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Alberta finance minister feeling nervous about energy royalty review

Alberta finance minister feeling nervous about energy royalty review
Published: Wednesday, May 30, 2007 | 9:31 PM ET
Canadian Press: JIM MACDONALD

EDMONTON (CP) - With many Albertans feeling left in the dust by the current energy boom, Finance Minister Lyle Oberg says he's nervous about an ongoing review of billions of dollars in annual resource royalties.

Oberg concedes it's the kind of issue a government can get beaten over the head with, especially if voters don't have confidence in the way the review is handled.

"I think for Albertans this is a huge issue," Oberg told The Canadian Press. "This is where we receive a lot of our income from - up to $10 billion a year comes from oil and gas revenues - so we have to make sure that we get the right amount."

The Progressive Conservative finance minister also acknowledges that many Albertans are in a bad mood over higher rents, lack of affordable housing and soaring fuel costs.

"Any time there's a grumpy electorate, that's a political concern," he said. "I'm very nervous about it. There is a line that we have to walk between Albertans getting their fair share versus keeping economic activity going."

Reports suggesting that Oberg and Energy Minister Mel Knight won't make any substantive changes to royalties are also dogging public hearings.

But Knight insists the government is not taking sides or trying to anticipate the outcome of the review.

"This is a very serious piece of business. This is not a charade," said Knight. "We will look at the results of the report and make government policy."

Energy companies have been building a case at the hearings to keep royalty rates low in light of rising costs for labour and construction, especially for a growing list of massive oilsands projects now in the works in northern Alberta.

"When we're looking at potential changes to the oilsands royalty regime, we believe that it's working exactly the way it was designed to do to give the right economic balance," said Greg Stringham, a vice-president with the Canadian Association of Petroleum Producers.

"Sometimes Alaska and Norway are thrown out as examples with higher royalty rates, but in Norway they invest in the projects themselves as a government," he said. "So you've got to put all the pieces together from the other jurisdictions."

But consumer groups and opposition parties say Alberta's royalties are far too low compared with other oil-producing nations. They also say energy companies can afford to pay more on the strength of record profits in recent years.

"The public is really concerned that we're not getting fair value for the oil and gas that we're selling," said Liberal Leader Kevin Taft.

Knight doesn't see the issue as having a high priority for Albertans.

"To be very honest, when I'm out and about and talking to people, if it's people that are not directly involved in the energy industry, it's not even (mentioned)."

Taft disagrees. He said he's hearing plenty of talk from all corners.

"Everywhere I go people are concerned about royalties. It comes up spontaneously in coffee shops or door-knocking during election campaigns," he said. "This is high on the political radar and it's something that will hurt the government if they don't do something about it."

Alberta has a broad range of royalty rates, including a holiday for oilsands companies that allows them to recoup startup costs before they pay the full amount. The different rates, however, are supposed to average out to between 20 and 25 per cent of the industry's net operating income.

The Tories aren't even meeting their own target, said Taft"They're now down to 19, 18 or at times even 17 per cent and that tells you how soft they are on this."

A leading Alberta economist says the province's royalties are out of date, given the huge increases in energy prices. Paul Boothe, a professor at the University of Alberta, says the royalty structure needs to be changed to deal with oil prices in the $60 to $70 per barrel range.

"This royalty regime was not designed for these prices and so it makes sense to be open to significant changes in the regime," said Boothe.

But energy analyst Peter Linder with DeltaOne Capital in Calgary says the current royalty structure is fair and balanced. He suggests major changes could force energy companies to curb investments in Alberta.

"I think the current system, you might tweak it, but it works, so leave it alone," said Linder. "If there should be fine-tuning to make it a little bit more equitable, then do it. But you don't want to kill the golden goose here."

The royalty review has reached its half-way point, but a critical hearing is to be held Monday in Fort McMurray, the city at the heart of Alberta's oilsands development.

As well, energy industry groups are poised to release new oilsands royalty projections and a new report on conventional oil and gas next week.

Bill Hunter, chairman of the government-appointed review panel, said it will spend the summer analyzing what it has heard at hearings and in written submissions.

Hunter is giving no hints as to what might result, but he says he was surprised by the emotion and intensity of some of the presentations.

"I was overwhelmed at how passionate some of the people were for their various causes."
© The Canadian Press, 2007

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