Hands off, oil patch tells royalties panel

David Ebner, May 23, 2007, Globe and Mail, CALGARY -- Alberta's energy elite came out in force yesterday, urging a review panel looking at royalties and taxes to do nothing -- or else.

Canadian Natural Resources Ltd. is building a $10-billion-plus oil sands project, but Steve Laut, the company's president, said it wouldn't start again today, given the high construction costs. Higher royalties, he added, would likely mean "drastically" lower energy activity in Alberta.

"It's a myth out there that this is a hugely profitable business," Mr. Laut said.

The review of royalties, taxes and other levies on the energy industry in Alberta began quietly in April and yesterday saw its busiest day, with a stream of industry executives in the corporate capital of Calgary complaining that they already pay too much to governments.

The main counterargument came from the Pembina Institute, an independent research group that argued royalties on oil sands production could be doubled even as corporate profits remain reasonable.

The industry's lobby group, however, sees the situation much differently.

Alberta's target for revenues from the oil and natural gas business is too high, according to the Canadian Association of Petroleum Producers. The province aims to get between 20 and 25 per cent of energy revenue each year. Royalties hovered around $10-billion in the past year, but the actual government take has sunk to 19 per cent from nearly 25 per cent earlier in 1999-2001.

Greg Stringham, a vice-president of the oil producers' association, said the target should be lowered, to reflect the decline in Alberta's conventional oil and gas production, as well as the challenges to produce crude from the oil sands.

Brian Schmidt, president of Apache Canada Ltd., focused on royalties on conventional oil and gas, which he described as a difficult business. Apache is a large oil and gas producer in Alberta. Mr. Schmidt said that if royalties on conventional production were to rise, Apache would have to consider leaving Canada.

Tom Hewitt, head of family-owned Hewitt Oil Ltd., said the uncertainty over royalties has already caused him to look beyond Alberta for opportunities.

He was scheduled to travel to Montana later yesterday to assess an investment possibility, he told the panel.

A six-member panel is touring Alberta to determine if Alberta is receiving its fair share.

The Calgary stop continues today, with a few more meetings elsewhere in June. A final report is due in late August.

The key issue is what oil sands producers pay.

Pierre Alvarez, president of CAPP, told the panel that the oil sands regime still works well, even if it was created a decade ago when oil prices were far lower. Mr. Alvarez said costs have risen as fast or faster than commodity prices.

The Pembina Institute said it still hopes that the government will consider higher royalties in the oil sands.

Industry has estimated that they pay about 50 per cent of net revenues from the oil sands to various levels of government, which includes a 25-per-cent royalty payment to Alberta after costs of construction are recovered.