Sitting On Your Wallets!!

[DonAndersen]

Get ready the "competitive review" is to show up today and demonstrate how other provinces are giving away their resources cheaper than Alberta.

 

I wonder how bad the shareholder of these resources are going to get screwed this time

 

And as a brief aside, Oil Companies have been whining about royalties in Alberta since . . . . . . you ready for this 1929...... and the song has never changed. Kinda like mosquitoes except we can't slap 'em.

 

regards all,

 

 

Don

[gustuphson]

live feed

 

http://events.snwebcastcenter.com/governme...berta/20100311/

 

 

[darrinhurst]

I thought this thread was going to be about Chiropractors......

[unclebuck]

Ahhrrgh! I just saw this on the news this morning as well. I' wondering if we ever even got a dollar from the increased royalty rates. It seems to me that the implementation was delayed to 'help the oil companies transition' into the new scheme. Seems like the only thing that did was buy them lobbying time while placating us with 'future changes' that never happend. Got to love Eddie's spine!

[Ricinus]

It's nice to know that all the Executives will get their bonuses this year. I wonder what Seniors will have to pay for now to make up the difference?

 

Regards Mike

[Castuserraticus]

So you don't think the people (shareholders) should have jobs?

You think people should work for free?

Do you lobby the government to raise your taxes or just those of everyone else?

 

If the province wants to spend tax money drilling it's own wells then it should entitled to 100% of the benefits - and those benefits include drilling dryholes (at least $250,000 / well with 30% of wells today being dry) . The province chooses not to risk taxpayer money and so forfeits benefits. Surely all of you industry bashers can't be ignorant enough to think that companies will invest money without an expectation of profit. Do you choose jobs that pay you less than your living expense or do you have a profit motive also? If you think hard earned money should be given away I'll send you my address.

 

Here's a little lesson free of charge on the economics of energy. In a 10 well program 3 will likely be dryholes, 2 will be very successful, and 5 will do OK. When you go to work each day, do you get paid that day or just whenever you get lucky?

 

If you think it's so f%$#*@g easy to make money in the oil industry and it gets a free ride you should start your own company with your own money.

 

The situation with the best balance leaves both sides wanting more. As the government found when they did the "Fair share" changes you can't tax activity that isn't there.

 

So Don - What do you think the royalties should be? Maybe we should be like Norway where the average well produces 8000 Bbl/d and the government takes 80%. That would kill 100% of the industry. What is the unemployment level you want to see?

 

Stelmach was an idiot for touching anything other than oilsands. There the change was justified because the situation around oilsands had changed so much.

 

Now - release the hounds.

[reevesr1]

I'll add to the fodder.

 

Alberta already has some of the highest operating costs of anywhere in the world. Margins here are ridiculously low compared to many other places in the world. It does have the advantage of being politically stable, which makes that low, but usually consistent, margins palatable. Screw around with that already low margin by playing with royalty rates (and add on a big drop in gas prices), and you get 2009. Not much of a drilling season, to put it mildly. Interestingly, Sask and BC did not see the same drop as Alberta. Wonder why?

 

And I don't know which executives were getting the fat bonuses this year. None in my company, I can assure you.

[Ricinus]

Rick, you guys obviously know more about the workings of the industry than I do. However, I think world markets had a lot more to do with the problems of 2008/2009 than any tinkering with royalties. Didn't notice much difference in my dividends so they couldn't be hurting too bad. Poor Ed Stemach is the whipping boy/lightning rod because of poor timing, bad luck and political motives versus any bad decisions.

 

Regards Mike

[126barnes]

If the province wants to spend tax money drilling it's own wells then it should entitled to 100% of the benefits - and those benefits include drilling dryholes (at least $250,000 / well with 30% of wells today being dry) . The province chooses not to risk taxpayer money and so forfeits benefits. Surely all of you industry bashers can't be ignorant enough to think that companies will invest money without an expectation of profit. Do you choose jobs that pay you less than your living expense or do you have a profit motive also? If you think hard earned money should be given away I'll send you my address.

 

The province doesn't need to spend money on exploration, just don't let the discovery go into production without agreeing to a equity share of the production project.

 

 

What do you think the royalties should be? Maybe we should be like Norway where the average well produces 8000 Bbl/d and the government takes 80%. That would kill 100% of the industry. What is the unemployment level you want to see?

 

Whats wrong with that, last I heard Norway wasn't hurting from their tuff rules in the patch. Nothing happens in their water unless they are involved. Hey Yank, we have oil, teach us how to drill, thanks, now get out of our country. Hey Brit, teach us how to build oil rigs, thanks, now get out of our country. Maybe we should own a oil company and call it Norsk Hydro and thensplit it and merge with statoil to become one of the largest oil companies in the world......................seems like its working to me.

 

 

[reevesr1]

The production rates in Norway are a trifle more than the rates here!

[126barnes]

My point being that they took ownership of their resource, maybe a litte too late for Alberta as she is already so dependant on Oil revenue. Its being done in this country in other provinces.

[Ricinus]

Just did a quick search on pay for execs

 

CEO BP 41% raise

Shell shareholders revolted last year and threw out comp package

Chesapeake oil CEO 75 million bonus.

 

Lots more but I started feeling very poor.

 

Regards Mike

[Castuserraticus]

The province doesn't need to spend money on exploration, just don't let the discovery go into production without agreeing to a equity share of the production project.

 

 

 

 

Whats wrong with that, last I heard Norway wasn't hurting from their tuff rules in the patch. Nothing happens in their water unless they are involved. Hey Yank, we have oil, teach us how to drill, thanks, now get out of our country. Hey Brit, teach us how to build oil rigs, thanks, now get out of our country. Maybe we should own a oil company and call it Norsk Hydro and thensplit it and merge with statoil to become one of the largest oil companies in the world......................seems like its working to me.

 

An "equity share" would mean the province would have to invest in the project. That's what equity is. The province has chosen a passive interest. The province pays administration to collect money without risking equity.

 

The average well in Norway produces over 8000 Bbls/d and produces millions of barrels. The average well in Alberta starts at about 50 Bbls/d and produces 50,000 barrels.

 

Apparently you like the Venezuela model. Invite companies in and then nationalize projects. When the projects begin to fail under government ownership repeat the cycle. Maybe the government should do that here with your house. There are lots of people on the street who would love to have it. Teh government could sell it back to you once it's trashed.

 

Alberta does not compare to huge international and offshore projects.

 

Alberta used to have a government owned company - AEC. It started with the exclusive rights to drill on the defense weapons ranges and it was successful. Anyone remember why the government sold it? I think because they believed they should not be in the business of competing with their own taxpayers.

[reevesr1]

Not really Canadian based or focused companies. It would be interesting to know what Husky, Shell Canada, Imperial, Talisman, Arc, etc. execs got this year. Pretty tough year for companies focused on North America. Maybe they got big raises as well. I doubt it though.

 

I can't claim to be any sort of an expert of who took ownership of what when it comes to the Canadian oil patch. I'm a late comer to it. But I don't think nationalizing it is, or ever was, the best answer.

 

 

 

[126barnes]

Kinda two in one here:

 

No not the Venezuela model and no to nationalizing, our fed Government could never do something that would work.

 

Currently the canadian government has a 8.5% interest in the Hibernia project on the East coast, which was pretty much bail out money for a project that wasn't going to go ahead after a partner (Murphy's I think) pulled out, or so they say. So it paid 8.5% of ~6 billion dollars ( 700mill recoverable that is now over 1.2 billion recoverable, and who know who much more other than the oil companies)and has had a nice return on their dollar.

 

Not sure how Alberta invites oil companies into the province to look for oil, but currently Newfoundland does not collect money from oil companies to lease land (mostly water) but the highest bidder must spend that winning price of the lease auction in a exploration program in the said waters. Since the Hibernia, Terra Nova, & White rose project have come and have only increased in "expected recoverable oil" . The Newfoundland Governement has since required a equity stake in all developments stalling the Hebron project (700 mil recoveable)for years in dispute with the oil companies. Since then both sides have come together on a 4.9% equity stake on the said project and the governement has pasted Legislation that all projects and expansions to have a 10% equity stake for Nalcor (Newfoundland's energy company). Since then expansions to White Rose (just finished up working this job and is currently in production) and Hibernia South (just starting) have moved forward under these terms. So I wouldn't say "Invite companies in and then nationalize projects" & "government ownership" just get a piece of the action and not pay for the looking part. The governemnt is puting up money on projects that can't mess, not paying the lotto on punchin holes in the ground, hundred million dollar holes. Then there is still the royalites that are so complex it would make your head spin, from 5% untill payout, up 50% after pay out when oil is more than $X/b.

 

They are also doing some small land ing drill exploration, but peanuts (20 Million, so far) compared to the offshore. But with bigger interest over 60% owner shipI think.

 

I can't get into all the production rates, politics, taxes etc involued cus I just don't know anything about it. Just saying if it works for other countries and provinces why not Alberta, on what ever scale. Maybe Newfoundland expience into the patch might me a bad one for the government and the tax payers on these equity stakes, who know, but it looks promising, and seems to be working so far.

 

 

 

An "equity share" would mean the province would have to invest in the project. That's what equity is. The province has chosen a passive interest. The province pays administration to collect money without risking equity.

 

The average well in Norway produces over 8000 Bbls/d and produces millions of barrels. The average well in Alberta starts at about 50 Bbls/d and produces 50,000 barrels.

 

Apparently you like the Venezuela model. Invite companies in and then nationalize projects. When the projects begin to fail under government ownership repeat the cycle. Maybe the government should do that here with your house. There are lots of people on the street who would love to have it. Teh government could sell it back to you once it's trashed.

 

Alberta does not compare to huge international and offshore projects.

 

Alberta used to have a government owned company - AEC. It started with the exclusive rights to drill on the defense weapons ranges and it was successful. Anyone remember why the government sold it? I think because they believed they should not be in the business of competing with their own taxpayers.

 

[Ricinus]

An "equity share" would mean the province would have to invest in the project. That's what equity is. The province has chosen a passive interest. The province pays administration to collect money without risking equity.

 

The average well in Norway produces over 8000 Bbls/d and produces millions of barrels. The average well in Alberta starts at about 50 Bbls/d and produces 50,000 barrels.

 

Apparently you like the Venezuela model. Invite companies in and then nationalize projects. When the projects begin to fail under government ownership repeat the cycle. Maybe the government should do that here with your house. There are lots of people on the street who would love to have it. The government could sell it back to you once it's trashed.

 

Alberta does not compare to huge international and offshore projects.

 

Alberta used to have a government owned company - AEC. It started with the exclusive rights to drill on the defense weapons ranges and it was successful. Anyone remember why the government sold it? I think because they believed they should not be in the business of competing with their own taxpayers.

 

Actually I think AEC was owned 50% by shareholders and 50% by Alberta Govt. I think it was King Ralph that privatized it completely in the 1990's along with other stuff.

 

I am not anti-oil but Pro Albertan and feel we should be getting maximum benefit out of nonrenewable resources. I fully realize the number of jobs dependant on the industry, but it sticks in my craw when govt is blackmailed the way Encana did. These royalty reviews should have been done years ago in the glory years but were not. Wonder who's fault that was.

 

 

Regards Mike

[Castuserraticus]

In Newfoundland hundreds of millions of dollars were spent on dryholes with a small number of discoveries being made. When the government takes an equity interest in the succesful projects there is no reimbursement for all the costs of the dryholes. Individual wells cost up to $60MM. Dryholes are a part of the business. Very rarely is a company successful in a frontier area with the first few wells. Successful projects have to be able to carry the burden of the dryholes.

 

Once again the scale of production and reserves offshore Newfoundland is not comparable to Alberta.

 

The "fair share" study did not consider land sales bonuses and rentals to be part of government take. In actuality it is a considerable expense to industry and cash cow for the government. The report writers thought very wrongly that companies could pay higher royalties and still pay large land bonuses.

 

Every business and individual has a certain tax and operating cost load that they can bear. If your individual tax load were to increase you have to cut back on your living expenses (no more fishing?). The Stelmach plan doubled royalties on the small number of good wells in the province.

 

 

Kinda two in one here:

 

No not the Venezuela model and no to nationalizing, our fed Government could never do something that would work.

 

Currently the canadian government has a 8.5% interest in the Hibernia project on the East coast, which was pretty much bail out money for a project that wasn't going to go ahead after a partner (Murphy's I think) pulled out, or so they say. So it paid 8.5% of ~6 billion dollars ( 700mill recoverable that is now over 1.2 billion recoverable, and who know who much more other than the oil companies)and has had a nice return on their dollar.

 

Not sure how Alberta invites oil companies into the province to look for oil, but currently Newfoundland does not collect money from oil companies to lease land (mostly water) but the highest bidder must spend that winning price of the lease auction in a exploration program in the said waters. Since the Hibernia, Terra Nova, & White rose project have come and have only increased in "expected recoverable oil" . The Newfoundland Governement has since required a equity stake in all developments stalling the Hebron project (700 mil recoveable)for years in dispute with the oil companies. Since then both sides have come together on a 4.9% equity stake on the said project and the governement has pasted Legislation that all projects and expansions to have a 10% equity stake for Nalcor (Newfoundland's energy company). Since then expansions to White Rose (just finished up working this job and is currently in production) and Hibernia South (just starting) have moved forward under these terms. So I wouldn't say "Invite companies in and then nationalize projects" & "government ownership" just get a piece of the action and not pay for the looking part. The governemnt is puting up money on projects that can't mess, not paying the lotto on punchin holes in the ground, hundred million dollar holes. Then there is still the royalites that are so complex it would make your head spin, from 5% untill payout, up 50% after pay out when oil is more than $X/b.

 

They are also doing some small land ing drill exploration, but peanuts (20 Million, so far) compared to the offshore. But with bigger interest over 60% owner shipI think.

 

I can't get into all the production rates, politics, taxes etc involued cus I just don't know anything about it. Just saying if it works for other countries and provinces why not Alberta, on what ever scale. Maybe Newfoundland expience into the patch might me a bad one for the government and the tax payers on these equity stakes, who know, but it looks promising, and seems to be working so far.

 

[trailhead]

Here are some numbers of the old royalty rates:

 

Alberta 35%

Sask 29%

B.C. 25%

U.S. 24%

 

For gas at $6/Mcf

 

Alberta 37%

U.S. 22%

B.C. 18%

Sask 18%

 

For oil at $65/bbl

 

Small wonder that Saskatchewan has the most bouyant economy in Canada. I know the government there was very happy with the

royalty review that was put into effect Jan 2009, and the BC people were okay with it too.

[126barnes]

In Newfoundland hundreds of millions of dollars were spent on dryholes with a small number of discoveries being made. When the government takes an equity interest in the succesful projects there is no reimbursement for all the costs of the dryholes. Individual wells cost up to $60MM. Dryholes are a part of the business. Very rarely is a company successful in a frontier area with the first few wells. Successful projects have to be able to carry the burden of the dryholes.

 

With or without an equity stake the above is true(except the 60million part, you couldn't hit ocean floor for 60 million) if the project is going ahead why not force an equity stake, on whatever scale is viable.

 

Once again the scale of production and reserves offshore Newfoundland is not comparable to Alberta.

 

I really wouldn't know, but there is money to squeeze out of a hot dog vendor and he still can make money. He might pull out, but if there is money to be made (and it oviously is), someone will take his place, question is can you weather the storm. After all Alberta has the sh!t or get off the pot rule (fareo Sp?) fed's say Newfoundland not allowed to have that rule, might have another Alberta to deal with.

 

The "fair share" study did not consider land sales bonuses and rentals to be part of government take. In actuality it is a considerable expense to industry and cash cow for the government. The report writers thought very wrongly that companies could pay higher royalties and still pay large land bonuses.

 

Will thats just something you got to figure out before you move in. The oil companies said that could not give up 4.9% stake in Hebron when negoiation broke off and stayed off for years, I guess they reconsidered, or things changed, either way the province came out better, just delayed a bit. NL did have to pay $110 million for 4.9% of a 5 Billion investment (do the math), they wanted it for nothing when it broke off the first time.

 

Every business and individual has a certain tax and operating cost load that they can bear. If your individual tax load were to increase you have to cut back on your living expenses (no more fishing?). The Stelmach plan doubled royalties on the small number of good wells in the province.

 

The problem with that is you are depending on the guy making all the money to tell you the truth, with a 5% vested interest, he got to show you the books (cooked books, but the books none the less), and we know how companies like to do that (wonder why the 4.9% on Hebron). Not sure if the royalities in AB is set province wide, but home they are all different by project, so it come down to this project is just barly viable so you'll need to knock down the royalies if you want it to go ahead bullsh!t.

 

 

Anyways I'm not trying to argure NL vs AB oil (just using examples of what I know), just that AB could be and should be doing better.

[iamfrontosa]

+1 for castuserraticus. i just hope the economy will get better for oil/gas workers out there. like most, im sickin tired of sitting at home aimlessly not knowing when the next project is going to come by.

[rehsifylf]

they really ought to change the background to this board to red.

 

The facts are that EVERYONE in this province benefits from O&G investment. To pretend that you don't is kidding yourself. The other facts were that investment did leave this province at a time when we needed it.

 

BTW - you can focus on exec pay if you want, but the really outrageous costs in the oil patch are for folks in the field - many have no education beyond high school and get paid 3-4 times as much as a high school teacher with a Master's degree.

 

[Hawgstoppah]

On a small sidenote... I spent all of 2008 driving alberta based oil rigs on my flatbed truck to texas, oklahoma, arizona, kansas, new mexico, wyoming, and whatever other US states started offering a better deal than alberta. The highways were a LINE OF TRUCKS loaded with oil rigs / equipment headed stateside. Anyone who thinks that alberta didn't shoot itself in the foot, needed to have spent a few weeks at the US border at coutts and counted all the rigs leaving.

 

all that lost revenue / royalties? and you wonder why were running a defecit and HUGE budget cutbacks? What would you rather have? Deteriorating roads and streets, inadequate health care, social programs being cut... or the oil companies?

Oh wait.... I guess that questioned got answered already.

[DonAndersen]

Castuserraticus says

 

 

"So Don - What do you think the royalties should be? Maybe we should be like Norway where the average well produces 8000 Bbl/d and the government takes 80%. That would kill 100% of the industry. What is the unemployment level you want to see?"

 

So Cast..... Alberta has grown from 2>3.5 million over the past 15 years with an employment rate exceeding 96%. So there is a drop in energy prices and the employment numbers go to 8%. Last time the oil prices tanked from $35 to under $10, 85,000 Albertans hit the bricks and this was with a population of under 2.5 million. This time was a drop in the bucket. Nobody suggested a give away of the citizens resources then - why now?.

I do get a kick out of Stelmach being the goat in all of this. Like it was his fault that the currency traders were diving outta US bucks and into oil ramping it up to double and then diving out again. Just 'cause Stelmack aint from Calgary doesn't make him all bad.

 

catch ya'

 

 

Don

[Castuserraticus]

I agree with your observation on the employment rates. I graduated in 1984. Unemployment was chronically over 10% back then and the world continued to tick along. The only thing that allowed many of my classmates and I to get jobs was some new drilling incentives by the province. So you're not quite correct in that we didn't "give away the resources" in the past also. Royalty payments have been tinkered with for decades in order to direct the pace of develpment and will be tinkered with in the future. This resulted in a hodge podge of different rates for wells of different vintage. When Stelmach initially announced his review the industry liked the idea of one royalty structure for all wells.

 

I'm not sure a single royalty policy will work. There exremely varied resources. The government's mandate is to responsibily develop the resource for the benefit of the people. If royaltyies are too high then resources do not get developed and the resulting economic benefits are never seen. With the high gas prices of the early 2000's resources were developed that many of us grey-haired professionals never dreamed would be economic earlier in our careers.

 

Government statistics do not capture all the unemployed. Anyone, like myself, who is a small businessman who owns more than 10% (I think) of their business is not eligible for unemployment insurance. Even though I was not paid for 3/4 of 2009 and could not find any other work, I was not counted. The many farmers with water trucks and other field operations staff are in the same situation. When I get together with groups of friends it seems over half of us are unemployed or underemployed.

 

From an economic theory standpoint, the road back to fuller employment involves wages dropping to a level consistent with the "new normal". Wages are the stickiest component of operating costs but I believe adjustment will occur. There are more job applicants now than there are jobs. I know I'm doing my part.

 

 

Castuserraticus says

 

 

"So Don - What do you think the royalties should be? Maybe we should be like Norway where the average well produces 8000 Bbl/d and the government takes 80%. That would kill 100% of the industry. What is the unemployment level you want to see?"

 

So Cast..... Alberta has grown from 2>3.5 million over the past 15 years with an employment rate exceeding 96%. So there is a drop in energy prices and the employment numbers go to 8%. Last time the oil prices tanked from $35 to under $10, 85,000 Albertans hit the bricks and this was with a population of under 2.5 million. This time was a drop in the bucket. Nobody suggested a give away of the citizens resources then - why now?.

I do get a kick out of Stelmach being the goat in all of this. Like it was his fault that the currency traders were diving outta US bucks and into oil ramping it up to double and then diving out again. Just 'cause Stelmack aint from Calgary doesn't make him all bad.

 

catch ya'

 

 

Don

 

[Jayhad]

BTW - you can focus on exec pay if you want, but the really outrageous costs in the oil patch are for folks in the field - many have no education beyond high school and get paid 3-4 times as much as a high school teacher with a Master's degree.

Bang on, this last winter I was at a few sights, on one I found out the apprentice scaffolders are making $38 an hour to start.. the Journeyman get $48-$52 an hour. It takes a day long course to be an apprentice scaffolder.