it before with the NEP. Only this time, I've got a wad of cash to clean up on some cheap foreclosed houses.

I'm liking the idea of greater royalties on unrefined oil leaving the province .. pay us one way or another your choice

"Think of it this way, higher royalty rates just means NFLD will take more of our money."

They must be lowered in an effort to slap Danny Williams in the face and bankrupt those Newfoundlanders with their 12 percent unemployment rate.

Russia, now there's a real safe place to live and invest!

ROI, return on investment, rather than ROR is more proactive imo.

I'm told over and over by politicians, activists and the royalty panel that I'm an owner of Alberta's resources but frankly I do not feel like one.
I did not pay any money to acquire ownership of these resources nor have I laid out any capital for the finding and developing them.
Other than the $400 Ralph-Bucks that I received some years ago, I have not received any dividend or value appreciation for my ownership.
I've rarely been asked how the money collected on my behalf should be spent.
I cannot divest myself of my ownership to a third party.

I'm liking the idea of greater royalties on unrefined oil leaving the province .. pay us one way or another your choice

Apparently, that's what's going to happen; there'll be at least one new refinery in Alberta getting built. Dunno how that will fly with NAFTA and the mare cans.

It looks like all we get today are hints of what we might learn tomorrow. Read this: http://tinyurl.com/3x64tv
I for one wonder why we are making such a fuss about increasing our take on royalties when that increase will only increase our payments to other provinces through the equalization formula. A recent article by Licia Corbella of the Sun newspapers reports that in the 2006 - 07 fiscal year Alberta and Albertans sent $32 billion to Ottawa and received back $17 billion. Now there is some real cash. Should we not be more concerned with our province being bled dry by that transfer of money
rather than the mere pittance of $2 billion or less on supposedly foregone royaltie payments.
?

Be wary of a debt free gov't that thinks it needs more cash. Might as well burn the 2 billion to produce steam for electricity generation.

"It is the position of the Wildrose Party executive committee that Alberta's oil and gas royalty regime should not be changed at this time.
...
If an unknown amount of royalty income is being forgone by the government due to its own antiquated accounting systems, as the Alberta Royalty Review Panel has reported, then the government should fix that, so that all terms of existing agreements are met.

With an $8 billion surplus last year, and the highest level of program spending of all major provinces, the Stelmach government does not need $2 billion more from petroleum producers.
...
Alberta is a lavish spender compared to equivalent large provinces. Our government spent $7,900 per Albertan in 2006 compared to $5,900 per Ontarian and $6,700 per Quebecker (note that this includes program expenditure only, not capital projects like new schools and highways). If the Alberta government’s operating budget were as efficient as Ontario’s (which isn’t all that efficient, frankly), our provincial saving would be $6.6 billion – a 20% reduction to what the government is actually spending."

http://www.wildroseparty.ca/main/index.php?option=com_content&task=view&id=48&Itemid=45

I sent a letter to my MLA and detailed what my busines and myself paid in taxes to the various governments in Canada, over 12 years. It worked out that the "take" was" 76.8% to the feds, 19.7% to Alberta and 3.5% to Calgary. this was based on corporate income taxes, personal income taxes, GST corporate and city taxes of which Eddy takes 50%. If Stelmach is wondering where the money really goes, he can phone Ottawa and cry them a river! Shutting down the oil patch or creating the conditions that investment dries up in this province, will certainly eat away at that big fat surplus that Ottawa crows about on an annual basis. It amazes me that 3.4 million people of this province pay 25% of this country's bills. I also have an issue with this provincial government that feels that it needs a bigger slice of the pie, when racking up an $8 BILLION surplus themselves! The cost of governent in Alberta is out of whack. The Heritage Fund has barely grown, so I wonder where all that money went?

I'm as free-market as the next guy. But inflation in Alberta is out of control. If we were our own country we could raise interest rates, but we're not. We're carrying the load for the rest of the country.

Maybe royalty rates are how we can put the brakes on things. As a friend of mine said, if some oil companies want to leave because of that, be my guest. Maybe then I can find a carpenter.

In business school they teach "charge what the market will bear", so why don't we. There's certainly room to move rates up.

In reading the final report of the Alberta Royalty Review panel I was stunned to learn that the current Alberta government oil and gas revenue share, which includes royalties, fees and taxes, is a whopping 58% for natural gas and 47% for oil. This leaves the producers share at a meagre 42% for gas or 53% for oil, out of which the producers must bear all the costs and risks associated with bringing the resource to market; these costs and risks include discovering attractive potential resources, outbidding the competition for the rights to it, drilling the well, and if successful connecting to the delivery pipeline and finally selling the product into markets with rapidly fluctuating commodity prices. The Alberta government reaps it's 50 to 60% share without risk and with minor cost outlays. I don't think it can be argued that it is the free enterprise Oil and Gas industry which produces the current prosperity enjoyed by every Albertan and which contributes $14 billion a year to the provincial treasury. Many will laugh at the analogy but it is not implausible to compare the current resource revenue capture system as akin to feudalism, whereby those working in the oil and gas industry act as serfs in the crown’s manorial lands, performing all the valuable and risky work but giving up over half of the fruits of their industry to the lord of the manor.

an interesting point that will be of interest to saskatchewan viewers is that the saskatchewan ndp government reduced royalties and the general regulatory scheme such that socialist saskatchewan now takes less in royalties than alberta!! imagine that - oil and gas $ leaving alberta for saskatchewan and BC! Hard to imagine? That is what will happen if the royalty report is implemented in full. Not Quwait, Sudan and Venezuela as some people like to mention.

an interesting point that will be of interest to saskatchewan viewers is that the saskatchewan ndp government reduced royalties and the general regulatory scheme such that socialist saskatchewan now takes less in royalties than alberta!! imagine that - oil and gas $ leaving alberta for saskatchewan and BC! Hard to imagine? That is what will happen if the royalty report is implemented in full. Not Quwait, Sudan and Venezuela as some people like to mention.

I hope Alberta does not have a new NEP comming down the tube. I was a resident of Alberta when the first NEP (from Turdo) brought the Alberta economy to it's knees. It was terrible and tragic.

If the 'people' of Alberta want a 'share' then why don't they buy 'shares'? Eddie and his gov't could make all oil/gas Cos give tax paying Albertans investment options as tax write offs. I know that the Power Corp outfit have major intrests in Alberta Oil and Gas - ding their holdings for 50% as pay back for the past.

Word is that the oil companies have contracts, and they will be taking the government to court for not honouring them.

I would like to know what Alberta's 'fair share' is actually. Still little has been done to widen the Highway 'to from and hell' 63 - I've seen slugs covered in salt move faster.

Quebec will have her hand out for more in the way of transfer payments - don't they have a lot of overpasses to rebuild.

Stelmach is a stupid Ukrainian, and I know one to see one. If oil companies have to pay more in royalties, it will be the workers who pay or should I say, don't get paid. Fort Mac is a two high-income town, and if one person loses a job while paying through the teeth for their mortgage, they'll have to pack up and leave - the result will mean real estate prices will plummet. The Cash Cow can only be milked for so long before she's sick of having her teets pulled. The workers in Fort Mac aren't crying for higher royalties, so why is the Alberta government wanting a bigger surplus - are they going to subsidize the price of gas at the pumps in Fort Mac - not bloody likely.

Johnny Jesus,

"Stelmach is a lot smarter than he looks!!"

So we agree he looks stupid.

My question is: The royalties are a percentage. If he percentage was good at 20 dollars a barrel then why isn't it even better at 80 dollars a barrel.

I had a contract with a business long ago and we were both doing well. I worked hard to increase to gross, so we were both doing even better. But for some reason it irked the contractor that I was make so much money. He didn't think there was anything wrong with him making more money, but who the hell was I to be so prosperous?

We soon parted trails and his next contractor failed to maintain and they both wound up making a lot less. It never improved up to the point where the business was sold.

I am not sure where that thinking comes from, but I suggest that Stelmach is the same kind of greedy fool.

I see this in the envious less motivated types in our society. They hate the man who make big bucks, and even thought that man pays big taxes, he still has so much left over. If you tax him enough he will stop working and then less motivated types will soon have no jobs.

For some reason most Canadian simply don't understand cause and effect. They also don't understand or perhaps just simply hate the capitalist system. You know ... the only system on the planet that allows idiot a high standard of living, because the smart are free to create it for them.

Maybe when we are all living in trailers and eating Kraft dinner, people like Johnny Jesus will be happy, but I doubt it.

If the oil men are treated badly enough they will find other places or industries to put their money and their efforts in. They are not owned by the oil industry and are certainly not owned by the Alberta government.

Taze yourself bro and think about it.

MaryT said: "Think of it this way, higher royalty rates just means NFLD will take more of our money."

Here are the tables for equalization payout for 2007, 2008 and 2009

NL- 632, 477 and 197 million respectively (NL attains have status after 2009)

PEI 291 294 310

NS 1,386, 1,308 1,294

NB 1,451 1,457 1,492

Quebec 5,539 7,160 7,622 millions

MB 1,709 1,826 2,003

SK 13 226 0

BC 260 0 0

So MaryT, let me fix that for you:

""Think of it this way, higher royalty rates just means NS, NB, MB, PEI and especially Quebec will take more of our money."

Other money transfers like CHT(Canada Health Transfer) and CST(Canada Social Transfer) bring the total for NL, including equalization, to 1.370 and 1.183 billion for 2007 and 2008 respectively. Approximately $2325.00 per person.

Quebec will receive 16.677 and 18.731 billion for 2007 and 2008 respectively, approximately $2436.00 per person.

Since the new federal transfer formula, including the wait time health gaurantee, is based upon a per capita payout, the amount NL will continue to receive from the feds will get smaller and Quebec's take will get larger, especially with the new immigration rules and monies attached to those provisions.

Ryan said: "They must be lowered in an effort to slap Danny Williams in the face and bankrupt those Newfoundlanders with their 12 percent unemployment rate."

NL's unemployment rate for Sept. 2007 was 13.7% of a labour force of 251,300 which means there were 34,428 NL's drawing their pogey. How many of those 34,428 work in the oilpatch during the winter season doing part-time work that Albertans and other Canadians can't or won't do?

Conversely, there were 450,000 Ontarians, 293,000 Quebecers and 72,000 Albertans currently drawing their pogey as well in Sept.

Hope I didn't slap you too hard in the face with the facts there Ryan. Premier Williams will be attending and the guest speaker at the Annual Press Gallery Dinner on Saturday night. Lining up all his media contacts for his election campaign against PM Harper.

Enjoy. I know I will.

Joanne:

My, my, aren't you the tolerant one?

Just because the premier is a third-generation farmer does not make him a stupid Ukrainian.

I'll tell you who was stupid and that was Ralphie, who was bought off by the silver-tongued devils in the Calgary oil towers.

A bit of history here.

When Peter Lougheed changed the royalty regime to 25% in 1972, that seemed pretty fair. No accounting trick, no we've got to pay our expenses first baloney ... just straight 25%.

In retrospect, Ralphie was suckered in ... and I've voted for Ralphie each time he ran for election.

Truth of the matter is, the royalty rate is much lower than 25% today because of accounting trickery and embellished expenses.

So, take a hypothetical barrel of oil at $80 bucks right now.

Let's assume Stelmach announces on Thursday that he will go back to the Lougheed formula of 25% with no provision for start-up costs.

Are either one of you going to tell me that Big Oil cannot make a go of it selling their product at $60 a barrel?

If you think they can't, then you're much dumber than you claim the premier to be.

I'm with Johnny on this one. Stelmach is much smarter than your statements claim, especially the out-and-out bigotry displayed by Joanne.

Keep it up guys and pretty soon Calgary will be even more hated than Toronto.

expenses are not deductable from royalty , the formula is volume and price based. there is nowhere in the formula that expenses are included.

capital costs are only on the federal tax and the Alberta Government thru the municipalities taxes the capital investments, they are not deductable from royalties either.

on gas where the royalty can be up to 35% the government can take its gas in kind and pays for delivery thru gas cost allowance. this only includes the gathering system , the government does not pay for the seismic, drilling , completion or wellsite facilities and these are not included in the calculation. they do pay for thru GCA cleaning the gas and transportion, but the rate of return on all the gas plants and gathering systems is limited to a utility rate of return.

so before you blather at the mouth 'Set you free'
understand what you are talking about.

an interesting point that will be of interest to saskatchewan viewers is that the saskatchewan ndp government reduced royalties and the general regulatory scheme such that socialist saskatchewan now takes less in royalties than alberta!!

Socialists are known for that. Suck 'em in, then take 'em to the cleaners.

If an increase in royalties was going to badly harm the oil companies, I would expect their share prices to be dropping. Its not happening. They have already factored in a 20% increase and are still expecting to make a healthy profit.

Steady Eddie will need to raise royalties on the oil sands or he will be toast in an election. The economic growth is too fast in Alberta and the quality of life is suffering (high rent, costs, labour shortages, etc. It this cancels a few oil sands projects then good. Some more revenue will be raised and growth will slow down. It makes no sense to process bitumen in the US from Alberta's perspective.
They would be wise not to touch gas as this is in a recession currently.

every time i hear someone say it's the peoples resource i cringe. wee socialists everyone. all gov has a lousy track record of doing anything for the (people). what makes anyone think this is any different in alberta. billions more to be sucked up by fools who will squander it with no benefit except to politicos and their friends.

It's just after 04:00 Alberta time here as I write, so within about 24 hours we should have enough information to begin to discuss Premier Stelmach's government's proposals, that is to say, once we know what they are.

The bigwigs at the oil company I work for showed up for a meeting last month to whine about the "20%", and how important it was to oppose the royalty increase or face layoffs. It was all very reminiscent of pathetic leftist union tactics.
I reminded everyone at the meeting we haven't elected an NDP government, and that surely the Premier clearly understands the difference between Alberta and Saskatchewan...

I am surprized by the number of people, especially Albertans, saying that Ed had better not implement another NEP.

Clearly they do not understand that the NEP was a deliberately malicious Trudeau/Lalonde taxation program designed to deliberately drive oil and gas companies out of Alberta (where the feds had no jurisdiction) and onto the federal lands where the feds had exclusive jurisdiction.

And the feds would reap all the taxation benefits.
This would be then be the federal government's 'private money' as the wacko Pierre Trudeau once described in his screwed up version of economics.

The primary purpose of the NEP and Ed's royalty review is not even remotely in the same league.
And thoughtful people should refrain from saying or pretending that they are.

very true rockyt,

Trudeau and Marc LeNez taxed Alberta, changed the tax structure on offshore, confiscated 25% of existing leases offshore and gave them to the newly created PetroCanada. spent billions buying petrofina , pacific petroleum and allowing them to not pay capital gains. billions spent and not accounted for. then there was the deal signed by the feds to import mexican oil, ended up being sour heavy oil that couldnt be refined easily, lots of it turned into pavement.

cal2:

Apparently, you're willfully blind to the ‘royalty holiday' instituted by Ralphie, by which Big Oil does not pay any oil sands royalties until their create enough revenue to pay off the cost of their multi-billion dollar plants.

That's a fact.

Apparently, the Lougheed formula of 25% royalties worked well for convential oil, despite the impression that every hole drilled was a gusher.

Convential oil exploration, with prices way lower than they are today, managed to make a living despite the expense and high incidence of dry holes.

Perhaps I did not articulate my own position clearly enough in my post, so I'll try again.

I believe it would be fair for both Albertans and the oil companies if we returned to the Lougheed formula of 25% of production.

Take out 100 barrels, pay 25 bucks. Simple.

Ralphie willingly agreed to be bamboozled with accounting trickery and needed to expand the bureaucracy to have somebody check up to make sure expenses were legitimate.

As for Trudeau, that a**hole had no business raking money off Alberta's oil. Get that, Alberta's oil. Not a personal reserve of oil companies, who are contracted by Albertans to help extract the resource.

Once again I ask, with oil at $80 a barrel, how can anybody seriously claim oil companies cannot survive on a cash flow of $60 a barrel?

"Alberta has given the oil boys more than a fair shake for a long time, now it's time for big oil to spread a little grease around.

It's getting embarrassing how bad the infrastructure is right now in Alberta, considering the prosperity the oil boom is supposed to bring. "

Jeee 'dya think there's nothing left for infrastructure because the feds are vacuuming more out of the province....more oil royalties will sweeten the Fed take first and leave Alberta with crumbs....either you don't live in Alberta or you just moved there but in any event you have a very unknowledgable opinion of Provincial economics....especially the patch.

set you free, let me answer your question and correct your "facts".
Firstly, companies DO pay a 1% royalty on oil sands production immediately and additional net royalty when payout is met (as you describe, when costs and allowances are covered), perhaps not enough to your liking, but not the nothing you state is "fact".
Secondly, bitumen and heavy oil, which is what is relevant with respect to an oil sands discussion, is not selling for $80/bbl, Lloyd Hardisty blend was selling at ~ $30/bbl discount to sweet crude in September 2007. Not every barrel of oil is created equal.
Finally, you make the point yourself, oil companies want to recoup the cost of their "multi billion dollar plants", well, yeah! That's the whole point. The oil sands royalty recognizes that HUGE capital investments need to be made before a mining or SAG-D development can produce a drop of product.
But you think it should be treated the same way as a single well drilled for sweet crude (which really may garner $80/bbl) within an already discovered field, close to existing infrastructure (i.e. pipelines etc).

Right-o!

Bovit:

OK, I'm a liar.

The oil sands development keep 99 cents out of every dollar until the costs of their multi-billion dollar plants are paid off.

Lets take today's price of $88 a barrel and discount it $30.

That would leave a $58 value per barrel (88-30).

I may be mathematically-challenged, but under the Lougheed foruma of a flat 25%, $43.50 would go to the contractor (oil company) while $14.50 would go to the owner (under all legal conventions, the people of Alberta).

Let me pose this question for the third time, since the quibble seems to be about how much a barrel actually sells for.

Can an oil sands company make a profit with a cash flow of $43.50 a barrel?

Bovit:

One more point, if I may, on the varying nature of royalties and taxation.

Royalties are what companies pay for the priviledge of having extraction and sale of a commodity.

Corporate taxes, on the other hand, and paid as a share of profits.

In the case of corporate taxes, as a nominal owner of a business my wife runs, I understand that the costs associated with my wife's business are legitimate write-offs against her businesses income.

I assume oil companies pay corporate taxes and that the multi-billion dollar (I hear$12 billion is typical) cost can be written off against federal taxes.

If that is the case, why are oil companies able to gain a double benefit? Since the costs of construction are already used to offset federal taxes, how is it right that those exact same costs can also be in any good conscience be written off against royalties, that is something under provincial jursidiction?

My wife cannot write her expenses off her federal taxes (under sole proprietorship) and at the same time use it as write-offs against municipal taxes.

Allowing this write off of costs associated with developing plants is exactly how Ralphie was suckered in by the Calgary head offices.

Oil companies, in effect, are being allowed to write off the costs of building their plants TWICE.

Would you consider this a fair practise?

Well, if it doesn't matter whether it's $80/bbl or $50/bbl, it shouldn't have mattered when it was $10/bbl. We should have instituted the 20% increase in royalties back in 1998.

But, seriously, to answer your question, it depends.

If you've got existing oil sands projects, you will probably be profitable at $43.50/bbl. You built the infrastructure at lower costs, which you're depreciating against your current output, and you're covering your operating costs, even though they are rising too.

The point is that the price of oil isn't the only thing that's moving. Some of the components you need to build plants and pipelines with are driven by global markets also (steel, for example), so those costs are astronomical too. You actually need to buy oil to dilute your product so you can ship it down the pipe (holy crap! that costs $80/bbl), the welder who joins the pipe joints wants a massive hourly wage increase to keep up with inflation, and so on.

The real answer is that some of the proposed projects will really no longer be viable, or not worth the risk under the proposed royalty regime.

Some people think that's a good thing, because the economy is overheated. What hasn't been assessed or addressed by the panel is what percentage of future projects fall into this category. What if the slow down winds up being more than you bargained for?

And, one last point. Lots of people point out that other jurisdictions are doing the same thing, and where are you gonna go? Russia? The companies have another option, and some are already taking it. Some large corporations are buying back their shares, effectively shrinking themselves. It's not just a question of Alberta or Yuckistan.

Being from Windsor Ont, I would love it this new tax slowed down the Alberta economy. Our economy is killed down here. A lower dollar and lower interest rates would do wonders for us :)

Think of it as helping us out too!

Spencer:

There is a difference between taxes and royalties (see my post above).

Otherwise, they'd both be called taxes.

Royalties are what oil companies pay for the priviledge of extracting and gaining profit from the sale of the commodity. Oil companies are considered the contractor while the legal owners are the people of Alberta.

Qustion: Can an oil sands company make a profit at $43.50 a barrel. Yes thay can make a "Profit".

The question is the fundemental problem with the discussion. There is adiffernece between profits and "return on Investments (ie Capital). If you look at many of the Oil Companies quarterly and Annual Reports you will that yes, they are making an operating profit of between 25 and 30 per boe (barrel of oil equivalent). You may also want to look at what we in the industrey call finidin & development costs, those are in the neighbourhood of 20-25 per boe therefore the actual return on investment for the company is generally in the range 0f 5-10%. when broken down not necessarily as rosy a picture as presented.

The $80 USD per barrel with the Cdn. dollar par versus $55 USD at 0.66 CDN (Hint: the are almost the same) is a discussion for another day.

Funny how the Oil Companies can wank about a COLLECTIVE 2 Billion of a Royalty adjustment, but can't seem to muster the same amount of outrage when their projects come in Hundreds of Millions or Billions over budget, or the excessive amount of waste in their day to day operating budgets or their (CEO's and upper management)inflated wages/stock options. A lot of the "good ol' boys club" shouldn't be managing your local 7-11, nevermind a large petro facility. If they don't like the royalties, they can move to, um....say Venezuela??? Perhaps then we can catch our breath and catch up on some of our infasturcture deficiencies. Oh, by the way, I work in the patch so I see the above EVERYDAY!

Funny how the Oil Companies can wank about a COLLECTIVE 2 Billion of a Royalty adjustment, but can't seem to muster the same amount of outrage when their projects come in Hundreds of Millions or Billions over budget, or the excessive amount of waste in their day to day operating budgets or their (CEO's and upper management)inflated wages/stock options. A lot of the "good ol' boys club" shouldn't be managing your local 7-11, nevermind a large petro facility. If they don't like the royalties, they can move to, um....say Venezuela??? Perhaps then we can catch our breath and catch up on some of our infasturcture deficiencies. Oh, by the way, I work in the patch so I see the above EVERYDAY!

Funny how the Oil Companies can wank about a COLLECTIVE 2 Billion of a Royalty adjustment, but can't seem to muster the same amount of outrage when their projects come in Hundreds of Millions or Billions over budget, or the excessive amount of waste in their day to day operating budgets or their (CEO's and upper management)inflated wages/stock options. A lot of the "good ol' boys club" shouldn't be managing your local 7-11, nevermind a large petro facility. If they don't like the royalties, they can move to, um....say Venezuela??? Perhaps then we can catch our breath and catch up on some of our infasturcture deficiencies. Oh, by the way, I work in the patch so I see the above EVERYDAY!

Funny how the Oil Companies can wank about a COLLECTIVE 2 Billion of a Royalty adjustment, but can't seem to muster the same amount of outrage when their projects come in Hundreds of Millions or Billions over budget, or the excessive amount of waste in their day to day operating budgets or their (CEO's and upper management)inflated wages/stock options. A lot of the "good ol' boys club" shouldn't be managing your local 7-11, nevermind a large petro facility. If they don't like the royalties, they can move to, um....say Venezuela??? Perhaps then we can catch our breath and catch up on some of our infasturcture deficiencies. Oh, by the way, I work in the patch so I see the above EVERYDAY!

comp issues, sorry for multiple posts.

here you go dork, the alberta royalty formula. figure it out for yourself. its volume and price based. it isnt 25% across the board.

http://www.energy.gov.ab.ca/Oil/769.asp

most of the production in alberta is conventional and gas is a bigger number than oil.

royalties are not deductable for income tax.

for all those wankers crying about excess profits you can get in on the largess - invest

as you are so much smarter than anyone else it should be an easy decision.

be greedy and get more than your "dat is not fair share of the izzy money"-Borat Dion.

cal2:

So, it's OK then to write off costs of building a $12 billion plant against federal taxes AND provincial royalties.

Seems to me like somebody's getting the short end of the stick and it's not the oil companies, who are able to write off costs against both tax and royalty regimes.

Just watched Stelmach's announcement.

Instead of keeping 99 cents on the dollar (after their double-dip writeoff), they now get to keep 95 cents on the free dollar.

Boo, hoo, hoo. Poor opressed oil companies.

you are an accounting moron, there is no writeoff of capital onto provincial tax.

dont mix up royalties and taxes.

Actually the huge increase in oilsand plant costs reminds me of some 'cost plus' projects the federal govt used to build (and maybe still does?).

The first priority of the contractor was to get the project done no matter what it cost to do it, because their paycheck was in addition to the project cost.

The most famous of these type of projects was the Big Owe in Montreal.

A friend told me that he knew of gravel trucks going into one end of the stadium loaded and then driving out the other end still loaded, because no one was keeping track of the unloading.

And then they drove around to the other side and went back in with the same load!

Maybe no one wanted to keep track because it was that famous Montreal 'izzy money' (thanks Cal2).

Anyway the infamous cost-plus Big Owe cost taxpayers about $1.5 billion, just slightly up from the initial estimate of $400 million.

Gee, maybe its the same guys building the oil sand plants?
Heh.

cal2:

Are oil companies allowed to write off capital costs against federal corporate taxes?

Are oil companies given credit for capital costs under Alberta's royalty regime ... where they now get to keep 95 cents of every dollar?

Just an ignoramus trying to get a straight answer.

BTW, I always tell my kids the first one to name-call loses the debate.

Could you please try to answer my questions without name calling, please?

set you free - so now I am intolerant and a bigot because I said Stelmach was a dumb Ukrainian. What, a Ukrainian can't be dumb? They are all bloody brilliant or something? Sorry, but I married one and gave birth to little half Ukrainians, so it isn't anything against Ukrainians - I was just pointing out the fact that Stelmach was a dumb one.

Big oil companies are in it for the money, not the thrill of having to deal with all the crap that comes along with big business. I've been in business with oil companies, and they'd have no problem turning tail and walking away leaving thousands of devasted workers to hand the keys to their houses into the banks.

Using your example - with oil at $80 a barrel, and $20 going to royalties, hypothetically, you've just asked the oil companies to give 25% of their earnings to royalties, which means the $60 left over has to pay for all their expenses, wages, research and development, environmental obligations, etc. I don't know, but it seems to me that 25% of earnings seems like a lot of dough, especially when most of it will go via Ottawa to the have-not provinces anyhow.

I'm all for oil companies paying their fair share, especially when it comes to helping pay for the infrastructure in the communities where their workers live, but a dollar amount off the top of someone's head doesn't seem like good business sense to me.

It is fallacious to argue, as so many above have, that the oil companies carry the whole burden of cost and risk. Royalties are very close to non-existent until all costs are recovered, I consider that a direct subsidy. As well, many of these ventures have various government 'loan guarantees' that cushion the potential blow of ill fortune. Tax write-offs of all sorts abound. In short, they do not bear all the risk themselves, and arguements based on the premise that they do are unfounded.

"Once again I ask, with oil at $80 a barrel, how can anybody seriously claim oil companies cannot survive on a cash flow of $60 a barrel." by set you free

It isn't a matter of whether they can survive or not, it is a matter of whether they will bother to continue operations. And what about if there is a decline in the price of a barrel of oil - we are talking record prices for oil these days. I don't think it is fair to state 25% of earnings should go directly to royalties and that is it - that does not even make business sense, let alone good business sense. Oil companies have fixed costs, and they've been expanding in order to meet demand and make big bucks. What do you think is going to happen when the oil companies cannot meet their fixed costs before they can even produce a barrel?

Comment below to Cal2:
"BTW, I always tell my kids the first one to name-call loses the debate.

Could you please try to answer my questions without name calling, please?"

Posted by: set you free at October 25, 2007 6:38 PM

Why don't you take your own advice - name caller yourself! I guess this means you lost your debate with me - o-tolerant and unbigoted one.

1. Both the NEP and Royalty Review was and is political (pointing out the obvious).
2. I would rather decisions and concequences be local as opposed to dictated from afar.
3. The Alberta economy has been overheated and inflationary for the last 5 years. A hyper-inflated market is not healthy in the long run.
4. Some people argue for no change. Where was that argument when Alberta lowered the rates to help kick start the patch ten+ years ago? Change is constant.
5. By some arguments, little royalty is good. By extension that might mean NO royalty is better.

Trick is to find a balance and governments try to do that with taxation and regulations, unfortunately not always successfully.

I don't think government should mess with people's livelihoods until they know their decisions will improve the lives of Albertans, not the opposite. And as Mike_RoA states - "Trick is to find a balance......" It doesn't seem to me that the Albertan government, at this moment, has a clue where to put the surplus they have already accumulated, let alone know where to put a number of billions more.

yes , oil companies are allowed to write off capital costs, do you need to know on what basis.

CEE- Canadian Exploration Expense -100% also available to individuals directly or thru flow through shares.
CDE- Canadian Development Expense - 30% on a declining balance
Fixed Asset Processing - 30% per year less recovery on CCA and processing on third party.
Flowline 30% declining balance.
Gathering Lines 20 year straight line depreciation\
Major Processing Plants 20 year straight line depreciation.
Nova/TransCanada pipeline - guarenteed utility rate of return. this is an expense to the gas producer and a deduction from income.

Direct operating expense , lifting cost , direct 100% deduction.

Seismic 100% CEE, but any resale value is direct income back with no depreciation.
Royalties, direct deduction from income but no deduction from income tax.

what else do you want to know?

Land and lease- paid to Alberta government , land is depreciated over 10 years or 3 depending on the life of the lease.drilled or dropped.

Municipal taxes - paid on vertical depth of wells , lengths of pipeline, value of compressor stations , pumpjacks , separator buildings, oil batteries tankage, drops to 50% if the well is shutin for more than a year,but does not disappear. average time to reclaim a wellsite after it has stopped producing 5 years.

Alberta Royalty deductions for oil - trucking.
no deductions for any capital items.

Alberta Royalty deductions for gas.- Gas Cost Allowance GCA - processing costs plus a 10%ROR on gathering systems and processing facilities plus a one sixth working capital allowance on the facilities. these have to be agreed to by the province. the present up till a few hours ago royalty system had royalty rates of up to 40% for high rate gas wells.

Alberta rig utilization rate as of monday oct 22, 28%.

anyone want a run down on the geology of the basin , the statistical finding rate ,the average operating cost ,the finding cost and the average ROR of the industry?

cal2:

Thanks. Appreciate your inside knowledge of an issue that's way too complex for me.

Are any of these capital cost writeoffs that can also be written off against federal corporate taxes?

If there's no duplication, then I'd have no problem. If there is, Albertans have been fleeced.

set you free
You are tenacious, and also mathematically challenged.
You bet all those things are deductible for federal income tax, they're also deductible for provincial tax. Just like they are for any other business in any other industry.
If you don't think that's OK, then tell your wife to send money back on her tax returns because she got to "double dip" by deducting her expenses for provincial and federal taxes too. And your municipal tax example makes no sense, since municipal taxes are usually based on property ownership or licenses, and have nothing to do with income.
You make no sense when you say that companies get to deduct twice, for royalty and tax. The capital spending (plants, roads, wells, pipelines etc) used in the royalty calculation is simply part of a formula that calculates the final royalty amount, which is a COST to the organization.
Again, you may not like the calculation - I favor a percentage derived by dividing the CEO's weight, in kilograms, by his/her number of children (just think, if he has none the royalty percentage would be infinite) - you'd like a straight percentage, but I can't see where the deduction comes in.
That's also why it's "INCOME" tax, it's not called revenue tax.
So, the simple formula is:
Revenue
less royalties
less operating (direct) expenses
less administrative expense
less allowable deductions from tax pools (as described by Cal2)
--------------------------------------------
= Taxable Income
X Tax Rate
--------------------------------------------
= Tax

Re: Jon at 7:29
"Royalties are very close to non-existent until all costs are recovered". Incorrect. Royalties are paid on conventional oil and gas on the first drop from the well, there is no mechanism for recuperating costs before paying royalties. The Oilsands, on the other hand, do pay a very low royalty rate until the capital costs are recovered. Without this we wouldn't have an Oilsands industry at all. The Pembina Institute and others have characterized these royalty deferral schemes as subsidies for years - giving the impression to the public that the taxpayers are handing over their money in subsidies to the oil and gas industry.

On the matter of "loan guarantees", maybe you could provide a link to some facts to back up your argument. I'm unaware of any such guarantees.

I'd be interested to know how the government or the owners share in any of the risk in the conventional oil and gas business. As I pointed out elsewhere, the industry alone discovers where the resource can be tapped (if you think this is easy, there may be many overpaid Geologists and Geophysicists in the Calgary office towers), bid for the rights to exploit the resource, drill, complete and pipe it to markets. All of this is done exclusively with the expertise and capital of the industry. There is shared risk in the Oilsands, I would agree, but the risk is disproportionately on the industry side.

Any chance any of you guys can do a couple of sample calculations showing the difference in netbacks pre-revision and post-revision based on the new cap levels? I had maxxed out my RRSP on Suncor, UTS, etc. being fully willing to accept cost overruns due to labour inflation based on my assessment of future supply/demand (in short that cost overruns would exist, but based on existing royalty agreements if I held for 10 years+, I'd do well). I'm concerned tomorrow is going to be the mother of all bloodbaths as the fine Mr Stelmach appears to have dramatically moved the risk/reward tipping a great deal after my money was already invested....

Many thanks in advance, Matthew.

I'm afraid Stelmach has just pushed the plunger to blow up the Alberta economy. The only good thing you can say about his announcement is that at least it wasn't as bad the review panel's recommendations. There will be short and long term consequences from these royalty changes.

The short term impacts will be felt In the natural gas business, where 63% of production (and by extension 63% of gas royalties) come from 5% of wells producing in excess of 500,000 cubic feet per day. At current prices these wells will go from paying 30% royalty rate to 50%. No one in their right mind can say that the government can take an additional 20% out of the industry and expect no impact. The fallout will be that the big players in the industry will abandon drilling the expensive high productivity gas wells immediately and move the capital to jurisdictions with better royalty and tax regimes. Expect a radical slowdown in drilling activity in the western part of Alberta in the 2007/8 drilling season.

The longer term impacts of the royalty changes will be felt in the Oilsands business. At current world prices, the pre-payout gross revenue royalty rate will go from 1% to 4%, while the post-payout net royalty rate will go from 25% to 32%. These changes will have little impact on existing and in-progress oilsands projects - the companies are trapped, they invested their money on certain assumptions and now all they can do is make the best of a poor situation. The projects still on the drawing boards have choices and some of them will fall as a casualty of poorer economics under the new royalty structure. We won't see the impact of these losses for several years.

I think the solution presented by Stelmach is actually brilliant... and the way-smaller-than-expected reaction on the stock markets this morning supports my opinion. And really, the proof is in the markets.

Seems Stelmach is indeed the decent, ethical and highly intelligent leader I hoped he'd be.

The markets have spoken and the Chicken Littles are scurrying for the exits.

"There is a shared risk in the oilsands, I would agree, but the risk is disproportionately on the industry side." R Saunders

Might have been a one time but isn't anymore, if you know what Peak Oil is all about.

Companies know where the oilsands are, all they have to do is mine it and process it.
And oilsands production is such a small part of the total world demand, it will be one of the surest investments any company could make.

World economics may cause a decline in the rate of increase of demand for oil, but the projected increasing decline of world production has virtually taken all of the risk out of the equation in oilsands production.

That's why so many companies have and are jumping in lately.
And why nuclear power plants would be needed to supply them all.

I see where the TSX energy index finished up 0.23 per cent today.

I hear through the grape vine, there has been a compromise between Stelmach and the oil sands - seems Stelmach had his brain flushed and what he accepted for royalties is a mere smidge of what he was asking for.