Lagniappe

 

 

 

Scott Haggett: Alberta royalty hike
far cry from nationalization

Alberta has just joined Venezuela, Russia, Kazakhstan and Bolivia as it looks to enjoy a bigger share of the cash windfalls coming from record high oil prices.
(In U.S. dollars unless noted)

A wide swath of oil-producing regions have moved in the past months to take cash away from oil companies and put it into government coffers by raising royalties or taking over producing properties.

The long list includes Russia moving to take control of foreign-owned oil properties, the nationalization of natural-gas fields in Bolivia, Venezuela assuming majority control of heavy-oil projects and hiking its royalties, and Kazakhstan's bid to take a bigger stake in a massive oil field under the Caspian Sea.

But by those international standards, Alberta's announcement on Thursday that it would boost its take from the industry by about C$1.4 billion ($1.46 billion) a year, starting in 2009, was a very mild step -- even according to the critics of the new policy.

"We've not seen any kind of the expropriation or insularity" seen elsewhere, said Pierre Alvarez, president of the Canadian Association of Petroleum Producers, which lobbies on behalf of big oil companies.

ALBERTA'S SHARE

Ecuador moved this month to tax 99 percent of windfall profits for oil companies operating there, a measure estimated to cost producers in the South American country $830 million.

In contrast, the Alberta changes will see the government's share of oil sands revenues rise to around 56 to 66 percent of revenues, depending on oil prices, up from 47 percent.

Conventional oil production will pay a total 49 percent of revenue under the new scheme, up 5 percentage points, while provincial royalties and taxes from natural gas will rise to 60 percent of revenue from 58 percent.

The new royalty plan is less onerous than one proposed last month by a government-appointed review panel. That plan called for even higher taxes on oil sands projects and conventional production.

However, the panel noted that even its higher tax and royalty plan would have placed Alberta's take from the industry below several U.S. oil-producing states, or countries like Norway, Venezuela and Angola, though the industry has disputed some of those figures.

And with the province's oil sands containing some 174 billion barrels of oil, the biggest untapped reserve outside the Middle East, analysts said the changes are unlikely to deter investments by big oil companies.

"Canada has got the resources, certainly on the oil sands, that the big international players are interested in" said Derek Butter, head of corporate analysis at Wood Mackenzie in Edinburgh. "It remains an attractive place to do business and the government's modifications have taken away the negative aspects of the panel's recommendation."

Still, according to Tristone Capital, a Calgary investment firm, the Alberta changes to royalties for conventional oil and gas producers make the economics of drilling in the neighboring provinces of British Columbia and Saskatchewan more attractive and could spark a flight of capital to those regions.

CASH ON THE TABLE

But Alberta isn't the only Canadian province that's moved to squeeze more cash out of the oil industry. Earlier this year Newfoundland, under firebrand Premier Danny Williams, drafted plans to take a 10 percent stake in new energy projects tapping the province's offshore fields, and a boost to its royalties that would increase with oil prices.

The Atlantic province's moves to raise its take from high oil prices was bitterly opposed by oil producers. Chevron Corp (CVX.N: Quote, Profile, Research) walked away last year from negotiations to develop a big field until agreeing in August to sell Newfoundland a 4.9 percent stake.

To be sure, the province will pay for its stake in oil and gas developments, a move that some say makes its changes much different from the tax hikes planned by Alberta.

"Danny Williams put money on the table," said Will Lacey, an analyst at FirstEnergy Capital Corp. "Danny Williams put capital up front... He did change the royalties but at the end of the day he's also an investor."

($1=$0.96 Canadian)

 

 

Scott Haggett is a Reuters reporter. This story was writen from CALGARY, Alberta, on Oct 26 for Reuters. Petroleumworld does not necessarily share these views.

Editor's Note: This commentary was originally published by Reuters, on October 26, 2007. Petroleumworld reprint this article in the interest of our readers.

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Petroleumworld News 10/29/07

Copyright© 2007 Scott Haggett. All rights reserved.

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