Quote:
Originally Posted by Frequitude
The current structure for oil sands is already set up this way actually. Royalty rates fluctuate with the price of oil. Pre-payout they are 1%-9% of gross revenue (i.e. sales). Post-payout they are 25%-40% of net income (i.e. profit).
The oil sands structure is pretty great actually. It's a simple cash flow based system. It probably needs some tweaking though so that companies can't job the system to keep assets in pre-payout by doing things like "expansions" which are really just new projects.
What needs an overhaul is the royalty system for conventional oil and gas. I don't know it that well, but it's a complicated mess where your royalties depend on all sorts of things like quality, rates, types of wells and so on.
To be honest, I'm not scared much at all about what will be announced. I can't imagine they're going to actively kill anything. What sucks though is that it's taken this long to announce. Uncertainty keeps a non-zero amount of capital on the sidelines.
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First, let me say that I agree and its crazy that they've let this drag out. But the question I have is how much capital we're really talking about here. With WCS in the teens and no indications of a sudden rebound to anything economical its not like companies are chomping at the bit to deploy cash here. I definitely see that the uncertainty they've caused by these delays is bad, and I don't love a lot of their policies. If people want to say the carbon tax is a problem for the oil patch I can totally see that angle. I just think that the issues around how much investment are taking place are really out of their hands. Maybe a couple percent is related to the uncertainty from the royalty review and what, 98% is due to the fact that the commodity is uneconomical at this point. That's obviously a made-up number on my part. As much as I would love to say "its their fault" the reality is something different, unless there are obvious things I am overlooking?
btw, thanks for your posts here Frequitude. Its great to get some of the industry views and info for those of us who are elsewhere!