PHOTOS: Beach metaphors, Alberta style. What happens when the tide goes out may not be pretty! Below: PC Premiers Jim Prentice and Peter Lougheed.

At this rare moment in history when Alberta’s provincial government actually seems prepared to concede for the first time in memory there is a revenue side as well as a spending side to its periodic budgeting difficulties, we also need to ask why we seem to be giving away our oil and natural gas.

That is, despite the useful discussion Premier Jim Prentice has unexpectedly encouraged about adoption of a sales tax and a progressive income tax, we also need to consider how much we should charge corporations to extract non-renewable resources that belong to all of us.

Because as of right now, it appears to be nothing!

As the price per barrel of oil has dropped, forcing the government to ratchet down its short- and mid-term royalty revenue predictions, mainstream media tended to concentrate on the size of the 2015 budget deficit forecast as a result, and the time over which Alberta could expect to run deficits.

Mr. Prentice was widely quoted saying this has resulted in “the most serious fiscal circumstance we’ve seen in a generation in this province,” as he and his new Wildrose caucus colleagues seemed to prepare us for another application of the Shock Doctrine in the form of “necessary” cuts to public spending.

“Things have turned so dramatically that we’ve gone from a $1.5-billion surplus in November to what looks like a $500-million deficit based on today’s projections,” Mr. Prentice told the Canadian Press last week. As if that weren’t alarming enough, he said in the same story, this deficit situation could persist until 2018.

As is now almost universally known throughout the province, oil has been trading below $50 US per barrel for a week, and the prognostications about prices remaining low are almost universally gloomy, notwithstanding a market rally yesterday.

So Mr. Prentice told reporters during a conference call yesterday that while he still doesn’t support a sales tax or other tax increases, it is time for Albertans who do to make their case: “Now is the time for them to speak their mind.”

Well, OK, I’m sure they will.

But dig a little deeper into the Jan. 8 CP story and you’ll come across an interesting comment by Mr. Prentice. “If oil prices persist at sub-$50 per barrel, we essentially have no oil revenue, and it opens up a revenue hole in Alberta’s finances that approaches $10 billion,” he stated.

Let’s repeat that, slowly: “If oil prices persist at sub-$50 per barrel, we essentially have no oil revenue …”

Seriously? Does this mean we’re about to start giving away Alberta’s petroleum resources?

Or, more to the point, since the people who are taking away Alberta’s resources will be leaving behind a mess for our children and grandchildren to clean up, does this mean we are actually planning to pay them to take our valuable oil out of the ground?

Memories are short in mainstream media, but oil has been in the $50 range before, and not that long ago. Most recently, from highs well above $100 before the bubble burst in 2008, West Texas Intermediate plunged, bottoming out at just over $30 per barrel in December 2008.

In 2003, oil averaged $49.82 per barrel (in 2014 dollars) and natural gas was $8.57 per thousand cubic feet, according to the Parkland Institute.

Excluding production from bitumen sands, Alberta then produced more than $61 billion worth of oil and gas, yet received more than $10 billion in royalties. (Note the similarity to size of the budget hole Mr. Prentice is warning us about.) Alberta also produced more than $15 billion in bitumen but received only $369 million in royalties.

There were royalty cuts in 2008, 2009 and 2010. As a result, the Parkland Institute predicted in a 2012 update to its calculations, the government would forego another $55 billion over the next three years.

If PC premier Peter Lougheed’s 1970s target of capturing 35 per cent of the revenue from oil and gas had prevailed until 2010, Parkland noted, “Alberta would have collected an extra $195 billion in revenue. … Even by just capturing 25 per cent of tar sands revenues, we would have received an extra $33 billion” between 2000 and 2012.

But thanks to horizontal drilling and bitumen extraction royalty holidays, conventional oil activity is nowadays often paying only 5 per cent, and in many cases bitumen extraction is still fetching as little as 1 per cent.

“That is all money that has gone directly from serving the public interest to serving the bottom lines of huge oil and gas corporations,” the institute argued in a 2012 press release.

Since then, judging from Mr. Prentice’s recent statement, we are now about to progress to receiving nothing at all!

Of course, getting nothing for our oil may be an entirely satisfactory situation as far as Mr. Prentice’s Progressive Conservative-Wildrose Coalition is concerned.

The government’s only goal may be to be to maximize activity by the drilling industry and put money in the pockets of shareholders, many of them outside the country. What budget improvements we realize from that would come through the so-called “flat tax,” which places the burden of running the province on middle- and lower-income Albertans.

Unlike almost every other government on the planet, the Prentice government makes no effort to maximize returns from resources to citizens.

The CP story sums up the government’s response to situation like this: “The premier said they are now looking at a combination of three options: reducing expenditures, increasing revenue, and dipping into the $5-billion contingency fund. He said they’ll use the contingency fund to cover off this year’s deficit but otherwise everything is on the table.”

Well, perhaps everything really is on the table now, and, if so, good for Mr. Prentice for going that far. Albertans certainly need to adopt measures to respond to inevitable volatility in the oil market that include a return to a progressive income tax and possibly even adoption of a sales tax like every other Canadian province.

Even the Prentice Government now concedes the widely acknowledged fact Alberta would capture almost $12 billion more in revenue simply by adjusting taxes to match the second-lowest provincial tax jurisdiction in Canada.

But that reality notwithstanding, surely we should not just be giving away the people’s non-renewable resources!

As a friend of mine puts it, the latest drop in oil prices has revealed that “the tide is out and Alberta is naked from the waist down…” It is not an edifying sight.

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  1. It will go beyond 2018. He was just mouthing popular dates!
    Oil shippers are putting their oil into tankers; there is no market. They are taking out 1 and 2 year leases on the tankers with options for longer periods.

    Alberta is loading its oil into tank cars; where is it going? How much are we paying for demurrage?

    The same shippers are saying this is better than 2008 because there are a lot more tankers!

    This storage creates a glut like no other. In 2008 the USA bought up the tanker storage oil and topped up its reserves. It doesn’t have to do that now; they are topped up from their own production.

    Lets consider: 3 years in storage in tankers plus at least 5 years from there before production is needed, minimum.

    Nothing short of a world war is going to change these dynamics.

    1. When Ralph Klein came into office our royalty take was 32% When he left office it was 16%. This was only divulged when auditor Fred Dunn chided them saying they were not collecting the 19% they said they were, The Conservatives started a hate Fred Dunn campaign which you may remember, cutting his budget to a point he could hardly open the doors! Next we heard was from Ron Liepert who said our royalty is now 6% and will be that way for 5 years. It was reduced to zero almost immediately. Loss to Alberta Treasury? I would place it at 3 billion dollars.

      Shortly after Stelmach put out an “official royalty revamp” or similar. Impossible numbers on it. It was put out on the eve of an election in answer to my consist badgering on the net about royalty and the lack of them. Bottom of the page in 6pt print was “These figures are taken in Canadian dollars” that was a loss of 18% at that point in time.

      For the past 9 years they have been discounting our oil 30% using either WTI or BRENT which ever was the lowest.
      This was Conservative policies, not competition. Lost to Alberta Treasury? I would place it at 4 trillion dollars!

      Norway on the other hand has a similar revenue flow and has hundreds of billions of dollars in the bank. This was all done by a socialist Government! Every adult is guaranteed a university education free of charge. They have an economy of scale. A hamburger will cost you 50.00. The person serving it to you is making 100,000 dollars and McDonalds is pulling it all together as are any number of smaller businesses. Oil money is kept off shore and the country runs itself on income taxes collected,

      Norwegians turn out 70% of the population for every vote; they keep their Governments honest. Alberta Conservatives got in with a 23% of the popular vote and they will do it again if people do not turn out to vote!

      I will be; am supporting Raj Sherman and his team, the Alberta Liberals. And, I vote every time!

  2. Andrew Leach, the Endbridge Professor of Energy Policy at the University of Alberta has an interesting blog post where, in describing Alberta’s oil and gas royalty regime, he claims that rents required from industry to use Alberta resources are paid back to the province via jobs. To my mind, that is like someone opening a lemonade stand on your front lawn, then claiming that instead of compensating you for your trouble, he will let you work for him (at least as long as the local lemonade market stays healthy, after which you are on your own…and pick up those lemon rinds when I go, would you?).

    1. You are so right! We are now delving into basic political dogma. In the Conservative world the oil belongs to the oil companies we as a province are entitled only to the income taxes and various licensing fees that are derived from the employment.

      The Liberals on the other hand have the same demands on industry as do the Conservatives but the Liberals depend more on the people to make things work. Under Liberal Governments there is generally marginally more taxes but this is used to provide a social program which does not come free.

      Industry very often chooses the former citing the high taxation out of proportion to what actually is. This was their reasoning in liquidating the Heritage Trust fund, It was afterall Oil money that built it (Their thoughts not mine)

      I want to digress here somewhat.
      Liberal hatred in Alberta came over the US dominated oil patch of the day putting up a huge hate Liberal campaign in the absence of internet discourse like this site. Trudeau and Laugheed agreed there had to be a greater Canadian ownership of the vast resource so the signed the NEB program. As long as it lasted it managed to move Canadian ownership from 15 to 25%.

      Trudeau was epitomized by the picture on the train platform giving reporters the finger. Here was a hord is the proper world of reporters after him on the NEB. They had bought in totally to the US spin. Their taunts were lewd and very rude to he flipped them the digit.

      This tiny action was billed as Trudeau giving Alberta the finger and it ran for 4 years after the event adding to the Liberal poison. This put us in the hands of the Conservatives and the US domination again in the oil patch.

      Then on the Federal Level the poison and megabucks of the Conservatives went to work again. Paul Martin took over from Mulroney. The IMF had teeth in those days; not so much now. They told Martin they would degrade our rating as a country if he did not get the debt under control.

      #Martin went where the money was to get the cash to pay off the horrendous #Conservative debt. He cut transfer payments, He took the #surplus out of the EI program of the day he raised taxes in general and these items targeted the Federal Liberals as being bandits representing higher taxation.

      Throughout all this I have continued to support the Liberals and I will support #Raj Sherman and his team this time around too!

      The bottom line is if you do not vote you get no change and yes, because of voter apathy in Canada exploited by the Conservatives it can happen all over again.

  3. Before Parkland summarized the petro-industry & PC’s rip-off of Albertans resource wealth, here is Lougheed’s minister Allan Warrack… ‘a key player when the province famously revamped the royalty regime and set up the arm’s length oil wealth fund to benefit future generations.’


    “Since time immemorial, the use of other people’s property has been on a two thirds, one
    third split,” said Warrack. “The owner gets a third and the operator gets two thirds… If you interpret that in terms of oil or natural gas or oil sands, there should be a third of the value to the owners and in the case of oil sands that is 100 per cent owned by the public.”

    The royalty rate collected on oil sands projects before “payout” is currently one per cent, which according to Warrack is so low it is “like a rounding error from zero.”
    In other words: ‘PM’s favourite province squandered its petro profits like a ‘banana republic.’ ‘



    excerpt: ‘Albertans get a tenth of what Norwegians get from the sale of their non-renewables. Since the public owns those resources, this amounts to a form of theft.’

    Reality of AB corporatist politics since Getty:

    a veneer of democracy to cover over this ‘theft’ by AB’s petro-plutocracy in their joint-venture management of AB with the provincial PC’s (and now for 9 years of Con by Harper.)

  4. In Alberta, where we have an oligarchy, the voice of the people is often drowned out by the sound of business interests. We have been giving away our resources to multinationals for decades and the cut in royalty rates “until they have covered all of their costs” will turn into a permanent tax holiday. Where other oil rich countries have pinched their pennies and fattened their bank accounts, Alberta has never believed in saving for a rainy day. For the last 5 years we have had Premier after Premier touting the shortage of skilled labour and the need for temporary foreign workers while our own citizens have gone begging. Costs of living goes through the roof but the wages are stagnant and regressive. The only people actually making money are business owners and politicians, while the rest of us struggle to make it to the end of the month before the end of the money. We have rewarded business people with tax holidays, but our regressive tax system bites hard on the middle class. When you add the taxing in the form of utility rates and user fees we far outstrip the benefits that other provinces collect from sales tax, and when you add property taxes to that you have a population that are actually working for the government with little left over for their own expenses. The $100 barrel of oil was for a extremely short time, but governments are all about expediency and propaganda so they just leap on the falling oil prices as an excuse why they are not sound financial stewards of our money and resources so again they blame the citizens for the current problems and now they are looking to slash and burn again. No thought to steering the ship, lets just all jump overboard and hope the lifeboat can hold us. The deal of the oil and gas industry to provide for the citizenry has been smoke and mirrors and the loss of royalty money has not resulted in employment and trickle down as this government always assures us. The money is fueling other countries and the trickle down is happening far outside of Canada’s borders, while our government continuously looks for ways to sell us out. The pipeline to the US and Asia will result in more work for non citizens of our country, and we will have to buy back our own resources at the “going rate” but who will be able to afford it? Maybe business owners and politicians, because the citizens don’t matter.

  5. Petro-industry resources:

    ‘…they’re big enough that you can buy off politicians.’


    “Fossil fuels really do create a hyper-stratified economy…

    “It’s the nature of the resources that they are concentrated, and you need a huge amount of infrastructure to get them out and to transport them. And that lends itself to huge profits and they’re big enough that you can buy off politicians.”

    Sam Gunsch

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