Source: CAL – Calgary Herald
Dec 17 03:36
Page: A6
Section: News
Edition: Final
Byline: Jason Fekete
 
T he Stelmach government will make further changes to the province’s energy royalties as part of its competitiveness review, the premier said Wednesday, hinting major restructuring will come on the natural gas side but that the oilsands will be left alone.
 
In a year-end interview with the Herald, Stelmach said the massive growth of shale gas supplies south of the border and in B.C. has “huge implications” for the Alberta treasury and jobs across the province.
 
Alberta must reposition its royalty and investment framework in comparison to other jurisdictions, he insisted, otherwise the province will forfeit billions of dollars in natural gas royalties over the next few years.
 
“There will be adjustments,” Stelmach said about the royalties. “The prediction is that over the next four years we may see a substantial drop — about $4 billion worth of natural gas sales — if we don’t look at repositioning Alberta given the game changer, being shale gas.”
 
Lower production and deflated prices have slashed the provincial government’s projected natural gas haul to $1.9 billion this year, compared with more than $6 billion a year ago. The revenue crunch has the government forecasting a $4.3-billion deficit this fiscal year, and nearly a $9-billion shortfall over the next three years.
 
The provincial review, which Stelmach said should be completed and released to the public by the end of January, is comparing the competitiveness of Alberta’s conventional oil and gas sector with competing jurisdictions in Canada, the U.S. and around the world.
 
The natural gas industry — long the backbone of Alberta’s economy and source of the majority of resource revenues — faces growing threats amid a fundamental shift south of the border.
 
Massive stores of unconventional shale gas, once beyond the reach of energy companies, are being successfully squeezed out from under Texas and other U.S. states.
 
“It will be moving from conventional to unconventional and what is it going to take? That doesn’t mean that we won’t be looking at the conventional gas side,” Stelmach said about royalty changes. “On conventional oil, there are some areas there on the regulatory side and on the production side, on the investment side, that we will look at.”
 
The lucrative Alberta oilsands — the second-largest oil reserves on earth — weren’t initially part of the province’s review. The premier said investment keeps flooding into Alberta on the oilsands and indicated there’s no reason to consider tinkering with its royalty structure.
 
Observers and political opponents have argued the competitiveness study is essentially another provincial royalty review — only conducted behind closed doors — compared to the more transparent process that went into the report titled Our Fair Share about two years ago.
 
The controversial new price-and production-sensitive oil and gas structure, which took effect Jan. 1, 2009, was designed to collect more economic rent for Albertans. But the government has backtracked on some of those changes and offered up billions of dollars in royalty breaks to industry to address “unintended consequences” and other economic challenges facing the sector.
 
Wildrose Alliance Calgary MLA Paul Hinman, whose party believes the original royalty changes were a mistake, said Stelmach must restore competitiveness to the battered oil and gas sector.
 
“It totally undermined the confidence and stability of investors,” he said Wednesday.
 
Hinman urged Stelmach to admit he erred when he overhauled royalties. But the premier rejected any suggestions that his government’s revamping of the framework was a mistake, insisting many energy companies are being aided by the new plan because it collects fewer royalties during a low-price environment.
 
“Did anybody, any of these gurus anticipate what was going to happen (with shale gas) when we were going through the royalty review? Not one,” Stelmach said.
 
“If they would have, they would have made their presentation on shale gas. Never heard about it. Now, all of a sudden . . . it’s very easy to predict the past. Anybody can do that. Tell me about the future.”
 
The provincial government held a natural gas symposium last week in Calgary, attended by more than 60 industry CEOs and senior executives, to listen to the concerns of producers big and small.
 
Stelmach’s consultations with industry are “a great first step,” said the leader of a Calgary gas-weighted trust. Sue Riddell Rose, chief executive of Paramount Energy Trust, was part of the industry group that met with Stelmach last week in Calgary to discuss the looming threat of unconventional shale gas plays in the United States.
 
“He’s being a good listener, which is a great first step in understanding where industry is at, and I think he’s committed to building partnerships now . . . with industry,” she said.
 
The new royalty framework implemented last January clearly made Alberta “uncompetitive” with other jurisdictions, a situation made “crippling” by the subsequent erosion in the natural gas price, she argued.
 
Paramount shut in gas production last summer but has brought most of that production back on stream with stronger prices in the fall. Its exploration and development budget in 2008 was $120 million but that was cut back to less than $70 million this year and will be at about $80 million next year.
 
Alberta Liberal energy critic Dave Taylor said, “The royalty framework that they brought in was flawed. They’ve gone in and patched over it so many times, there’s no certainty.”
 
jfekete@theherald.canwest.com