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Alberta will review royalties, minister promises

BARRIE McKENNA

Monday, October 29, 2007

WASHINGTON — Alberta Energy Minister Mel Knight has promised to review the province's new oil and gas royalties every five years as he began a U.S. trip aimed at allaying fears the higher rates will kill the investment boom.

“We want to have an opportunity to look in five-year bites to see how we're sitting in terms of the economy and pricing,” Mr. Knight told reporters in Washington after meeting Monday with officials at the White House and the U.S. State and Energy departments.

Alberta Premier Ed Stelmach earned a key endorsement from Peter Lougheed, the revered former Alberta premier, for his decision to make the industry pay more. Mr. Lougheed, who was premier from 1971 to 1985, said it was a “very good” decision that wasn't easy to make.

Mr. Knight pointed out that Alberta has in the past cut royalties when oil prices tumbled and the industry went into recession.

“We've made some very robust changes . . . on the downside, as well as upside of pricing,” Mr. Knight said.

“This thing works both ways. This is not a situation where we're just one-sided here.”

Still, he insisted that Alberta isn't about to start changing its royalty regime every couple of years.

“We feel this is a very solid and robust framework that . . . will last at least a decade, and perhaps longer,” he told reporters at the Canadian embassy in Washington.

Last week, Alberta Premier Premier Ed Stelmach unleashed a torrent of industry criticism after unveiling a royalty increase set to take effect in January, 2009, that will raise about an extra $1.4-billion a year. The province currently collects about $10-billion in revenue from oil and gas producers.

Mr. Knight is slated to meet top oil industry lobbyists and staffers from the Senate energy committee.

Then he heads to New York, where he'll speak Wednesday to members of the Canadian Association of New York. On Thursday, he delivers a speech to New England-Canada Business Council.

He also has private meetings with key energy industry investors and bankers, including Goldman Sachs, Blackrock, Lehman Brothers, GreatPoint Energy Inc. and Fidelity Investments.

On Friday and Saturday, he'll be in Chicago, visiting key refineries that process Alberta oil, including Aux Sable, ExxonMobil, BP and Enbridge.

Mr. Knight acknowledged that the industry and financial markets have “concerns” about the new system.

But he said he's eager to “clarify and fortify” last week's announcement on how the royalty regime will work.

“Canada remains a very stable and secure supply of energy resources for North America,” he insisted. “We wanted to be sure at the earliest possible opportunity that we meet with folks here in Washington and investor groups.

He said the response so far has been “very positive” once people realize the changes won't dent the provinces ability to ramp up oil and gas production in the future.

“What we do with respect to royalties . . . remains the prerogative of the government of Alberta,” he said.

He added Alberta's oil sands would remain a great place to invest, even once the changes are in place.

About 49 per cent of Alberta's oil sands production is covered by separate agreements that won't be covered by the new regime.

“We are in very constructive discussions with the people that have the Crown agreements currently,” he said. “What we are looking forward to is to bilaterally open the agreements. We are not looking at voiding any agreements the government of Alberta made with any producers.”

Without providing specifics there may be advantages for both the province and the producers to reopen the contracts as they near maturity, he said.

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