October 26, 2007 at 1:10 pm #3902
Alberta to Raise Oil, Natural-Gas Royalties From 2009 (Update3)
By Ian McKinnon and Sonja Franklin
Oct. 25, 2007 (Bloomberg) — Alberta, which supplies about 10 percent of U.S. oil needs, will boost oil and natural-gas royalties starting in 2009. It won’t implement a proposed new tax on oil-sands developments.
Royalties for oil sands, or the amount the government charges to extract natural resources, will increase to as much as 9 percent before companies recover their investments, up from 1 percent, the provincial government said today in a statement. The rate after costs are recovered will rise to as much as 40 percent, up from 25 percent.
All planned royalty increases combined will raise an extra C$1.4 billion ($1.45 billion) in revenue in 2010, the government said. The changes will be effective January 2009, and there will be no exemptions for existing projects.
The government’s action “is falling on the side of a negative reaction” for energy stocks, said Greg Eckel, who helps manage the equivalent of about $1.4 billion at Toronto- based Morgan Meighen & Associates, including shares of Canadian Natural Resources Ltd. and Husky Energy Inc.
A government-appointed panel last month recommended Alberta increase oil and gas royalties and implement a new tax on tar- sands developments to boost government revenue by 20 percent, or about C$2 billion annually.
The royalty increase will ensure all Albertans receive their share from a boom in projects to extract crude from Alberta’s tar sands, Premier Ed Stelmach said during a press conference in Calgary. The projects have been spurred by high oil prices, which traded about $90 a barrel today in New York.
“Oil sands are Alberta’s future, so we need to do more,” he said. “In the future, the more valuable this resource becomes, the more Albertans will receive.”
Producers will cancel projects and move capital to other regions because of the new policy, said John Dielwart, chief executive of Calgary-based ARC Energy Trust, which produces oil and gas.
The government “will never see anything close to the C$1.4 billion in incremental revenue they are counting on because of all the negative implications of what they have done,” he said in a telephone interview. “This was a political decision to appease the public to get re-elected.”
ARC may shift some spending over time to the neighboring provinces of British Columbia and Saskatchewan, Dielwart said. The trust forecasts spending this year at C$350 million.
Joint venture Syncrude Canada Ltd. and Suncor Energy Inc., the two largest oil-sands producers in the world, have royalty agreements that expire in 2016. The two companies must agree to switch to the new fiscal system or “the government will take other measures” to ensure all oil-sands companies operate under the same rules, the document said.
Stelmach declined to specify how Alberta might get the two producers to change their agreements. Calgary-based Suncor and Syncrude, which is led by Canadian Oil Sands Trust of Calgary, account for about half of Alberta’s oil-sands output, according to the royalty panel’s report.
“At the end of the day, there will be certainty and predictability” for the shareholders of Suncor and Syncrude if the companies change their agreements, he said.
Suncor spokeswoman Darcie Park and Canadian Oil Sands spokeswoman Siren Fisekci said their companies needed more time to assess the impact of the government’s action. Suncor shares fell $5.65, or 5.3 percent, to $100.50 in extended trading.
The new royalties will slow activity, though they won’t cripple Alberta’s oil-sands industry, said Peter Linder, an energy analyst and senior adviser with Calgary-based DeltaOne Energy Fund. About C$149 billion in oil-sands projects are planned for the province, according to information from the government.
“We’ll see $100 oil imminently,” he said in a telephone interview. “Let’s face it, with $100 oil, oil-sands development an take a higher royalty structure.”
Alberta’s share of oil-sands revenue will vary from 56 to 66 percent, depending on prices, the government said. The panel’s suggestions would have boosted the government’s share of oil-sands revenue to 64 percent.
The government’s share of gas royalties will rise to 60 percent, up 2 percentage points from current levels. The panel recommended boosting the rate to 63 percent.
Alberta’s take from oil wells will climb the 5 percentage points suggested by the panel and rise to 49 percent.
Government revenue from gas wells will increase by an estimated C$470 million in 2010, or about 64 percent of the increased payments suggested by the panel, according to a government document. The higher oil-sands rates will also add an estimated C$470 million, or about 70 percent of the increase outlined by the panel.
Royalties from oil and gas production and the sale of drilling permits on provincially owned mineral rights are forecast to total C$10.5 billion this year, about a third of the province’s forecast spending of C$33.1 billion, according to the government’s Web site
Alberta’s oil sands, about 750 kilometers (466 miles) north of Calgary, are estimated to contain 175 billion barrels of recoverable oil, second only to Saudi Arabia’s 259 billion barrels, according to the Canadian Association of Petroleum Producers.
To contact the reporters on this story: Ian McKinnon in Calgary at email@example.com ; Sonja Franklin in Calgary at firstname.lastname@example.org Last Updated: October 25, 2007 20:30 EDT
October 26, 2007 at 1:36 pm #7208
Alberta raising Oil/NG Royalties after 2009 from 1% to 9% before investment payout & 25-40% after investment recovery = Proving once again that US does not have sole ownership of Government stupidity = Canada, Europe & rest of the world have their fair share as well. As the article indicates this was pure political play – to get public appeasment & get re-elected – it doesnt stand chance to pick up the $1.4-$2 billion in incremental revenue (due response reactions it is likely to set in motion). An action like this will only cripple projects and cause them to cancel or move to one other regions. (A Tax proposal that was going to be implemented with Royalty change has already been cancled.)
This political “plan” does not exempt Canadian producers Suncor & Syncrude that are worlds largest Oil Sands producers and even though their Royalty agreements don’t expire 2016, pressure to have them adopt the new rates early (or face worse ones?) is already being applied.
Alberta already has 56-66% (depends on oil price) of the Oil Sands Revenue and this panel’s proposed plans change that to 64%+…… but stock prices reactions for OS producers are already in freefall & the plan has lot negative feedback <Greed on this level seldom works long term>.
But this does put a question mark around Alberta Upgrader & Coker expansions as well as the US Refinery Coker expansions that were to use the Synthetic /Blended Bitumen crudes.
December 19, 2007 at 10:36 am #7129
Here is link to Nov 16, 2007 article about the new Alberta Royalty Structure = http://www.stikeman.com/cps/rde/xchg/se-en/hs.xsl/10381.htm
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