Another tweak to the drilling and royalty incentives was announced by the Alberta Govt. today extending the two current incentives for yet another year.
You would think that with this he is hearing what we are saying, but there is no truth to this at all. Nothing else has changed from the week before outside of the extension. Gas prices are in the toilet and look to remain there for some time, therefore drilling based on a one year extension on royalty breaks means absolutely nothing, albeit it seems they may have come to the realization there is a problem. Maybe dropping our ranking to the eighth best province to invest in the oil and gas sector had something to do with this.
The only way to help bring in investment dollars is to outright cancel the NRF. By the time prices stabilize enough to where the juniors have enough money to drill the incentive program may not benefit them at all. All of the production before the incentives release in November 2008 are paying the royalties under the NRF. In the price low environment they can not afford to drill and complete the wells and in a higher price environment the royalties are punitive. This leaves no upside for producers and meddling with royalties time and time again does not help bring a stable framework, but eliminates it. With oil at $70US and our dollar at .87 oil is profitable at the moment so why aren't we drilling?
The answer is simple, there are better places to invest.
Thursday, June 25, 2009
Tuesday, June 16, 2009
The Need for Intelligence
Once again nothing but disappointment from the Provincial PC Government.
The three day annual investment symposium kicked off Monday. The mood has changed considerably in the last year since oil and gas prices peaked in July. The investment community is naturally concerned with the low commodity prices and balance sheets more than the actual activity they want to pursue. This brings me to the point.
Why would CAPP invite Mel Knight to speak at such an important event? This investment symposium had a great amount of negativity regarding the the current royalty regime, as well as the impact which comes along with it being how and where to spend the money. Then we have our genius energy department trying to convince the audience that the government is in line with industry and focused on the same issues as the industry. Conversations overheard at the break confirmed this was viewed as false. Reported in the Calgary Herald was this "One industry exec said the current royalty structure doesn't take into account Alberta's geological characteristics and has put the province at a disadvantage relative to other jurisdictions".
As an industry we have all pleaded with our government to re-open the issue and listen to our concerns, of course Mel Knight made sure to point out at the symposium that they would not go back on the existing framework. It is this way of thinking that has damaged our reputation of being a favorable place to invest, causing billions of dollars in capital to flee. The fallout is NOT the oil companies continuing to make money in other jurisdictions, but the tens of thousands of job losses in our province our own government continues to show a lack of intelligence or remorse about.
http://www.calgaryherald.com/business/energy-resources/Pain+persists+among+Calgary+energy+bosses/1699455/story.html
The three day annual investment symposium kicked off Monday. The mood has changed considerably in the last year since oil and gas prices peaked in July. The investment community is naturally concerned with the low commodity prices and balance sheets more than the actual activity they want to pursue. This brings me to the point.
Why would CAPP invite Mel Knight to speak at such an important event? This investment symposium had a great amount of negativity regarding the the current royalty regime, as well as the impact which comes along with it being how and where to spend the money. Then we have our genius energy department trying to convince the audience that the government is in line with industry and focused on the same issues as the industry. Conversations overheard at the break confirmed this was viewed as false. Reported in the Calgary Herald was this "One industry exec said the current royalty structure doesn't take into account Alberta's geological characteristics and has put the province at a disadvantage relative to other jurisdictions".
As an industry we have all pleaded with our government to re-open the issue and listen to our concerns, of course Mel Knight made sure to point out at the symposium that they would not go back on the existing framework. It is this way of thinking that has damaged our reputation of being a favorable place to invest, causing billions of dollars in capital to flee. The fallout is NOT the oil companies continuing to make money in other jurisdictions, but the tens of thousands of job losses in our province our own government continues to show a lack of intelligence or remorse about.
http://www.calgaryherald.com/business/energy-resources/Pain+persists+among+Calgary+energy+bosses/1699455/story.html
Monday, June 1, 2009
Skewed Perception
Our PC government in Alberta is now trying to paint the picture they are industry friendly. This could be further from the truth whether your looking at the royalty rates or the incentive program.
On the royalty issues they claim that it was planned to take very little when the commodity prices are low, and make it back when the prices recover. Unfortunately this puts the province in a peculiar position of not having the income they can budget with when prices are low. Oil and gas companies will definitely enjoy the lower rates. Unfortunately when prices recover the rates charged on oil and gas are punitive and the capital will still be spent in the more profitable areas. No company is going to move forward in a low price environment, therefore the break helps with existing production to the O&G producers. When prices recover the producers will look for the most profitable areas to commence their drilling programs. Drilling where it is only beneficial in a low commodity price environment is surely not one of the considerations made.
The incentive programs introduced are not bad. You would think it would spur on some additional drilling. Unfortunately the majority of juniors do not have the money available to take advantage of them in a low price environment. This is also coupled with the fact that Alberta is no longer a desirable or secure place investors are willing to place their money. The large companies and companies the good producing wells do not receive the full benefit of the incentive program therefore they are not looking to capitalize on them.
To sum it all up the only thing we can do as a province to attract investment dollars and increase activity in our province is to revert to the old royalty process. This of course is the minimum, cutting the red tape and introducing a flat rate royalty based on the net would be even better. This would ensure that Albertans would receive the share of royalties based on profit, which if done would build a partnership as well as take on reward for risk. This would generate thousands of jobs and provide a secure royalty system, attract investment, and provide the province with a more beneficial ownership in our resources.
On the royalty issues they claim that it was planned to take very little when the commodity prices are low, and make it back when the prices recover. Unfortunately this puts the province in a peculiar position of not having the income they can budget with when prices are low. Oil and gas companies will definitely enjoy the lower rates. Unfortunately when prices recover the rates charged on oil and gas are punitive and the capital will still be spent in the more profitable areas. No company is going to move forward in a low price environment, therefore the break helps with existing production to the O&G producers. When prices recover the producers will look for the most profitable areas to commence their drilling programs. Drilling where it is only beneficial in a low commodity price environment is surely not one of the considerations made.
The incentive programs introduced are not bad. You would think it would spur on some additional drilling. Unfortunately the majority of juniors do not have the money available to take advantage of them in a low price environment. This is also coupled with the fact that Alberta is no longer a desirable or secure place investors are willing to place their money. The large companies and companies the good producing wells do not receive the full benefit of the incentive program therefore they are not looking to capitalize on them.
To sum it all up the only thing we can do as a province to attract investment dollars and increase activity in our province is to revert to the old royalty process. This of course is the minimum, cutting the red tape and introducing a flat rate royalty based on the net would be even better. This would ensure that Albertans would receive the share of royalties based on profit, which if done would build a partnership as well as take on reward for risk. This would generate thousands of jobs and provide a secure royalty system, attract investment, and provide the province with a more beneficial ownership in our resources.
Thursday, May 14, 2009
Oilsands Royalty Drop
Here we go again. Painted is the picture Alberta is not receiving it's 'Fair Share' for oil and gas. It is agreeable that the royalty charged in a low commodity price environment is not beneficial to the province, however when the price stabilizes at the higher rates the royalty charge will be punitive. This certainly proves how inept and how little thought the provincial government put into the NRF before implementing it.
When the new royalty regime was brought in the commodity prices were at an all time high, spurring the provincial government to try and collect more. Now prices are low and they are collecting way less on bitumen than they would have with the old royalty structure. This should solidify the fact that if the government can not budget with the new regime, then the investment community certainly has no chance. The new regime has cost the province to many millions of dollars to mention. We need to reopen the royalties and form a stable environment not only for Alberta but the investment community as well. The outcome of the regime has cost us thousands of jobs, millions of dollars, not to mention a reputation as a bad place to do business. Who's to blame this time??
When the new royalty regime was brought in the commodity prices were at an all time high, spurring the provincial government to try and collect more. Now prices are low and they are collecting way less on bitumen than they would have with the old royalty structure. This should solidify the fact that if the government can not budget with the new regime, then the investment community certainly has no chance. The new regime has cost the province to many millions of dollars to mention. We need to reopen the royalties and form a stable environment not only for Alberta but the investment community as well. The outcome of the regime has cost us thousands of jobs, millions of dollars, not to mention a reputation as a bad place to do business. Who's to blame this time??
Wednesday, April 29, 2009
One Big Increase !!
Ouch. The number of Albertan receiving EI skyrocketed over 27% from January to February. For some reason I don't think we will be the envy of the rest of Canada anymore, especially since this is the biggest gain across the country.
This brings the amount of people in our province receiving benefits to 30,600. Fairly scary considering a large part of our province is not eligible to receive them. Iris Evans still is standing by her fiscal forecast of only 15,000 job losses and banking on the fiscal average for natural gas target about 30% higher than it is. Hopefully they really did not budget for this. We as a province need to create jobs through our Provincial govt. There is a huge opportunity through value added for oilsands, financing for junior O&G especially since the royalty fiasco eliminated cash flow to the province, lower royalties to regain confidence in our province, etc....
The other option is to stay the course run a high deficit, beat up on health care, education, and raise taxes (they left this one open, but the education tax increase is surely in the general revenues). If the government can't respond to the people or groups that ask the tough questions, I would have to assume they simply do not have any answers.
This brings the amount of people in our province receiving benefits to 30,600. Fairly scary considering a large part of our province is not eligible to receive them. Iris Evans still is standing by her fiscal forecast of only 15,000 job losses and banking on the fiscal average for natural gas target about 30% higher than it is. Hopefully they really did not budget for this. We as a province need to create jobs through our Provincial govt. There is a huge opportunity through value added for oilsands, financing for junior O&G especially since the royalty fiasco eliminated cash flow to the province, lower royalties to regain confidence in our province, etc....
The other option is to stay the course run a high deficit, beat up on health care, education, and raise taxes (they left this one open, but the education tax increase is surely in the general revenues). If the government can't respond to the people or groups that ask the tough questions, I would have to assume they simply do not have any answers.
Monday, April 27, 2009
Alberta In Recession
According to Canadian Statistics Alberta's Provincial economy sank into recession in 2008. Estimates had Alberta's economy set to grow between one and two percent in 2008 and then going into negative territory this year.
Funny that leading the economic growth was Saskatchewan which bolstered a 4.4% expansion last year. This being said we had quite a year in Alberta as well. This year we start to collect our fair share of an additional 1.7 billion in resource revenues and we eliminated health care premiums. The unfortunate part of this was the repercussions of this. Implementing the NRF we effectively eliminated investment in our energy sector costing too many thousands of jobs to mention as well cratered the provincial revenue. We will run a massive deficit this year, we have lost our gas rebates, chiropractic care is no longer funded, seniors have to fight and rally to retain drug coverage, and so on. But hey, we don't pay for Alberta health care, although it may have been cheaper the other way.
We contacted our Provincial government regarding the employment insurance issue and did not even receive an acknowledgement. This is all the while they took a huge pay increase last year, and gave 40 million in bonus to senior bureaucrats, meanwhile the rest of us struggle to succeed. Seems reasonable to me, no?
Funny that leading the economic growth was Saskatchewan which bolstered a 4.4% expansion last year. This being said we had quite a year in Alberta as well. This year we start to collect our fair share of an additional 1.7 billion in resource revenues and we eliminated health care premiums. The unfortunate part of this was the repercussions of this. Implementing the NRF we effectively eliminated investment in our energy sector costing too many thousands of jobs to mention as well cratered the provincial revenue. We will run a massive deficit this year, we have lost our gas rebates, chiropractic care is no longer funded, seniors have to fight and rally to retain drug coverage, and so on. But hey, we don't pay for Alberta health care, although it may have been cheaper the other way.
We contacted our Provincial government regarding the employment insurance issue and did not even receive an acknowledgement. This is all the while they took a huge pay increase last year, and gave 40 million in bonus to senior bureaucrats, meanwhile the rest of us struggle to succeed. Seems reasonable to me, no?
Friday, April 24, 2009
Saskatchewan Courting Alberta
Well I am impressed to say the least.
This week the Saskatchewan Government had the foresight to see an advantage in the Alberta oil and gas industry. A letter from the minister of enterprise and innovation as well as the minister of energy and resources was sent to industry companies all across the province. Their intent is to welcome those unhappy with the Alberta climate to pursue opportunity in their province as well as presenting numbers in their economic growth. What a change this would be to have a provincial government that would support industry, and realize the rewards they would reap by employing their residents, collecting taxes, and royalties from the companies as well as the people they employ. A government intelligent enough to realize the economic benefits is only there right now because they have tried the route our province is heading. If we are not friendly to business not only do our employment numbers show it, but as our government is learning the fiscal revenues will feel it as well.
This is not to say whether or not Saskatchewan is the place to be, as I have spent my life in Alberta reaping the rewards it has offered, as has everyone else here. We need our government to take a proper approach to industry and the employment it creates, as the Saskatchewan Government has done, wanting our people, equipment and businesses to stay here, and not giving any reasons whatsoever in being open to the option of leaving. There is a reason we all moved to, or stayed here for. Hopefully we can get it back.
This week the Saskatchewan Government had the foresight to see an advantage in the Alberta oil and gas industry. A letter from the minister of enterprise and innovation as well as the minister of energy and resources was sent to industry companies all across the province. Their intent is to welcome those unhappy with the Alberta climate to pursue opportunity in their province as well as presenting numbers in their economic growth. What a change this would be to have a provincial government that would support industry, and realize the rewards they would reap by employing their residents, collecting taxes, and royalties from the companies as well as the people they employ. A government intelligent enough to realize the economic benefits is only there right now because they have tried the route our province is heading. If we are not friendly to business not only do our employment numbers show it, but as our government is learning the fiscal revenues will feel it as well.
This is not to say whether or not Saskatchewan is the place to be, as I have spent my life in Alberta reaping the rewards it has offered, as has everyone else here. We need our government to take a proper approach to industry and the employment it creates, as the Saskatchewan Government has done, wanting our people, equipment and businesses to stay here, and not giving any reasons whatsoever in being open to the option of leaving. There is a reason we all moved to, or stayed here for. Hopefully we can get it back.
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