EnCana saber rattled this past week about reducing investment in Alberta by $1B in 2008 because of the “Our Fair Share” Royalty Review Report. Ironically the management at EnCana was telling a different story at a Peters and Co investor’s conference in Toronto a week earlier. Here is an EnCana quote from Mr. Graham president of EnCana's Foothills division in a September 11, 2007 National Post story:
Now I wonder how EnCana can square that circle of impressive performance in the face of low gas prices and higher operating costs already in place and accounted for in their impressive results with the sudden need to cut $1B from their 2008 capital budget a week later. Can this threat be interpreted in any other way except to say it is posturing and intimidation.
The Editorial Board of the Calgary Herald from a city that is smack dab in the eye of the Alberta economic storm, is the voice or reason and responsibility today too. Slowing down Alberta a bit is a necessity and the marketplace is doing it but that is no reason not to increase the citizens fair share of their resource revenues now too.
Could it be the drilling contractors woes outlined in their recent news release on the “Our Fair Share Royalty Review” are self induced and market driven and not really about possible government policy at all?
For the record it was someone at Peters and Co. who sent an email to their client’s in response to the “Our Fair Share Royalty Review” suggesting Alberta was like Venezuela. A comment that was kindly considered as “over the top.”
I guess as over the top as "leave it in the damn ground" as uttered by Alberta energy czar Bill Hunter
ReplyDeleteIf we are talking gas, and I presume we are, if the market price is uneconomic, the drilling costs are out of line, the exchange rate is a barrier and the exploration risks are too high...the prudent business decision is leave it in the damn ground until it makes sound business, as well as environmental and societal sense.
ReplyDeleteLet the market decide. Remember royalties are only on profits so therefore I as an Albertan owner of the resource don't want unprofitable enterprises in the energy sector.
So you are saying that Alberta as a matter of fiscal policy should discourage high cost, deep gas drilling in a mature WCSB by increasing the royalty take. On the other hand, cheap, low productivity wells should be encouraged.
ReplyDeleteI assume you are aware that deep gas drilling encourages innovation and value added within the natural gas sector. That's the wave of the future in the natural gas sector whether you realize it or not.
What is your opinion on the OSST? It is tax on gross revenues, not profit.
Anon @ 3:58 - actually the Our Fair Share Report says reduce the royalty on such low producing wells...doesn't it?
ReplyDeleteExplain the deep well innovation please. Do they improve well productivity by reducing costs and incresing outpuyt and enhance the environment? Those are the important innovations.
OSST is a gross wellhead tax. Nothing to do with royalities. It only kicks in at $40 oil It is 1% escalating tax that maxes out at 9% when oil hits $120.
As a citizen who owns the resource I am prepared to share the risk of volatile prices with a producer. I expect to also share in the rewards of volatile comodity prices.
You got a problem with that? Go to the real Venezuela.