There has been recent chatter in the media that this is in fact the best time for Alberta to conduct a royalty review. The logic goes that because oil and gas prices are so slow, the NDP will be forced to remain in check and not do anything too drastic.
The argument, however, misses the larger point at play. What the royalty review is in fact doing is creating unwelcome uncertainty the industry does not need. With so much uncertainty being caused by price volatility, why add more with the potential for royalty rate changes?
Oil industry advocates are adamant that the timing for the review is just not right. Tim McMillan, President of the Canadian Association for Petroleum Producers has been quoted as saying “I don’t know if an across-the-board raising of royalties is what would serve Alberta best.” Further saying “although the royalty review should move forward, the oil patch is in no shape at the moment to take on additional costs.”
Wildrose Leader Brian Jean maintains that the government should “reverse the corporate tax increase and cancel its royalty review in order to send a calming effect through the marketplace and prevent a further loss of investment in the oil and gas sector.”
RBC analysts recently forecast output from the oil sands will decline by 600,000 bbl from their 2014 forecast. An earlier forecast by the Canadian Association of Petroleum Producers predicts oil sands output will also decrease by a similar number. The reason, of course, for these declines is due to decreased investment in the wake of the commodity price collapse. Does more uncertainty with the potential royalty rate changes help the already dire matter? Not at all.
The best step forward for the NDP is to create and promote a stable jurisdiction that attracts business investment. There are many ways to successfully do this with stability and certainty key factors for economic growth. While prices are so slow, leaving the royalty rates alone is crucial for a more stable jurisdiction.
Imposing increased uncertainty at this troubling time with the strong potential for increased royalty rates is exactly the kind of thing that the oil and gas sector does not need.