Quote:
Originally Posted by Hakan
There are considerable economic rents that the Government of Alberta is not capturing. As Albertans that is something that you should all be concerned about. That's your land and it's being under-utilized.
Also, the Government of Alberta miscalculated royalties for the past 7 years with millions of dollars being kept away from government. The incompetence of the Klein regime is stunning.
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That thinking is flawed in the sense that it's two dimensional. There are many more dimensions that go into government take on oil and gas than simple difference in the government's cost of capital vs the oil companies cost of capital. In order for that to work to the government's advantage gas prices would have to continually go up. For example today oil cos are drilling gas wells in land that was purchased using an $8-9 gas price deck a couple of years ago. Prices on average are depressed from there and thus the land isn't pruducing as much gas as it would have in a higher price environment. Well no problem for the government because they were paid a good chunk for the land back then. Fast forward to a higher royalty environment where the government is paid off more on the back end and not the front end and they would be way behind in an econonmic sense should prices go down anywhere. I just sat through a presentation where a reputable firm was calling for $6 Hub gas short and long-term. Land that was economic to drill at $8 is might not be economical at $6. So if the expectation back when the land was purchased was $8 gas and now it's $6, the oil co's won't drill and the government makes little on land (that's worth less due to higher royalties) and less on royalties because much less gets drilled on the margin. The devil in the details of the economic rent arguement is that the oil co's have the option to drill or not to drill in low price environments. The economic rent arguement means the government takes a speculative bullish position on natural gas. Considering that the province does well in times of higher gas prices and poorer in times of low gas prices this is not good public policy.