It appears no news is good news in the oil industry as the government of Alberta has adopted the recommendations of the Royalty Review Advisory Panel.
The Alberta Government has finally released the result of a review by an appointed panel and by and large, more has stayed the same than has changed.
According to a release, the Panel determined that Alberta’s royalties are comparable to similar jurisdictions, but the industry’s costs are substantially higher. As a result, the panel recommends a modernized framework that sets a drilling cost allowance for wells according to an industry-wide average.
“This improved royalty framework will make Alberta’s energy industry more competitive and create more good jobs. We heard the system was complex, unpredictable and too rigid to keep pace with the rapidly changing technology of our energy sector. Albertans and industry will benefit from a modernized framework that is simple, predictable, and adaptable,” said Marg McCuaig-Boyd, Minister of Energy.
Brad Peake, who works in many facets of the oil and gas industry locally, said, “A lot of stuff is going to stay exactly how it is. There are some operational enhancements that may trigger in the future."
"It seemed like she (Premier Notley) has been educated,” chuckles Peake.
He says the results are no surprises either.
“I felt fairly confident that through the entire process there would be no royalty rate increase, as quite simply there isn’t room for it. The oil and gas bankruptcy rate is not because the royalties are too high, but if you did increase them bankruptcy rates will rise quicker,” he said. “Many a person offered negatives that the review would increase royalty rates. I was quietly optimistic that wouldn’t happen because when you look at the money, there just isn’t room to cut the profit sharing pie any differently, there is no profit to share these days.”
Under the new framework, the effects will take effect in 2017. On wells drilled prior to 2017, the existing royalty structure will stay in place for 10 years. They will also maintain the current oil sands royalty regime.
Drumheller-Stettler MLA Rick Strankman said the results were anticlimactic, but it did come with some worry.
“Certainly there was a lot of angst and uncertainty caused even by the announcement of it, coupled by the decline of commodity prices,” he said.
While he is pleased with the outcome of the review, he said it goes against a long held standpoint by members of the government who expressed Albertans were not getting enough for the province’s oil.
“Do people trust this government? I don’t think so, but through the democratic process they are going to have to see how it plays out,” he said.
Peake also finds it interesting the results of the review went against previous perceptions.
“The premier admitted today that what she’s been saying for seven or more years — that Albertans are not getting their fair share— she’s come to the conclusion she’s been wrong the entire time,” he said. “I have to wonder how much else is the NDP wrong about?”
While the review is complete, the pain in the industry has not stopped.
In my office, I get 5+ brochures a week of companies looking to sell lock, stock and barrel or going into receivership. Properties that are asking 10 cents on a dollar spent, anything is better than nothing. To get out now is better than not getting out at all,” said Peake.
