Oilpatch giant makes billion-dollar threat over Alberta royalties

[Azure]

http://www.canada.com/topics/news/na...f7adb0&k=31227

EDMONTON -- Oilpatch giant EnCana Corporation warned Friday it would shift $1 billion in capital investments from Alberta next year if the province implements higher royalties recommended by a review panel.


And the company, North America’s largest natural gas producer, said its reduced spending is the “tip of the iceberg” in potential job and investment losses if Premier Ed Stelmach’s government implements changes that would hike its royalty revenues on oil and gas production by $2 billion.


“If the royalty panel’s recommendations are adopted in full, many of Alberta’s new and emerging resource plays will simply not be economically viable,” the Calgary-based company said in a news release.


EnCana is the first energy producer to announce it would cut spending in Alberta in the wake of the panel report, which was released on Sept. 18. Stelmach has said he would announce the government’s response next month.
Frank Atkins, an economics professor at the University of Calgary, said Friday that EnCana’s announcement is “necessary posturing” designed to pressure Stelmach to water down the panel’s recommendations.


Alberta’s economy will continue to be driven by oilsands projects, since the panel told government to keep royalties low on such projects until companies recover their investments, he told Bloomberg News.


“Any time your taxes change for the worst, you’re going to scream. It’s their job to get their argument out there,
” Atkins said. “I can’t see a great deal of capital flight coming out of this.”
Companies including EnCana, Royal Dutch Shell and Exxon Mobil Corp. have few options in finding stable countries where they can boost output and profit from record crude prices, Atkins said.

[jolinar of malkshor]

I would call his bluff. Once natural gas prices increase again, they will be back out drilling.

[Bill Bumface]

It's just a bunch of "I'm going to take my EnCana ball and go home" from a predominantly natural gas producing company. The greed is pretty brutal as they are busy building the tallest building outside of Toronto.

[guzzy]

The gov't has already said it won't use this as leverage against companies drilling natural gas which is on the decline. It will largely be nailing the oilsands. The royalty program was created when oil was $20/bbl. I realize the cost of doing business in ft mac is 2-2.5 times what it is even Fox Creek and GP but they are selling for $80 plus/bbl. They are turning billion dollar profits and they are worried about having to cough up a few hundred thousand extra in royalties to the province they are taking the resources from in the first place. Damn crybabies

The govt should take more. The oil companies will stop investing for one year like they did when Kyoto was signed but then they realize they are missing out on their share of the market over a few hundred thousand dollars a years, they will pull their heads from their filthy stinking rich asses and get back to business in ALberta as usual. The market might turn down a bit. It won't even be considered a turn down as much as it will be considered a step back to reality.

[JD]

It's simple business. If it costs less to make the same money somewhere else, EnCana will do it. You'd be naive to think that increased royalty cost won't affect that bottom line on some projects. Those projects won't go forward if EnCana's money works harder for them elsewhere.

So much talk of "greed" and "they're our resources"... companies such as EnCana who were raised in Alberta and employ thousands of Albertans get no sympathy obviously. It's not in vogue to side with greedy big oil.

What will our government do with all that extra cash anyway?? Governments are generally not good with money.... my opinion anyway.

[Nufy]

The problem is though that if Encana get two or three more of the Big players to go along with them what will happen..

I'll place a bet that Steady Eddie caves in like an like a poorly built snow fort.....

[MarchHare]

What will our government do with all that extra cash anyway?? Governments are generally not good with money.... my opinion anyway.

Lower your taxes?

[JD]

Provincial taxes are already very low.

There is no labour available to build hospitals and schools, which is what the popular opinion will be... well, maybe if EnCana does cancel a couple oil sands projects, maybe there will be!

Tough issue, that's for sure.

[jolinar of malkshor]

Originally Posted by JD

It's simple business. If it costs less to make the same money somewhere else, EnCana will do it. You'd be naive to think that increased royalty cost won't affect that bottom line on some projects. Those projects won't go forward if EnCana's money works harder for them elsewhere.

So much talk of "greed" and "they're our resources"... companies such as EnCana who were raised in Alberta and employ thousands of Albertans get no sympathy obviously. It's not in vogue to side with greedy big oil.

What will our government do with all that extra cash anyway?? Governments are generally not good with money.... my opinion anyway.

If they decide it is not feasable now they will be back in a few years when the price increases....so who cares if they don't drill here for a few years....once they can't find anymore, they will be begging to come back. It maybe it is a good thing that they don't drill for a while, saves the resource for a later date....it's not like everything will collapse if they don't invest that money.

[JD]

Originally Posted by jolinar of malkshor

so who cares if they don't drill here for a few years....once they can't find anymore, they will be begging to come back. It maybe it is a good thing that they don't drill for a while, saves the resource for a later date....it's not like everything will collapse if they don't invest that money.

Who cares? Probably all the people whose livelihoods currently depend on these projects. The argument of whether its better to plunder the resource now or wait until later is a tough one and I don't know the answer to that. All I do know is that oil prices are at an all-time high and oil companies tend to invest when that is the case. What happens if the projects get pulled over royalty increases and when EnCana is ready to come begging back, the prices aren't there to support the projects anyway?

I'm all for getting our fair share of what is rightfully ours, but these decisions must be made very carefully. We can't just assume EnCana will come crawling back. They probably will, they're based here, but what about Shell? Suncor? Japan Oilsands? etc, etc...

[jolinar of malkshor]

Originally Posted by JD

Who cares? Probably all the people whose livelihoods currently depend on these projects. The argument of whether its better to plunder the resource now or wait until later is a tough one and I don't know the answer to that. All I do know is that oil prices are at an all-time high and oil companies tend to invest when that is the case. What happens if the projects get pulled over royalty increases and when EnCana is ready to come begging back, the prices aren't there to support the projects anyway?

I'm all for getting our fair share of what is rightfully ours, but these decisions must be made very carefully. We can't just assume EnCana will come crawling back. They probably will, they're based here, but what about Shell? Suncor? Japan Oilsands? etc, etc...

There is so much work right now it wouldn't matter there is plenty of work else where in the province. With the comment above you make it seem like th NEP. They haven't done hardly any drilling or servicing for gas over the last few months and many of those people that worked in that area have moved on. Now they start ramping things up a bit and they cannot find people to work. So don't go on this idea that all these people will lose their livelyhood.

[DFO]

The threats from O&G producers are hollow. The resources are not going anywhere - it doesn't matter that overall production & exploration is scaled back because it'll eventually be done the next time the economics are favorable (after NG prices rise a little). The realization that the current royalty scheme sucks is a good thing - there is a finite amount of revenue in the oil sands and we deserve more back to set the province up for the future. Once the projected projects are online, Alberta is going to be one of the top exporters of oil to the US. The potential revenues for a good 15-20 year run is going to be huge.

[Kerplunk]

[quote=wookie06;1007530]The threats from O&G producers are hollow. The resources are not going anywhere[\quote]
Although the resources are not going anywhere, the cost to extract them isn't really getting any lower. It's likely that if royalties went up, then wells that are just breaking even now (the small, one barrel a day type ones) would be shut down. If a company shuts down 100 of these for a year, your looking at 36500 barrels a year lost, or (at $75 a barrel) about $2737500 a year. That's lost taxable revenue for the government. Increasing the royalties may not equate to increased money for the goverment.

I've also heard (not through the news) that some companies are putting future exploration and drilling plans on hold until the government figures out which way it's going to act on the report.

[MacDougalbry]

The solution, to me, seems simple... have royalty brackets that are like tax brackets in that the royalty rate "steps up" depending on what the current price of the resource is. For natural gas, set the current bracket so that there is no increase in royalties for that resource at current prices. The brackets would have to be inflation adjusted and would be based on some sort of benchmark (trailing 6 month average price or something like that.) For oil, I would set the brackets so that if prices fell back to lower levels, the rate would return to what it is today.

[Eagle Eye]

Originally Posted by fotze

I think that is how it is.

Wow you sure know a lot about Royalties, for a guy who works at Starbucks

[LockedOut]

To me this just sounds like a fear mongering, sky is falling, PR campaign by the O&G companies.

[NuclearFart]

I don't think they could just pack up and leave like that. How many billions have they invested already? And it's remarkably short sighted long term.

Personally, I'm not very sympathetic to the oil and gas field. It's hard to feel sorry for all these Ferrari driving fat cats...
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AMATEUR MOVIES

[NuclearFart]

Originally Posted by fotze

and that demonstrates the real reason for this whole review. It is about seeing rich jerks with hummers drive around and not feeling you are getting your fair share. Maybe there should be an adjustment but hopefully emotions like jealousy do not cloud the final royalty amounts.

I'm not sure if you are insinuating that I'm jealous, but that's not my point. I'm not in the oil and gas field, so it doesnt bother me if the industry looses some profits. If the money instead goes towards the government, then there is a chance that I may actually indirectly receive some benefit from the oil windfalls. And even if the governement squanders it and I see no effect, well then I'm still no further behind. So in essence I have nothing to lose, be it financial or sympathetic obligations.
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Mexico city hotels

[I-Hate-Hulse]

Originally Posted by NuclearFart

I'm not sure if you are insinuating that I'm jealous, but that's not my point. I'm not in the oil and gas field, so it doesnt bother me if the industry looses some profits. If the money instead goes towards the government, then there is a chance that I may actually indirectly receive some benefit from the oil windfalls. And even if the governement squanders it and I see no effect, well then I'm still no further behind. So in essence I have nothing to lose, be it financial or sympathetic obligations.

So what field are you in? Assuming you're in Calgary, I don't think there's much in this town that doesn't have an indirect link back to O&G in this town. Everyone from teachers, to Chefs, to plumbers are going to take a hit to the pocketbook if O&G tanks in this town.

People always talk about how this is a "diversified town", not just O&G. I laugh at that.

[NuclearFart]

Healthcare.

It's one of the few products people will always need, boom or bust.
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