NDP to release new energy royalty framework at week’s end – brace yourself for Apocalypse Friday!

Posted on January 28, 2016, 1:36 am
6 mins

PHOTOS: The next Apocalypse is scheduled for Friday morning. There will be an embargoed media briefing first. Below: Alberta Premier Rachel Notley, Wildrose Leader Brian Jean and Royalty Review Advisory Panel Chair Dave Mowat.

Brace yourself for a storm of hostility from many of the usual suspects on Friday when Premier Rachel Notley finally releases the province’s new royalty framework, based on the report and recommendations of the Royalty Review Advisory Panel headed by Dave Mowat, CEO of Crown-owned ATB Financial.

The panel was announced last June by Energy Minister Margaret McCuaig-Boyd, not quite two months after the election of a New Democratic Party majority government, in fulfillment of an election promise.

NotleySince then, the Wildrose Opposition led by Brian Jean has fought a bitter rear-guard action against the idea of any change to Alberta’s royalty structure, pointing to the sagging state of the economy as justification. In this, it would be fair to say Mr. Jean enjoys considerable support from panicked oilpatch workers facing the prospect of layoffs in the volatile energy sector.

At the same time, there will be considerable pressure on the Notley Government from its supporters to follow through at least with a structure for oil royalties that can increase when oil prices rise again.

The debate will likely be framed by the government as an imperative need to think about how to run the province and its principal industry in the next decade, as opposed to the way we did it in the last one. As Mr. Mowat has stated during the review process: “It’s just a different world now.” And so it would seem to be!

The discourse, I suspect, will be framed by the opposition with the notion that if we only leave everything alone and persist in doing things the way we did in the past, everything will be perfect again. Indeed, I wouldn’t be surprised if the Opposition Party is composing an angry press release saying just that as this post is written.

As such, the framework to be released Friday – after which we’ll all have a nice weekend to scream at each other about it – will be both a technical and a political document of considerable importance.

JeanA lot will hinge on the government’s success persuading Albertans the approach set out in the framework will yield benefits, and the possibility is very strong it could be the central issue in the debate about the political and economic future of Alberta right through to the next general election in May 2019.

The tone of the initial commentary in Wildrose circles is likely to be loud, and very strident. Some of the more extreme elements among the Wildrose Party’s support network, including an operative for Ezra Levant’s so-called Rebel Media, have already labeled Mr. Mowat a handpicked stooge of environmentalist and former U.S. Presidential candidate Al Gore whose job is “to spread the global warming religion.”

Some of the other members of the panel – Beaverlodge Mayor Leona Hanson, energy economist Peter Tertzakian and University of Winnipeg President Annette Trimbee – have been subject to some of the same sort of bizarre conspiracy theorizing among elements of the Rosers’ substantial lunatic fringe.

That does not mean decision-makers in the oilpatch will react with the same fury, however.

As has been suggested here before, while the top dogs in the patch keep the pressure on the Notley Government not to raise royalties too much, they’re almost certainly privately relieved the review took place while oil prices were low and they could make a plausible argument royalties should not be increased too much.

MowatA technical briefing for media will be held in Calgary on Friday morning, followed by an embargoed news conference with Mr. Mowat, which is a new one to me. There will then be a traditional news conference with Premier Notley, after which the news will start hitting the airwaves around noon.

Meanwhile, until that apocalyptic moment, we can focus on the federal government’s announcement of interim principles for reviewing Canadian energy infrastructure projects, also a controversial topic in Alberta.

Environment Minister Shannon Phillips found the federal glass half full. “We have made very little progress in that direction under the former federal government’s rules,” she said in a statement yesterday. “If these new rules will allow the issues to be heard and then to get to a decision, then they will have helped the process. We are pleased to hear that no existing projects will have to go back to Square One of their review process. A regulatory reset would have added years to this work.”

Mr. Jean, predictably, found it half empty. “This announcement of more red tape and more delays, specifically around Energy East and Kinder Morgan’s Trans Mountain pipeline expansion, is disappointing.”

Until Friday, then…

This post also appears on Rabble.ca.

12 Comments to: NDP to release new energy royalty framework at week’s end – brace yourself for Apocalypse Friday!

  1. Sam Gunsch

    January 28th, 2016

    Will the Royalty panel find a formula to get back to Lougheed era royalties?

    Below…An AB economist went to some effort to set out AB’s royalty history under conservative gov’ts, in a post last April before PCs got the boot.

    http://www.anielski.com/alberta-continues-to-have-a-revenue-problem/

    royalty averages:
    Socreds – 17.8%
    Lougheed – 27% ( a peak of 37.7% when oil was at $14/bbl in ’77, & did the sky fall?)
    Klein – 15.2% ( return to market fundamentalism = corporate kiss ass )
    Redford – 9.1% ( banana republic insanity = BigOil’s $$$$ for WRPs ‘hit’ on Stelmach’s royalty review…paid for
    D. Smith’s coming out ball, remember? )

    So… kind of obvious… AB conservatives before and since Lougheed gave us ‘business governments’ that mostly sold off public resources/treasury at fire sale prices…the AB fossil fuel lottery/farm has been pocketed mostly by Big Oil.

    We, the owners, AB citizens, have been ripped off for 3 decades now by conservative policies/dogma preaching the private sector can do no wrong, and deserves to be gifted our non-renewable resources so we don’t freeze in the dark or something…

    Norway has saved nearly a TRILLION $$$, btw… they actually implemented Lougheed’s Trust Fund idea. And AB saved crumbs. Must be those Socialist vikings just got lucky, eh?

    ==================
    Long version…

    Alberta continues to have a revenue problem
    Posted on April 9, 2015 by Mark Anielski

    http://www.anielski.com/alberta-continues-to-have-a-revenue-problem/

    excerpt: ‘Socred era (1962-1971) AB collected avg. 17.8% of value of oil and gas…when oil prices averaged $3.15 per barrel.

    …Lougheed’s tenure (1971-1985) an average of 27.0% … oil averaged US$20.52 per barrel.

    …1977… peak in royalty collections reaching 37.7% …oil…trading at US$14 per barrel.

    …Ralph Klein’s tenure (1992-2006)…average 15.2% …collected in net royalties…prices averaged US$25.52 per barrel.

    Under Premier Alison Redford the lowest royalty return on oil and gas produced in Alberta’s history was reached in 2012 with a mere 9.1% of the value of Alberta’s oil and gas sales collected. This was at a time when oil was trading at record highs of US$92 per barrel and the total value of oil and gas production was $83.6 billion.’
    ================================

    excerpt: ‘The historical evidence shows that despite enormous market growth, the percentage of total revenue getting kicked back to the Alberta Government has been decreasing since the peak in royalty collection in 1977-1979 under Peter Lougheed. This decline is in part owing to the updated oilsands royalty regime of 1997. This generous royalty regime requires oilsands producers to pay a base production royalty of only 1% of oil and gas production revenues while granting a capital cost allowance or write off of close to 100% of new oilsands capital investment, against total revenue. This generous oilsands royalty regime has actually resulted in a significant 300% inflation in operating and capital costs per barrel of oilsands production between 1997 and 2012 (or 11.2% per annum increase). What was originally rationalized by economists as necessary to stimulate capital investment in Alberta’s oilsands may have actually done Albertans a disservice resulting in real inflation throughout the economy.’

    Reply
  2. political ranger

    January 28th, 2016

    so, the koolaid is now mother’s milk in these parts

    The feds have already said that their main goal is to find a regulatory mechanism that will permit the approval of the pipelines. A classic case of stating the conclusion and then, somehow, some way, cobbling together the facts, the fictions, the assumptions and the storyline to support that conclusion.

    Notley has already promised that there will be no increase in expense to the poor beleaguered and hard-done-by petro industry as a result of the royalty review. Another case of stating a conclusion and then spinning a media yarn to support it; by the way, this is the tried and true, and singular methodology for developing legislation in this jurisdiction for the last 35 years. Absolutely no difference from the Klien government.

    The simple fact is that these are multi-billion dollar projects. Nobody builds these with cash on hand. This money is borrowed, in one form or another, to be paid back out of operating revenues over a 25 to 40 year time frame.
    These gov’ts, the Trudeau Liberals and the Notley NDP, have also promised a 30% reduction in GHG production in their respective jurisdictions by 2030; 15 years from today. They have promised a zero-net-emissions policy goal for the second half of the century; only 35 years from today. This means less petro-production, not more.

    The logical inconsistency, the cognitive dissonance of desperately supporting and subsidizing the continued development of a dirty, toxic and corrupt industry while talking about reducing and eliminating the pollution of that same industry is astonishing. Absolutely breath-taking!

    At least the mouth-breathers and nut-jobs are too simple to try and spin this as something good for all of us; they are simply greedy and simply satisfied with more of the same. What these delusions say about the so-called progressives … well, I’m not so sure.

    Reply
  3. Chris

    January 28th, 2016

    My guess is that the royalty regime will not change very much. World oil prices (uncontrollable by the NDP) and punitive government policy (entirely controlled by the NDP) have together destroyed large swathes of Alberta’s oil patch, too quickly for the government’s liking. They were hoping to kill off the industry over about 20 years, giving the economy time to evolve, and slowly driving out conservative-minded voters. But the industry will be largely dead in three years at the rate things are moving. No government, of any stripe, has ever survived in power after such a huge economic shock (losing one-third of your economy and putting 400,000 to 500,000 people out of work.). Spain, Portugal, Greece, Newfoundland, United Kingdom. I think there will be a large amount of underwhelmed left-wingers this weekend. Any friendly wagers, Dave?

    Reply
    • David Climenhaga

      January 28th, 2016

      I wouldn’t bet against your political assessment if your job loss predictions were right, but I think your job loss predictions are wildly pessimistic. Nor do I think the NDP is trying to destroy the oil industry. Nor do I think Denis Coderre is trying to “stick it to Alberta.” Can the NDP get re-elected? As Zhou Enlai told Henry Kissinger when Dr. Kissinger asked him what he made of the French Revolution … “It’s too soon to tell.”

      Reply
      • Chris

        January 30th, 2016

        We have already lost about 55,000 to 65,000 jobs at publicly-traded energy companies (those firms that, by law, have to report material changes to their businesses like layoffs). Multiply that by two or three to get about 140,000 job losses already (if you include private corporations that do trucking, camp work, consulting, seismic data collection, and all other ancillary oil-patch functions.) Now keep these oil prices low for another two years and we start to add in layoffs in restaurants, hotels, retail and we will get close to half a million out of work.

        You need to visit Cold Lake and Lloydminster and Edson to currently see the desperation out there. Government employees in central Edmonton and the retail and service sector that depend on them have NOT YET been exposed to this malaise. I suspect that will change in the weeks and months ahead once personal life savings evaporate and EI cheques stop flowing.

        Reply
  4. David

    January 28th, 2016

    I think the 0 key must be stuck on someone’s computer today. I am fairly sure I read somewhere recently there were 40,000 jobs lost in Alberta due the decline of the price of oil not 400,000.

    I am not sure what mentioning Spain, Portugal and Greece has to do with the topic of oil royalties. Unfortunately, I don’t think any of those countries have much oil. Last I heard the United Kingdom was doing ok. I am not so sure about Newfoundland, but I don’t think their troubles have anything to do with changes in oil royalties – more to do with the low price of oil, just like most oil producing jurisdictions.

    However, I suppose 400,000 job losses sounds more apocalyptic, at least keeping with the theme here.

    Reply
    • Chris

      January 30th, 2016

      Not yet. We have suffered “only” 15 months of these low energy market prices. Come back in three years and see how the economy is doing if prices do not improve. Please re-read my comment, slowly if you have to, to properly comprehend what I was saying. Sorry for my snarkiness.

      Reply
    • Chris

      January 30th, 2016

      As for those other countries, I was referring to the fact that they have all undergone calamitous economic downturns in recent years, and decades, and not one government survived in power with such momentous change. For that I apologize for not being clearer.

      Reply
    • Athabascan

      February 1st, 2016

      I agree David.

      Anytime now that number will be 40,000,000, if you believe the “kudatah” crowd egged on by the Wildrose (aka tea baggers) party.

      Statscan came out with a number of 19,000 a few weeks back.

      Reply
  5. Gail

    January 29th, 2016

    So the review is out and nothing has changed. Royalties are a % so they response to the world price. There’s no reason not to raise it a couple %. At this point I’m starting to wonder how the Stelmach royalty review apparently was stronger than the NDP one.

    Reply
  6. jerrymacgp

    January 29th, 2016

    I’m heartily disappointed in the royalty review. The Notley NDP government fell for Big Oil’s sob stories, hook, line & sinker. They should have brought in a plan to implement a 33.3% royalty, based on the wellhead price of the resource, perhaps phased in over three years. So, for $30/bbl oil, the royalty would be $10; if the price rallies to $90/bbl, the royalty goes up to $30. Producer costs would be deducted from revenues for corporate income tax purposes, not from royalties. Smaller players, like one & and two- truck well service operations, can be protected through targeted tax measures.

    The NDP has a four-year majority mandate; they should have had the courage to do the right thing, and damn the slings & arrows coming from their right wing. Now, though, when the price of oil does come up again in a year or 18 months, once again the industry will make out like bandits, while we will still have a revenue problem and an enormous infrastructure deficit left over from the PC years.

    This is not what I’ve been giving $240 a year for the past 10-15 years for…

    Reply

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