Ed blinks... Alberta rejigs royalty regime

[Ozy_Flame]

Originally Posted by Flames in 07

ya I get it, but don't compare it to your business. For you to properly compare it to your business you don't just simple reduce your tax rate. You slap on another tax regime on top of the existing tax regime than then tweak one of the two tax regimes.

That may be true - but the oil companies are the largest private sector players in Alberta. They reap huge profits, employee thousands of people making huge amounts of money, and the only reason why the royalties are coming into question again is because we are in recessive times, of which we all know is part-and-parcel of a boom-bust economy - it's only a matter of time before oil is back up to $140 / bbl.

And with the whole two-layer tax issue, you seem to be implying that the oil companies are in serious jeopardy with this system. I'd like to see how badly it's affecting their revenue, let alone profitability.

[First Lady]

Originally Posted by Ozy_Flame

That may be true - but the oil companies are the largest private sector players in Alberta. They reap huge profits, employee thousands of people making huge amounts of money, and the only reason why the royalties are coming into question again is because we are in recessive times, of which we all know is part-and-parcel of a boom-bust economy - it's only a matter of time before oil is back up to $140 / bbl.

... and your point is?

[Flames in 07]

Originally Posted by Ozy_Flame

That may be true - but the oil companies are the largest private sector players in Alberta. They reap huge profits, employee thousands of people making huge amounts of money, and the only reason why the royalties are coming into question again is because we are in recessive times, of which we all know is part-and-parcel of a boom-bust economy - it's only a matter of time before oil is back up to $140 / bbl.

That's $85 from here, if you can let me know when crude will go up $85 I'd really appreciate that.

I think recessionary signals are a great reason for royalties to come into question.

[Muta]

Originally Posted by Flames in 07

I'm sure you could arrange for the same kind of 'deal'.

First pay them the $10 you owe them in tax. Then pay them another $10 as a second layer of tax, then, arrange for them to give you a buck or two back.

Your refrence point here is that you think this is a break because you have paid 18 bucks instead of 20. I'm saying in your industry, you only pay 10, so nothing to be envious of.

But if we're all paying something to the government in general, why do you get a break? Irregardless of what rate either of us pay the government as a collective, if you're getting a break to stimulate your industry (which was appointed the royalty structure in the first place because of a lopsided imbalance in wealth distribution that benefited hugely profitable oil and gas firms) why can't my industry? My industry would like to be stimulated too, in these hard economic times.

[Ozy_Flame]

Originally Posted by First Lady

... and your point is?

My point is that when I see companies like BP and Shell reaping record profits, I question why the royalty regime is loosening. Frankly it comes down to oil companies making $5 billion in profit rather than $7 or 8 billion.

Also, I find it very coincidental that the Alberta government's surplus shrinks in the face of lower oil prices, and at the same time essentially announce they are backpeddling by reducing royalty rates.

Looks to me like it has just as much to do with bumping up our surplus as it does stimulating our economy through oil developments.

[First Lady]

Originally Posted by Ozy_Flame

My point is that when I see companies like BP and Shell reaping record profits, I question why the royalty regime is loosening. Frankly it comes down to oil companies making $5 billion in profit rather than $7 or 8 billion.

Oh, heaven forbid someone "profit" *gasp*... what a dirty word.

Goes right along with your brothers socialistic statement.

Originally Posted by Muta

.. lopsided imbalance in wealth distribution ...

Also, I find it very coincidental that the Alberta government's surplus shrinks in the face of lower oil prices, and at the same time essentially announce they are backpeddling by reducing royalty rates.

Looks to me like it has just as much to do with bumping up our surplus as it does stimulating our economy through oil developments.

... ah, yah... you do realize most of the revenue that drives this province is from the O & G industry? So yes, there is a direct correlation between the two.

[Ozy_Flame]

Originally Posted by First Lady

... ah, yah... you do realize most of the revenue that drives this province is from the O & G industry? So yes, there is a direct correlation between the two.

Hmmm....I didn't know our government was in the business of making a profit - did you?

Your love for oil profits is not surprising. Typical conservative rhetoric coming from you, I wouldn't expect anything different.

A surplus is nice, but my point is this royalty reduction may be for the wrong reasons. Hence the coincidental timing of the two announcements.

[photon]

Originally Posted by Ozy_Flame

My point is that when I see companies like BP and Shell reaping record profits, I question why the royalty regime is loosening. Frankly it comes down to oil companies making $5 billion in profit rather than $7 or 8 billion.

So they pay taxes on $7 or $8 billion to Alberta rather than paying zero taxes to Alberta since they've moved somewhere else?

We have to keep these companies here if we want to benefit from the jobs and profit they produce.

[puckhog]

Originally Posted by Ozy_Flame

My point is that when I see companies like BP and Shell reaping record profits, I question why the royalty regime is loosening. Frankly it comes down to oil companies making $5 billion in profit rather than $7 or 8 billion.

This is completely irrelevant to the situation in Alberta. The Western Canadian Sedimentary Basin is aging; new wells are becoming more complex and riskier, so the rate of return on wells drilled here is a lot lower than elsewhere. All companies have a hurdle rate of return that must be met in order to obtain approval for the expenditure of funds, and the higher royalty rates push the return on investment below the line for many marginal wells in Alberta. Simply put, Shell and BP are going to continue to make their record profits, whether they invest here or elsewhere. The question we have to answer is whether we as Albertans want them to put their dollars here - always keep in mind that you can't collect royalties on a well that isn't drilled.

[Ozy_Flame]

Originally Posted by puckhog

This is completely irrelevant to the situation in Alberta. The Western Canadian Sedimentary Basin is aging; new wells are becoming more complex and riskier, so the rate of return on wells drilled here is a lot lower than elsewhere. All companies have a hurdle rate of return that must be met in order to obtain approval for the expenditure of funds, and the higher royalty rates push the return on investment below the line for many marginal wells in Alberta. Simply put, Shell and BP are going to continue to make their record profits, whether they invest here or elsewhere. The question we have to answer is whether we as Albertans want them to put their dollars here - always keep in mind that you can't collect royalties on a well that isn't drilled.

That "hurdle" you describe - is that a minimum hurdle on profits or revenue? If it's a benchmark for profits, then what exactly will that "hurdle" cover in terms of operating expenditures? I have little sympathy for any oil company that says they need to make a minimum amount of profit.

[Muta]

Originally Posted by First Lady

Goes right along with your brothers socialistic statement.

Hey, don't look at me, I'm not the one that implemented the royalty rates that you don't agree with. Perhaps I hit a nerve with you; if I'm 'socialistic', then so is the rest of the province.

Then again, every one would seem 'socialistic' to you considering how far right you lean. How do those wild roses smell over there?

[photon]

Why? If a company doesn't make a minimum amount of profit then they don't create value for their shareholders, the shareholders take their money elsewhere, company goes under because they can't get money to do business, company goes under, all the jobs are lost.

Only way to change that is to change away from a capitalistic society.

[First Lady]

Originally Posted by Ozy_Flame

Hmmm....I didn't know our government was in the business of making a profit - did you?

They are responsible to deliver a balanced budget. When they see the potential of going into debt; I expect them to respond.

Of course they could just tax us more.... like the city.

Your love for oil profits is not surprising. Typical conservative rhetoric coming from you, I wouldn't expect anything different.

What can I say, I have a strong capitalist streak in me. Doesn't matter to me if it is an oil company or an architecture firm. If they are profiting, they are contributing to the economy in many, many ways.

So just where would you draw the line? How much profit is too much profit?

A surplus is nice, but my point is this royalty reduction may be for the wrong reasons. Hence the coincidental timing of the two announcements.

Is there any right reason in your world?

[puckhog]

Originally Posted by Ozy_Flame

That "hurdle" you describe - is that a minimum hurdle on profits or revenue? If it's a benchmark for profits, then what exactly will that "hurdle" cover in terms of operating expenditures? I have little sympathy for any oil company that says they need to make a minimum amount of profit.

It's a hurdle on profit; it basically says that for every dollar the company invests they require that the investment they put it in earns back that dollar plus some percentage (the hurdle rate). It tries to take into account predicted operating expenditures (scheduled workovers, etc.) over the life of the well, as well as depreciate the assets and forecast the revenue from production. Of course, all of this is done based on assumptions of future prices, production rates, etc. so the number isn't perfect.

In any case, for most companies I've been involved with, this rate sits around 10-15%. The problem is that you're looking at the company as a whole, and not just their Alberta investment. Many new wells drilled in Alberta hover right around that hurdle rate, so by increasing the royalty rate (which for our purposes can be considered an operating cost), you're decreasing the ability of an invested dollar to meet it's hurdle rate.

The whole scenario can be compared to your own savings. Let's say you put your money in a bank that provides you with 2% annually in interest. If another bank opens down the street offering 2.5% with the same service fees, where are you most likely to put your money?

[Muta]

Originally Posted by photon

Why? If a company doesn't make a minimum amount of profit then they don't create value for their shareholders, the shareholders take their money elsewhere, company goes under because they can't get money to do business, company goes under, all the jobs are lost.

Only way to change that is to change away from a capitalistic society.

Can't that be applied to any business, though? I mean, why shouldn't other companies get breaks to stimulate that development that aren't oil and gas? Now is a great time to start stimulating other industries in Alberta and diversify away from the one-trick oil and gas pony that Alberta is. Lord knows that resource won't last forever.

As a side interest, I take it you were pro-bailout in September for those financial companies in the States?

[Ozy_Flame]

Originally Posted by First Lady

Is there any right reason in your world?

Yes - saving the environment and maintain the integrity of Alberta for generations to come, just like you believe oil companies reaping huge profits are key to our success.

This is where people like you and me differ. And this is why we have democracy to we can elect people to represent our different viewpoints.

[First Lady]

Originally Posted by Muta

Hey, don't look at me, I'm not the one that implemented the royalty rates that you don't agree with.

You haven't been following very well. I actually agree with what they have announced today. In fact, I pretty much asked for something like this in an email to my MLA, just a few weeks ago.

Perhaps I hit a nerve with you; if I'm 'socialistic', then so is the rest of the province.

Then again, every one would seem 'socialistic' to you considering how far right you lean. How do those wild roses smell over there?

I get a kick out this. You think I lean so far right because of my stance on fiscal issues and on the right wing political forums I am called a liberal because I am too far left on social issues.

[First Lady]

Originally Posted by Ozy_Flame

Yes - saving the environment and maintain the integrity of Alberta for generations to come, just like you believe oil companies reaping huge profits are key to our success.

This is where people like you and me differ. And this is why we have democracy to we can elect people to represent our different viewpoints.

Ok, so we agree to disagree on that particular point.

Can you tell me how much profit is too much profit?

[puckhog]

Originally Posted by Muta

Can't that be applied to any business, though? I mean, why shouldn't other companies get breaks to stimulate that development that aren't oil and gas? Now is a great time to start stimulating other industries in Alberta and diversify away from the one-trick oil and gas pony that Alberta is. Lord knows that resource won't last forever.

Yes, the minimum profit can, and is, applied to every business run in a capitalist system. The problem is in saying that by reducing royalties the government would be providing a stimulus, when in fact it is more like they're removing a hindrance that they put there in the first place.

For my part, I agree that the government should be stimulating other industries to improve Alberta's economy and diversify from the one-trick pony that it is.

[Ozy_Flame]

Originally Posted by First Lady

Ok, so we agree to disagree on that particular point.

Can you tell me how much profit is too much profit?

Too much profit is when companies complain to the government that they're not making enough profit, which was the original stink when the royalty rates were created.

That is a sign of too much profit.