Quote:
Originally Posted by edslunch
Slightly off-topic, but as I understand it a number of the large oil sands projects were fully paid off recently and no longer pay reduced royalties. How much of a difference does this make to the government’s bottom line and would it lessen the impact of downturns?
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It will make a huge difference - royalties post payout are calculated differently (on net vs gross) but the percentage take is much higher so the collections will be much greater.
I don't think they'll be any less cyclical, and in fact might be more cyclical. Net revenues are more volatile than gross revenues, because expenses don't change that much.
Eg. Say your costs are $30/bbl and the price is $60/bbl. So gross is $60 and net is $30.
If the price drops to $40 in a downturn, gross has dropped by 33% down to $40/bbl, while net has dropped 66% to $10/bbl.
The volatility works the same on the upside. If prices rose from $60 to $90 the gross is up 50% but the net (90-30=60) has doubled.
Oilsands projects reaching payout is a huge win for AB citizens/taxpayers, because our cut goes way up. It'll make the boom and bust cycle for government revenues even more pronounced though. Although on the downside the rule is projects post payout have to pay the pre-payout amount if that would be higher (probably only if they are losing money) so there isn't any downside to the province.
Except that our governments will piss away a tsunami of cash in the good times on stupid stuff and then have <shocked Pikachu face> as the plan for when the cycle turns.