Alberta Premier Ed Stelmach
Premier Ed Stelmach is desperate to save himself and his Progressive Conservative Party from losing their majority in Alberta government to an upcoming Wild Rose Alliance Party. Stelmach is moving forward with royalty review in a desperate attempt to once again make amends with the energy industry that the province depends upon for revenues. Unfortunately, Mr. Stelmach destroyed the trust between his provincial government and industry players by ignoring feedback and increasing royalty rates right before a worldwide recession and subsequent crash in natural gas prices (which account for most of the energy royalties). The Alberta Government has played catch up ever since and has changed the royalty structure five times. Now no one knows that to expect or how long any change will last. This inconsistency is very problematic for energy companies that plan and prepare for the long term.
According to a recent report by Calgary-based Energy Navigator Inc., which provides economic evaluation software to the oil and gas industry, including governments, banks and companies. Energy Navigator reported that Alberta is competitive in conventional gas production, but not on unconventional gas and drilling in shale gas zones has become the future of the gas industry.
According to the National Post:
The study showed that an energy company drilling an unconventional shale gas well in Alberta must pay the province $165 in royalties before it shows $100 in profit. In neighbouring British Columbia, which has altered its royalty structure recently in an attempt to lure industry, a company drilling the same unconventional well must pay the government only $36 in royalties (using the net profit royalty option, one of two regimes the province offers) before it shows a profit of $100.
In other words, the provincial government’s take in Alberta as a percentage of the company’s share is 4.5 times greater than in B.C. for energy companies extracting shale gas, assuming gas is trading at $6 per thousand cubic feet, slightly higher than it is today.
A new set of energy policies may not be enough though as many will remain skeptical that Stelmach will only make further follow-on changes especially if economic conditions improve and increase demand for Alberta natural gas.
Sandy Edmonstone, head of global investment banking for National Bank Financial in Calgary was quoted:
“This is Stelmach’s chance to make it right. But I think people are going to be skeptical that this isn’t concrete…. There’s going to have to be some stability created before people breathe a sigh of relief.”
National Post: “Can Stelmach make amends?“
