St. Albert MLA Ken Allred agrees with an analyst’s assessment that a change in Alberta’s oil and gas royalty scheme is a short-term fix that will have long-term effects on revenue.
The province announced Thursday that it was reducing the amount of royalties it would collect on oil and natural gas when prices are high.
“It seems to be an attempt to stimulate the Alberta economy in the oil and gas sector in the short term,” Allred said. “In the long term I guess it’s going to reduce royalties but in the short term it should get them back out drilling.”
The government will cut the maximum royalty rate for conventional oil to 40 per cent from 50 per cent. The top rate for natural gas will drop to 36 per cent from 50 per cent. The rates apply when prices are high.
The government is working with industry to finalize the royalty rates between the upper and lower ends by May 31, 2010.
The changes take effect next January. They don’t apply to the oilsands.
University of Alberta energy analyst Andre Plourde, who helped write a 2007 report that recommended a royalty increase, has commented in the media that the change could be a short-term fix that sacrifices future revenues.
Premier Ed Stelmach expects the new rules will cost Albertans at least $828 million over the next three years, but he expects the government will make back roughly half that amount in increased land sales and corporate taxes.
The Pembina Institute complained that the review that led to the changes included the oil and gas industry and excluded Albertans.
“Albertans, the owners of the province’s oil and gas resources, were completely left out of the process of reviewing Alberta’s royalty rates,” said policy director Chris Severson-Baker.
“We can’t be sure that today’s changes will allow Albertans to get the best value from the development of their resource because they weren’t consulted as part of this review,” he said.
The oil and gas industry is saying the change will go a long way towards repairing a fractured relationship with government, which suffered under Stelmach’s new royalty regime.
Alberta producers have suffered because of the rapid growth in competing unconventional gas resources across North America, said David Collyer, president of the Canadian Association of Petroleum Producers.
“Investors need to know Alberta is back in the game,” he said. “Alberta’s economy had been seen by some as bullet-proof. It’s not. Both the oil and gas industry and government need to adapt to changing market conditions.”
The NDP said the government’s move is a political one aimed at warding off pressure from the Wildrose Alliance, which has gained solid support from the oil and gas base in Calgary and is close to the Tories in public opinion polls.
“The Progressive Conservatives are mired in a desperate race to the bottom with the Wildrose Alliance and everyday Albertans will come out the losers,” said leader Brian Mason.
