Breaking News from The Globe and Mail

‘Strong evidence' royalties hurt Alberta

NORVAL SCOTT

Friday, November 07, 2008

CALGARY — Investment dealer FirstEnergy Capital Corp. has added its voice to the growing chorus of industry complaints that Alberta's new oil and gas royalty scheme is driving spending elsewhere.

“There is strong evidence … to suggest that investment is leaving the province,” said FirstEnergy analyst Robert Fitzmartyn in a research note, citing a drop in Crown land sales and flat drilling rig counts since the new royalty scheme was announced.

“Alberta's policy is not competitive enough to overcome the attractiveness of other jurisdictions to maintain prior [levels] of investment,” he said. “There is no question in our minds that Alberta has positioned itself to be an uncompetitive jurisdiction.”

This week alone, major producers Talisman Energy Inc. and Canadian Natural Resources Ltd. have indicated they will reallocate capital spending from oil and gas exploration in Alberta to opportunities outside of the province.

A number of oil sands projects have also been delayed as producers fret over the economics of proposed multibillion-dollar investments, especially given that the financial crisis has pushed crude oil prices down from $147 (U.S.) a barrel in July to around $60.

While the changes to the royalty regime, which takes effect on Jan. 1, are complex – rates vary depending on both the depths and productivity of wells, as well as the price of oil and gas – conventional oil producers and companies that operate deep gas wells are seen as the most affected.

The reallocation of capital means Alberta is unlikely to recoup the additional $1.4-billion in revenues it has said the higher royalties will create, Mr. Fitzmartyn added.

Alberta Energy spokesman Jason Chance said that while the impact of the new royalties wasn't yet clear, the province would continually assess its structure to ensure it remains competitive. “The royalty system is monitored on an ongoing basis to ensure it's delivering the results that Albertans expect,” he said. “Ensuring Alberta remains competitive is a goal of any royalty regime.”

© The Globe and Mail