Natural gas processing plant near Cochrane, Alta.Todd Korol
Much-anticipated changes to Alberta's royalty regime could come as soon as Thursday, as the province seeks to revamp a system that has been called the worst in Canada.
The provincial competitiveness review, which has not yet received full cabinet authorization, is expected either Thursday or Friday, industry sources said Tuesday. The report will be released in Calgary.
Though a government spokesman declined to confirm the date of its release, the report is extraordinarily significant to the province, which draws a huge chunk of its revenues from the energy industry.
In the past few years, energy investment in Alberta has fallen and, even worse, production of natural gas - long the province's chief source of energy revenue - has entered a steep decline. Industry has cast part of the blame on Conservative Premier Ed Stelmach, who brought in a new, harsher royalty regime in 2009 that was designed to give the province a greater share of windfall profits. The new program has been called the worst in the country, and blamed for scaring away investment to neighbouring provinces.
Last fall, Mr. Stelmach, whose popularity has been pummelled in part by those changes and the province's economic slide, ordered a competitiveness review to figure out, and fix, what's wrong.
Chris Fong, a respected former RBC banker, was among those hired to lead the review, which worked closely with industry. In a recent interview, Mr. Fong argued that the case for changing royalties has been made abundantly clear in recent years, as both British Columbia and Saskatchewan have seen higher levels of money invested in their land sales than Alberta.
"Is this like a blank cheque for industry? Absolutely not," Mr. Fong said. "But whether you're an NGO [non-governmental organization]or live in small-town Alberta, you're going to have to recognize that there are challenges that this province faces. And they're not simple challenges."
According to one industry expert, the changes are likely to include a decrease in the initial royalty on conventional oil and gas wells, and a lowered royalty on deep wells. Speculation in Calgary suggests the changes could lower the government take to 5 per cent on an oil or gas well's first production, mirroring a similar system in place in the oil sands. The government is also expected to drop its royalties on wells that are drilled below 2,500 metres. Those deep wells are expensive, but increasingly necessary to tap reserves in new plays that use recently developed technology to bring petroleum to surface.
Yet there is skepticism that the changes will dramatically perk up the energy industry.
The government is "kind of in a lose-lose situation," one banking source said. "They've screwed it up so bad the first time that the market is now expecting them to make a change, and that's priced in. So where's the upside in now coming up with something new?"