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Oil and gas royalty review redux

Advice for Alberta's NDP government this time around.


June 2, 2015
by The Canadian Press

CALGARY — Call it royalty review redux.

It’s been about eight years since the Alberta government last decided to tackle the thorny subject of oil and gas royalties.

Now, the new NDP government is getting an earful of advice – much of it contradictory – as it prepares to reopen that can of worms.

Evan Chrapko was on the 2007 panel that penned the report, Our Fair Share, which recommended the province increase its take. Industry players were livid, with many threatening to take their money elsewhere.

In the aftermath, Chrapko recalls being inundated with irate calls and having nasty under-the-breath remarks lobbed at him at business events.

His advice to Premier Rachel Notley: “Don’t blink and wear a flak jacket.”

Some in the oilpatch are spooked that royalties have been put back on the table, arguing it adds another level of uncertainty while oil prices are low. Notley has sought to reassure industry leaders they’ll be included in the process and won’t be taken by surprise.

Chrapko, an entrepreneur whose father once ran for Alberta’s NDP, said he understands companies have a duty to get the best return for their shareholders, but called recent warnings “horsesh-t.”

“They will never, ever, ever tell you it’s a good time to raise royalties, ever. Prices could be US$200 a barrel and their song and dance will be, ‘Don’t touch the brakes. We’ll leave the province.”’

The government of former premier Ed Stelmach accepted the Our Fair Share recommendations in part, but the compromise still angered industry.

After the Great Recession hit full force and crude prices cratered in 2009, the government launched a “competitiveness review” and many of the royalty changes were essentially undone.

Chrapko said he’d like to see the province examine its oil and gas royalties on an annual basis and make those findings public.

Sam Spanglet, another Our Fair Share panel member, said to offset any negative impact from higher royalties, Notley should “put her political weight” behind pipeline proposals that would enable Alberta crude to be sold in lucrative markets.

Notley has taken a more lukewarm view of pipelines than her predecessors, saying she supports some, but won’t be promoting others.

A royalty incentive that would encourage more bitumen processing within the province would also be welcome, said Spanglet, who once led Shell’s Albian Sands oil sands project and calls the Scotford upgrading and refining complex near Edmonton his “baby.”

Spanglet said he wants to see a royalty review that’s “fast and smart.”

“Do it as quickly as possible. Get it over with.”

For Judith Dwarkin, another 2007 panel member and chief energy economist at ITG Investment Research, it’s important to “take the time to do it properly.”

The panel must work with the best available data and a lot of that is likely going to come from the energy sector itself, she said.

“It shouldn’t be discounted because it’s coming from the industry,” said Dwarkin. “They do have good insight on what the lay of the land is.”

Ted Morton, who was Alberta’s minister of finance and energy after the last royalty ruckus, said a review isn’t in and of itself a bad idea. But right now, oil prices are already a drag and the last experience with royalty tinkering continues to cast a shadow.

“The government cannot afford to make Alberta uncompetitive,” said Morton, who is now at the University of Calgary’s School of Public Policy.

“I think Premier Notley aspires to be more than a one-hit wonder and I think she’ll tend to be pragmatic and it’s in her political self-interest to work with, not against, the oil and gas sector if she wants to win a second mandate in four years.”

© 2015 The Canadian Press

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