Royalty Review

[skiff]

"So you can see that in today's price environment we get back between $0.75-$1 for every $1 of investment ($3.3 / $3.3 or $4.3). Under the new royalty the numbers drop to $0.7-$0.9."

 

Sorry - those are %'s not $'s. ie we're getting back either just what we invested or up to 30% less. Anybody wanna buy some stock? I should mention that our cost structure is very much in line with many other Juniors out there, which is why most are trading at upt o 70% off what their price was back in early 2005 when gas was at $12/mcf but most service & land acquisition costs have only typically fallen 20-30%.

[OneMoreLastCast]

Once again, (as shown above by Skiff), the Government has targeted the "Big Boys" which take up about 3% and the most affected are the "Little Guys". Guess who provides the most jobs?

 

The studies that the advocates are publishing are too old to be relevant because they were done when the dollar was $0.75 and the price of Natural Gas was low.

 

I won't get into this too much because it has already directly affected me and I'm afraid of what I might say. People everywhere are stating their opinions without knowing all the information needed as well, so they are simply speaking out of the traditional Hate for people with money.

 

I will say how ever, that the people targeted for support, are the people with the frame of mind that the rich Oil Companies and its Executives should pay. Like Rick said, they're not the ones that will pay, again, it'll be the little people that pay for it. It's the same people that got jealous in school because someone in class got bonus marks they didn't, or resent someone for getting a promotion or raise and the didn't.

 

Do some research on Alberta's history. We were the most in Debt Province in the country at one time to the point not long ago, that most could not see ever getting even close to even. Since the "Boom" in the Oil Industry with the Royalties as they are, we've not only gotten out of debt, but built a huge Surplus as well. Not to mention that Alberta is directly responsible for any gains Canada as a whole has at the present.

 

I have been in the Fort McMurray area working for the last 8 years and I am actually typing this right now in Fort McMurray. Anyone that has the opinion that there is nothing to fear for what ever reason just doesn't have all the information.

 

As for more Refineries in Alberta. That would be just Grand, but it's not going to happen. Yes there are some Refineries that are planned for construction in the near future in the Edmonton/Red Water area, but the originally number of planned and approved Refineries have been cut in half in the last couple of years because our brilliant Government approved the U.S. to build Pipelines over the border.

Why buy our Refined product and let us do the work and have the jobs when our spineless Leaders will allow them to pipe the raw product down to them and they can pay their thousands of people to do the job.

 

The majority of Albertans don't realize that the so called "Oil" we have here is not what they think it is. Take some Molasses out of the cupboard and pour it into the kids sandbox and that still isn't as bad as what comes out of the ground.

Also, a lot of the Tar sands that are shallow enough to be mined will be used up not long from now and they will have to use other means to get the raw product out of the ground that involves an entirely different process because the product is too deep to be mined. So now you have to build completely new plants, (which they are already doing), making some of the existing plants obsolete.

If it is not financially feasible to operate as is, do you think they will bother building a whole new plant?

 

They say that Alberta has enough Oil to supply the whole world for 20+ years, so someone will make sure it gets mined people always say to me. Guess what, Saskatchewan has more, it's just deeper and up until recently we didn't have the technology to extract it. So if Alberta could have, so could Saskatchewan and I guarantee if Alberta screws a good thing up, Saskatchewan won't.

 

I said I wouldn't get into this too much and I ended up writing all this, but believe it or not, I could write a book if I was afraid I'd get ulcers and lose all my hair.

 

All that being said, I am confident that they will not do anything drastic because the trickle effect would be devastating to our Province and they couldn't possibly be that stupid.

[Weedy1]

I recall hearing that profits in the oil sands have been on downward trend for the last several quarters. If this is true, and assuming the companies did not know of the royalty review, I cannot see this as being a very "intelligent" time to be popping this upon the companies that drive this province.

 

Have the profits been spiraling? Anyone?

[Glenbow]

Brett,

I thought you'd lost all your hair already, since I only have seen you in ball caps! Just kiddin', Brother.

 

I am not evern remotely attatched to the O&G industry, but like I said before I already pulled my RRSP's that were in that sector as an insurance policy for me. Been screwed too many times. Plus now I can spend it on fun stuff instead.

 

I feel that I am lucky to have been in Calgary for the last 10 years, my standard of living is better than when I lived in Vancouver or Winnipeg. I think that guys driving around in Porsches & Hummers are trying to enjoy some of the money they've made in the oil sector (not that I would buy those things, but you get the point). Over all, I have seen so much activity & optimism here I can't even compare it to other places I've lived. I don't need a $400 cheque ever 6 months to stay in Calgary (or Alberta) for a while yet. It might be nice, but I'd rather not have it than see our wicked economy fumble & our house prices go down a bunch & see people going broke because a lot of other people decided that having a small cheque once in a while seemed worth it. Joe average doesn't look at the big picture, it's more like 'if you see you can get it, then let's get it' without the insight into what else might be affected.

 

I personally could care less if big oil makes a ton or $$ or not very much. It's up to me to invest my money wisely for my own future, not for the gov't to hand it to me. I'd really prefer to see Alberta keep chugging along riding the wave of prosperity for as long as it can last, with some governmental insight into investment for the future like refineries and promoting new business in other sectors to remain strong for the day the wells run dry. I'll be dead by then anyhow, so I'd rather keep the status quo than suffer another economic calamity.

 

Either way, I'll keep fishin'.

[Nick0Danger]

MTB, The Saskatchewan Government, has many times screwed the oil industry, for example Schumberger goes in and out of Estevan few years in and a few years out. They just roll with the punchs.

 

That said, have you seen or heard of the contract that encana has with the BOW (The huge office building going up)? They can back out at anytime and leave the mess in the hands of the contractor. Oil companys will back out and try there luck elsewhere, we don't hold the only oil.

 

Also for the record Natural gas prices are lower than they have been in a number of years, and well starts are way down. That said why does our gas bill for our homes keep going up every year?

 

Nick

[DonAndersen]

Guys,

 

Four things to keep in mind:

1] Alberta Auditor General says we're getting screwed

2] Royalty review says were getting screwed

3] Dept. of Energy says were getting screwed

4] Oil Companies says we're not getting screwed.

 

Now who would you believe?

 

Don

[trailhead]

Good point, but only one of the four knows the economics of the oil industry.

[wongrs]

http://www.albertaroyaltyreview.ca/panel/bios.html

 

each of the panel members was an economist or worked in the industries at the highest levels

 

Bill Hunter - President of northern economics development

Judith Dwarkin - Chief Economist Ross Smith Energy Group

Andre Plourde - Professor and Chair of Dept of Economics at UofA

Ken Mckenzie - Professor Economics UofC

Sam Spanglet - Former VP Oil Sands Operations Shell Canada

Evan Chrapko - President of project cost accounting firm for energy sector

 

If these people don't fit the bill, who would you suggest to lead a royalty review? Also note that there was a public review stage in the royalty review process. They took in concerns from citizens and they took that into account into their recommendations. Check the home page of the link above.

 

So far all the info I've heard has been anecdotal at best. Oil hit $90/bbl yesterday while the lifting costs are still less than half of that. I'm still not seeing how big oil is going to be affected. Are there any labour councils or unions that are criticizing the royalty adjustment? If there's so many jobs at stake why have I not heard anything from these organizations? Seems like only big oil is publicly against royalty review. Everyone else is on board with it.

 

I'm still not seeing how there will be tens of thousands of jobs lost over this.

[Teck71]

And the oil companies never spun their financial numbers, in order to make a buck.

 

Come on Big Oil is only slightly more ethical than Big Tobbacco. so I would say that their numbers are probally skewed as well, in their favour.

 

I say hold your hat on and keep the grease handy cause it's either oil or the goverment that is going to give it to us as the consumer. we just don't know which yet.

[jimbow]

although i can understand those working directly in the industry being upset about possible changes imdao the issue is what is good for the whole of AB not just the O&G producers or service corps (and their employees and shareholders). will it hurt them - maybe yes but maybe no.

 

costs (both E&D costs and admin costs) were already out of control (or at least too high for the economics of many drilling opportunities) prior to the royalty review. layoffs had started prior to the royalty review report being released.

 

the government's own royalty review 2 years ago indicated an increase of $1 billion would not adversely affect the industry but did we Albertans hear about this? nope. hmmm wonder why that wouldn't be made public?

 

as taco indicated lougheed made big changes and although there was plenty of squawking the industry adjusted. this is not the NEP all over again. the $ stay in AB where they belong.

 

those making the biggest noise about the royalty issue have the biggest vested interest in the status quo (producers and investment bankers).

 

reasonable changes need to be made (esp in the oil sands now that the prices have substantially increased from the time when the royalty breaks were introduced). the review's recommendations on the whole appear to be reasonable.

 

maybe the companies will actually take their money elsewhere but in the end they will come back to where the resource is located - AB esp the tar sands. but i think it is so much sabre rattling and nothing more. businesses will adjust to the new economics or they won't survive which is the capitalist way.

[Badger]

...

[rhuseby]

Just an interesting note on Encana here. One of the guys I work with has a brother who was drilling holes for Encana. Encaba was paying $1500 a hand per day bonus for each day holes came in early this year. They were NOT increasing the number of holes they planned to drill, but simply trying to get them done as early as possible. Now Encana is claiming they have stopped drilling because of the royalty review and its consequences. Even I can smell something wrong here. As well, my brother, who has his own small business (pilot truck and truck push for rig moves) says business is pretty much normal for the time of year, and he works mainly gas drilling rigs. Where else are big companies going to go? Places that have much higher exploration and recovery costs (Arctic), politically unstable areas with hostile governments(Middle East, Venezuala)? And let's remember that, as already pointed out, the increase would barely put us into the middle of the world wide range for royalties.

[Inconnu]

I work in the industry and have done so for I think around 27 years. I saw a slight slowdown in things just starting to happen before the Royalty Review came up. Not a large slowdown but the beginnings of one. Not my own opinion, from the perspective we have where I work we see some of this possibly more objectively possibly with a different feel for what is going on.

The other fact that we should be cognisant of is that most of these oil and gas companies cannot go to many other places in the world....they are not welcome and pulling out here for even the full $2B would just make poor economic sense. This is a collective $$ amount over the whole industry not to one company.

The industry has been getting more than fair treatment to this point, but they are still raping us financially on the market where we pay premium prices at the pump and through our utilities if someone in the upper echalon wakes up with a upset stomach.

As an aside here, if you look at how much "extra" our incomes have grown, most of the growth is eaten up by the higher cost of living here.

The public has been increasingly wrestless over prices and how much money the province is getting for a non-renewable resource and the oil and gas companies know this. They have been trying to make themselves look a little better over this last year or so, though not on a huge scale, but I believe they had a good sense of things some time ago.

Regardless of where this goes I do not believe that jobs are going to suffer as a direct result of the Royallty Review, but even if the Province gets or takes the full value of the reccommendation it does not guarantee that it will be spent wisely. That is our job as the public. If you folks feel strongly about this subject no matter which side of the discussion you are on, write to your MLA it will have some effect. This is a great discussion going on here, but you need to voice your same opinions and arguments to people who are on the front lines and I hope you do, that is how we make ourselves heard out there.

Nice that this is such a civilized group of people!

[bowfin]

Guys this is my take

 

I have worked in the patch all my life all most 20 yrs. 15 yrs on a drilling rig i have seen the ups and downs in the patch. Do mostly because of prices for oil and gas things have been really slow since march becuse the price of nat gas sucks. The gov should have done this royalty bs 18-24 months ago when the price of gas was at record highs and there would be no bitching from oil companys. I have heard all the numbers of lose jobs here is what i can tell you

 

rigs working in ab 206 rigs = 4120 jobs 20 guys per rig

 

rigs not working in ab 504= 10080 jobs

 

this is just on the drilling rig what about all the service hands ie cementers,service rig hands,pipeliners,frac serices,truck drivers when they say 30000 people are out of work i thing they are pretty close. In my option I dont think this slow down is from the royaly bs its because the price of gas is low the royaly bs is not helping matters thats my take.

[reevesr1]

Guys,

 

Four things to keep in mind:

1] Alberta Auditor General says we're getting screwed

2] Royalty review says were getting screwed

3] Dept. of Energy says were getting screwed

4] Oil Companies says we're not getting screwed.

 

Now who would you believe?

 

Don

 

Here is my predictable response, which serves my best interest

1. Predictable response, serves their best interest

2. Predictable response, serves their best interest

3. Predictable response, serves their best interest

4. Predictable response, serves their best interest

 

I could add Politically motivated in 1, 2, 3 and profit motivated in 4.

 

I don't necessarily believe any of them.

[trailhead]

Don't be fooled into thinking that the exploration companies won't invest their dollars elsewhere. I personally know of a few companies that decided two years ago that the oil industry in Alberta was not profitable enough. One operates in the far east, lower costs, no landsale costs and lower royalties. The price of their stock has quadrupled in two years. The other decided to try things in Northern Africa, they just sold to a European oil company and did extremely well financially. And at the prsent time the most lucrative area in Canada to operate is....Saskatchewan. The authors of the royalty review did not compare Alberta's royalty structure to Saskatchewan or BC. Maybe they just wanted to paint things in their own light, comparing Alberta to Venezuela oil wise is like comparing Alberta to Argentina flyfishing wise.

[wongrs]

i can't believe 2 things:

 

1) that nobody has pulled out the 'fear monger' card that usually gets pulled during these topics

2) that nobody cares i can't find an indian lunch buffet in the downtown for less than $15

[Harps]

I received this in an email today on FF@...

 

I am no way qualified to comment on any of this, and this isn't my opinion... I just thought it was good. (I don't know if it applies here or not)

 

.

.

.

 

 

Since it is Royalty revue season let's put royalties in terms everyone can understand. Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:

 

The first four men (the poorest) would pay nothing.

The fifth would pay $1.

The sixth would pay $3.

The seventh would pay $7.

The eighth would pay $12.

The ninth would pay $18.

The tenth man (the richest) would pay $59.

So, that's what they decided to do.The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. "Since you are all such good customers," he said, "I'm going to reduce the cost of your daily beer by $20."Drinks for the ten now cost just $80.

 

The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. But what about the other six men - the paying customers? How could they divide the $20 windfall so that everyone would get his 'fair share?' They realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to drink his beer.

 

So, the bar owner suggested that it would be fair to reduce each man's bill by roughly the same amount, and he proceeded to work out the amounts each should pay. And so:

The fifth man, like the first four, now paid nothing (100% savings).

The sixth now paid $2 instead of $3 (33%savings).

The seventh now pay $5 instead of $7 (28%savings).

The eighth now paid $9 instead of $12 (25% savings).

The ninth now paid $14 instead of $18 (22% savings).

The tenth now paid $49 instead of $59 (16% savings).

 

Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings.

 

"I only got a dollar out of the $20,"declared the sixth man. He pointed to the tenth man," but he got $10!" "Yeah, that's right," exclaimed the fifth man. "I only saved a dollar, too. It's unfair that he got ten times more than I!" "That's true!!" shouted the seventh man. "Why should he get $10 back when I got only two? The wealthy get all the breaks!"

"Wait a minute," yelled the first four men in unison. "We didn't get anything at all. The system exploits the poor!" The nine men surrounded the tenth and beat him up.

The next night the tenth man didn't show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill!

And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

 

David R. Kamerschen, Ph.D.

Professor of Economics

University of Georgia

[Harps]

i can't believe 2 things:

 

1) that nobody has pulled out the 'fear monger' card that usually gets pulled during these topics

2) that nobody cares i can't find an indian lunch buffet in the downtown for less than $15

 

There's a great Ethiopian Restaurant in Lethbridge with big meals for under $15... does that count??

[Castuserraticus]

Wow - I don't check for a couple of days and the fan gets dirty. Where to start.

 

From Suncor's latest annual report their production costs are $24/Bbl. They received a -$9 differential to West Texas because they mainly produce upgraded synthetic crude. The non-mining (in situ) projects are looking at differentials of over $25 with similar operating costs but less capital invested.

 

Drilling activity in most gas producing areas (ie most of the province) has virtually stopped. I talked to a guy from Whitecourt this morning and it's dead. Oil producing areas (ie a small part of the province) are still going strong. Encana is a special case as it directly owns the petroleum rights under huge areas east of Calgary (railroad grant lands). It pays a 6% mineral tax vs higher royalties. They are also very efficient drillers due to large scale programs.

 

How can you tell the difference between left and right wing? The right wing people are willing to invest time and money to build companies that add to the prosperity of society. They have a desire to be successful through their own hard work. The left wing people believe profits are evil and should be taxed thus taking away from prosperity. They have a desire to be taken care of because they're afraid to stand on their own. The truth is that without entrepeneurial companies there would be no economy. The Soviet Union didn't work.

 

There are still economic projects in Alberta at $5 gas but they're few and far between. This means a much smaller industry.

 

The windfall money came from old production. There is no windfall profit with new drilling. Without reinvestment, the gas industry will shrink by ~20% per year.

 

The provincial government participated in about 90% of the windfall because of ballooning landsale revenues (company reinvestment). A recent report found that while company revenues increased $130Billon the government revenue increased $128 Billion. I can't remember the time period.

 

Norway's take is a combination of direct investment in their industry and royalties. Alberta doesn't invest, it just takes. The return on investment in Norway is nearly 30%/year for the companies because the oil pools are so much bigger. The average return in Alberta is about 15%. The increased royalties would take that below 10%. Where would you want to invest?

 

The term sustainable development gets thrown around a lot by people who can not define it. Sustainable development = population growth. Globally the number is about 3%/year. This means everyone who wants to be employed is. There are two possible roads there. In one, everyone is happy with their standard of living and remains there. In the other, some become richer and some become poorer and the result globally is the same. I am very thankful I live in a society where I can make the choice to better my life.

 

Leaving the resources in the ground for future generations is senseless. There wasn't a major oil industry 100 years ago. I doubt there will be one in 100 years from now. The resource belongs to the generations that needs it. Human ingenuity, sparked by rising costs and business opportunities, will find new sources of energy that we likely can't even imagine (PC's anyone).

 

We live in an incredibly abundant universe. Every time humans have predicted impending doom, new resources and technologies are found. There is no reason for people to live in scarcity in our society. There are no laws in place that state "This segment of the population shall remain poor." I've met princes and paupers over the years and the only real difference lies in the choices they make.

 

Headline today from a new study - F&D Cost For Western Canada Gas Tripled Since 2000 - "The average full-cycle cost of new natural gas supply in Western Canada -- including a return on producers' investment -- has more than doubled since 2000 to $7.90 an mcf, a study has found.

That cost is $1.65 an mcf more than the $6.25 an mcf producers received at the Alberta gas plant gate in the first nine months of this year, Ziff Energy Group reported in its 21st annual finding and development (F&D) cost study for Western Canada." And that's why the industry has slowed down.

[LynnF]

i can't believe 2 things:

 

1) that nobody has pulled out the 'fear monger' card that usually gets pulled during these topics

2) that nobody cares i can't find an indian lunch buffet in the downtown for less than $15

 

I care.....there's an Indian buffet across from the Altius Centre on 4th and 4th that's $9.99.

 

I think this is how threads get hijacked.

[Teck71]

Been there a few times Lynn and it is quite good. Now that Rich again has cheap Indian buffet, can we get back to important topics like say um fissin. huh what ya say. hmmm

please

[Teck71]

And one more Rich when you get to Ottawa accross from the theatres (Colosus)on Britania there is used to be a Indian buffet that is just amazing(if it is still there).

 

see got ya covered now and in the future Rich

[wongrs]

sa-weet action! hey, look at my gut!

[DonAndersen]

Castuserraticus neglected to tell you that:

 

1] The Alberta Gov't, under Klien, sold it's interest in the Husky Upgrader for nickels

2] Klien also sold about a 15% interest in Syncrude.

 

And then he cut royalties. Go figure!!

 

Don