CALGARY – Alberta oil and gas companies can put together their budgets for next year knowing at least one variable — royalty rates — will stay steady through the end of 2016, Energy Minister Marg McCuaig-Boyd said Friday.
“I talk to owners and workers in the oil industry and gas industry daily and I recognize their concerns,” she said. “They want certainty, particularly given how tough times are in the oil and gas sector right now.”
It’s been a tumultuous time in the oilpatch. Crude prices have dropped from highs above US$107 a barrel in June 2014 to below US$40 a barrel earlier this week, regaining some ground over the past two days to sit around US$45.
Reviewing whether Albertans are getting a fair slice of the province’s oil and gas wealth was a key election promise from the left-leaning NDP, which swept to power in May.
Some have warned against reviewing royalties at a time when thousands of jobs are being cut. Others have argued that if royalties are going to change, it’s best to let industry know as quickly as possible.
McCuaig-Boyd aimed to give businesses some clarity as they make plans for the upcoming winter drilling season.
If royalties are hiked, any incremental revenue will be saved in Alberta’s Heritage Fund.
Also Friday, the province announced three new members joining review chairman Dave Mowat — head of Crown-owned bank ATB Financial — on the panel.
They are: Leona Hanson, mayor of Beaverlodge, Alta., Annette Trimbee, a former Alberta deputy finance minister, and Peter Tertzakian, energy economist at Calgary’s ARC Financial.
Mark Scholz, president of the Canadian Association of Oilwell Drilling Contractors, said he was particularly happy to see Tertzakian picked given “his background and understanding some of those complex issues around royalties.”
Scholz said putting off any potential royalty changes to the end of next year was a “good olive branch to calm some of the uncertainty” — but it doesn’t quell all the concern.
“If we continue to see commodity prices the way they are and the investor climate the way it is in general, I really don’t see that particularly helping. I think activity’s going to be the same if not worse in 2016 as it is in ’15,” he said.
“What is the structure going forward when Alberta sees a recovery? I think that’s going to be the key when we get out of this mess and we see commodity prices come to more economic levels.”
Tim McMillan, president of the Canadian Association of Petroleum Producers, said it’s important royalties be examined within the bigger picture of Alberta’s competitiveness.
The NDP have already raised corporate taxes to 12 per cent from 10 per cent and doubled the carbon levy for large industrial emitters that exceed targets in 2017.
That’s why royalties mustn’t be looked at “in isolation,” said McMillan.
“Raising royalties would add even more costs at a time when new government policies are already reducing the competitiveness of the oil and natural gas industry – Alberta’s No. 1 economic driver and job creator.”
Brian Jean, leader of the Opposition Wildrose Party, welcomed the addition of Tertzakian to the panel. But he said keeping current rates through 2016 is a “minor concession” and the sector is still at risk.
“It’s been NDP policy for years to increase royalties, the finance minister is banking on it, and it would be naive to expect any other outcomes.”
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