NORVAL SCOTT

Friday, November 23, 2007

EDMONTON — A member of the review panel that recommended changes to Alberta's royalty regime has criticized the province's solution, saying it will create “design problems down the road.”

In a lecture at the University of Alberta, André Plourde, panel member and chair of economics at the university, said the government had accepted the thrust of the panel's argument to increase the amount the province takes from oil and gas production, but rejected the details.

In particular, Mr. Plourde, said the government was wrong to introduce into conventional gas royalties any incentives for deep wells, saying the move effectively subsidizes the province's most expensive gas fields.

“There are a lot of incentives already to go after high-cost activity,” he said. “Why would you want to give the highest cost gas even more incentives? Leave it in the ground — it's not going anywhere — and go after something else.”

Mr. Plourde also said he was concerned about the government's decision to seek an end to its pre-existing Crown agreements with Suncor and Syncrude, under which Alberta had set longstanding royalty rates with both companies.

He called the move “really potentially costly,” saying it could affect Alberta's reputation as a business destination.

He also called for more clarity and transparency over how increased royalties for the oil sands will be applied, saying it's unclear so far how the price triggers will actually work.

“You own the resource,” Mr. Plourde told the audience. “Shouldn't we know how it works?”

Under the new royalty regime unveiled in October, royalty rates will rise across the board beginning in 2009. Alberta has estimated money collected from the energy business could be 20 per cent higher in 2010 than forecast, with an additional $1.4-billion to the province. That is almost $500-million less than the panel sought.

Mr. Plourde also said that he was “concerned” about the government's decision to seek an end to its pre-existing Crown agreements with Suncor and Syncrude, whereby Alberta had set long-standing royalty rates with both companies. He called the move “really potentially costly,” saying it could affect Alberta's reputation as a business destination.

© The Globe and Mail