Alberta PST discussion

[GP_Matt]

Originally Posted by SebC

An interesting article in the context of this discussion: http://www.vox.com/2015/1/16/7545509/inequality-waste

A PST (VAT) is the preferred source of revenue for some, because it is economically efficient. Other prefer income tax, because it can be implement progressively. The article I linked to discusses a progressive consumption tax, and talks about the benefits it might incur in reducing waste and even increasing happiness.

That reads like a great idea that could never be implemented.

There are so many problems with the implementation and sale of the idea that I don't think it could ever fly.

[polak]

How is this for an idea for diversifying the economy. For every dollar that Oil goes over $90 bucks a barrel, O&G producers need to pay an extra royalty which gets distributed to non-oil and gas companies.

This would attract all industries when times are good. Not just the ones that can benefit from Oil and it's not like O&G companies are going to close shop when there is +90 dollar oil to be had.

[Brewmaster]

Originally Posted by polak

How is this for an idea for diversifying the economy. For every dollar that Oil goes over $90 bucks a barrel, O&G producers need to pay an extra royalty which gets distributed to non-oil and gas companies.

This would attract all industries when times are good. Not just the ones that can benefit from Oil and it's not like O&G companies are going to close shop when there is +90 dollar oil to be had.

This is the type of idea that could potentially set the Canadian oil patch back decades. Provincial oil & gas fiscal regimes need to be competitive with the rest of the world or corporations will simply take their money elsewhere. The provincial royalty regimes in place today are carefully calculated to take a larger royalty on higher rate wells and increasing oil prices while remaining competitive with other provinces and states. Getting too greedy will send the oil companies to more competitive regimes. See the Stelmach royalty review in Alberta in 2007 for an example. Distributing oil and gas revenue directly to non oil and gas companies is essentially taking it right out of the pocket of the government and the tax payers.

[polak]

Show me one company that packs up and leaves when there is profit to be made? We're not reducing revenue until oil is at a price where these companies are making money hand over fist.

This isn't retail where you can open up shop anywhere you like. There is Oil in the ground to be exploited. I don't think anyone will leave because their profits are skimmed by a small precentage once they get to a level that is well over healty.

Pandering to the patch is exactly how we got in this "eggs in one basket" boat.

[Flash Walken]

Originally Posted by Brewmaster

This is the type of idea that could potentially set the Canadian oil patch back decades. Provincial oil & gas fiscal regimes need to be competitive with the rest of the world or corporations will simply take their money elsewhere. The provincial royalty regimes in place today are carefully calculated to take a larger royalty on higher rate wells and increasing oil prices while remaining competitive with other provinces and states. Getting too greedy will send the oil companies to more competitive regimes. See the Stelmach royalty review in Alberta in 2007 for an example. Distributing oil and gas revenue directly to non oil and gas companies is essentially taking it right out of the pocket of the government and the tax payers.

Norway taxes energy industry profits at 80%.

Alberta's royalty rates are downright generous in comparison, let alone 'competitive'.

[Brewmaster]

Originally Posted by polak

Show me one company that packs up and leaves when there is profit to be made? We're not reducing revenue until oil is at a price where these companies are making money hand over fist.

This isn't retail where you can open up shop anywhere you like. There is Oil in the ground to be exploited. I don't think anyone will leave because their profits are skimmed by a small precentage once they get to a level that is well over healty.

Pandering to the patch is exactly how we got in this "eggs in one basket" boat.

What you are suggesting sounds an awful lot like the NEP from the early 1980's. Many companies packed up and left, and the result was unemployment and a real estate crash in Alberta. I'm not saying our current royalty regime is perfect, but making changes based on arbitrary numbers, like $90/bbl because 'companies are making money hand over fist' just isn't good business. Oil companies will go where they can get the best rate of return. Some jurisdictions can get away with much higher taxes and royalties because they have more prolific oil deposits and lower operating costs.

[crazy_eoj]

Originally Posted by Flash Walken

Norway taxes energy industry profits at 80%.

Alberta's royalty rates are downright generous in comparison, let alone 'competitive'.

Norway also directly invests approximately 75% of all costs involved in oil exploration and production.

Are you suggesting Alberta should spend somewhere in the neighborhood of 40-50 billion dollars per year in oil and gas exploration to increase our take?

If we are going to compare apples and oranges...

Capital flows where it is the most competitive, especially in this global economy, and pretending that Alberta doesn't have to take steps to retain a competitive petroleum economy when pitted against global projects is probably the most ridiculous assertion in this thread.

[killer_carlson]

Brewmaster is being awfully polite about the NEP. Devastating. Investment pulled out rather than have a the feds steal... er... I mean nationalize the resource. Tens of thousands of families lost their jobs, their homes, their livelihoods.

I remember growing up in Bonavista playing with a kid from my soccer team on his last day while his family packed up and they moved to Ontario because (I now know) dad lost his job and the family lost his house. They weren't affected in the first hit, but with every job lost in oil, 2 or more were lost in the economy. It was 1983 or 1984

A foreclosure lawyer I know described contracting a maintenance company to cut the grass who could literally drive a tractor up and down the block in straight lines because every home in the entire block had been foreclosed on (Grande Prairie). This isn't a developer who went under, it was individual families.

The NEP was a massive wealth transfer from Alberta to the feds under the guise of Nationalism.

I don't think we'll ever see it again because the Province would separate before it was ever that bad again. And I think most realize it. He'll, even

Michael Ignatieff got a standing ovation at a session in Edmonton when he was leader of the Libs. He started the talk off with this opening:

The NEP was a mistake.
The wealth of the nation is shifting west and as a government we need to recognize and respect that.

[polak]

Yes cause the Oil and Gas industry is operating in the same environment as the 80s when demand was no where near the level itnis today and investment in the oil sands was a fraction of a fraction of what it is today. No company is shutting down shop and oil is at 40 bucks a barrel. You think they will leave cause we skim their profits when oil is sky high? Yeah right.

[Flash Walken]

Originally Posted by crazy_eoj

Norway also directly invests approximately 75% of all costs involved in oil exploration and production.

Are you suggesting Alberta should spend somewhere in the neighborhood of 40-50 billion dollars per year in oil and gas exploration to increase our take?

If we are going to compare apples and oranges...

Capital flows where it is the most competitive, especially in this global economy, and pretending that Alberta doesn't have to take steps to retain a competitive petroleum economy when pitted against global projects is probably the most ridiculous assertion in this thread.

I'm glad you brought that up, because I completely agree that it's an apples to oranges comparison.

It seems like 1 + 1 = 2. Norway has a structured industry devoted to capitalizing as much as possible on oil wealth. It's heavily, heavily regulated, heavily taxed, and doesn't work at all like Alberta's royalty system.

Maybe Alberta needs something similar? Or maybe we shouldn't pine for economic stability and future oil wealth? Seems like it's one or the other.

If the royalty system isn't benefiting Albertans and Canadians, maybe we should look at an alternate method of accounting for resource extraction.

I don't know what that looks like, but it seems like an opinion that runs parallel for me with the Alberta government: If you've been doing something a certain way for a long time and you aren't benefiting from it, maybe it's time to change up?

[Handsome B. Wonderful]

Originally Posted by polak

No company is shutting down shop and oil is at 40 bucks a barrel.

And at this point we knew for certain that you don't have a clue.

[GP_Matt]

Take a look at the above graph. Alberta oil is already expensive to extract. Oil companies are absolutely global and will shift their spending to lower cost regions if the rates go up.

For most companies every group presents their proposals for the years budget including total return. The companies then allocate their money to the most profitable endeavours first until the budget is spent. (very basic explanation I know) If the costs go up in one region the will shift money to another.

A great example of this is the Petronas/Progress plans for a LNG terminal. They are going to spend their billions on the project that makes the most economical sense whether it is in Canada, Australia or elsewhere. A 1% increase in royalties could easily sway that decision.

[Flash Walken]

Originally Posted by GP_Matt

Take a look at the above graph. Alberta oil is already expensive to extract. Oil companies are absolutely global and will shift their spending to lower cost regions if the rates go up.

For most companies every group presents their proposals for the years budget including total return. The companies then allocate their money to the most profitable endeavours first until the budget is spent. (very basic explanation I know) If the costs go up in one region the will shift money to another.

A great example of this is the Petronas/Progress plans for a LNG terminal. They are going to spend their billions on the project that makes the most economical sense whether it is in Canada, Australia or elsewhere. A 1% increase in royalties could easily sway that decision.

am I reading this correctly, that the break even estimate for oil sands oil is $70 a barrel?

[Harry Lime]

The issue may be a bit more complicated than that graph indicates. From the looks of it, as long as we keep the price of oil below $75, we should be able to push everybody out of the Arctic, because the most valuable commodity would be walrus tusk.

[Frequitude]

Matt, that's a great chart. The most important thing to take away from that is that the theoretical stable long term price of oil is about $65-$70 (The point at which current demand of 90-90mmbpd crosses the supply line).

Originally Posted by Flash Walken

am I reading this correctly, that the break even estimate for oil sands oil is $70 a barrel?

Correct. Not to sustain existing production, that's in the $30-$40 range. But including return on capital we need at least $70 for new growth.

[Frequitude]

Originally Posted by Harry Lime

The issue may be a bit more complicated than that graph indicates. From the looks of it, as long as we keep the price of oil below $75, we should be able to push everybody out of the Arctic, because the most valuable commodity would be walrus tusk.

Sub $75 would absolutely keep everybody out of most of the arctic.

The big losers in this price war are not the shale guys. They might lose short term, but in the long run its the mega projects (deep offshore, greenfield oil sands). This price war brings volatility and uncertainty that will drive up the risk premium for capital to fund them, thereby bringing up the breakeven price of oil for these projects.

[polak]

Originally Posted by Handsome B. Wonderful

And at this point we knew for certain that you don't have a clue.

Shutting down shop was the wrong wording I'll admit (I was a little drunk last night, my bad, blame the Honda curse). I meant no company is leaving the oil sand market.

I think we might need to evaluate the risk of Oil & Gas companies "refocusing" their money versus the risk of more serious Oil price drops with no other industries to keep Alberta a float. It's absurd that we're still seeing people push back the diversification of our economy especially when our main industry is one with a limited shelf life. When are we going to finally wake up? When our reserves start to dry up? Is that what it's going to take? I guess that is the Alberta way. Go Go Go and then worry about the future when it arrives....

I think you guys are worried that O&G companies "refocusing" their money means less cushy, high paying jobs that Albertans seem to be so used too. Well, I think that's a sacrafice that needs to be made for the overall good of Alberta's economy long term. The jobs in theory would be replaced by the new industries the subsidies would attract, sure they might not pay as well and sure, basic trades might not pay 6 figures any more, but that's the price of maintaining our economy long term.

It's a simple solution. You take a paycut now so your kids and their kids can still find jobs in 50-60 years when Oil might be worthless for all we know.

[Flash Walken]

Originally Posted by Frequitude

Matt, that's a great chart. The most important thing to take away from that is that the theoretical stable long term price of oil is about $65-$70 (The point at which current demand of 90-90mmbpd crosses the supply line).

Correct. Not to sustain existing production, that's in the $30-$40 range. But including return on capital we need at least $70 for new growth.

I am admittedly out of my element here, but if that is the case, isn't it looking like it will be awhile before oil hits that level again?

Is new growth in Alberta's energy sector something that is desperately needed, or is it desperately needed to continue as a boom period?

[Slava]

Originally Posted by polak

Shutting down shop was the wrong wording I'll admit (I was a little drunk last night, my bad, blame the Honda curse). I meant no company is leaving the oil sand market.

I think we might need to evaluate the risk of Oil & Gas companies "refocusing" their money versus the risk of more serious Oil price drops with no other industries to keep Alberta a float. It's absurd that we're still seeing people push back the diversification of our economy especially when our main industry is one with a limited shelf life. When are we going to finally wake up? When our reserves start to dry up? Is that what it's going to take? I guess that is the Alberta way. Go Go Go and then worry about the future when it arrives....

I think you guys are worried that O&G companies "refocusing" their money means less cushy, high paying jobs that Albertans seem to be so used too. Well, I think that's a sacrafice that needs to be made for the overall good of Alberta's economy long term. The jobs in theory would be replaced by the new industries the subsidies would attract, sure they might not pay as well and sure, basic trades might not pay 6 figures any more, but that's the price of maintaining our economy long term.

It's a simple solution. You take a paycut now so your kids and their kids can still find jobs in 50-60 years when Oil might be worthless for all we know.

Let me just take a wild guess. You work in an industry other than oil and gas and think that your job is immune to the industry?

[Frequitude]

Originally Posted by polak

Shutting down shop was the wrong wording I'll admit (I was a little drunk last night, my bad, blame the Honda curse). I meant no company is leaving the oil sand market.

I think we might need to evaluate the risk of Oil & Gas companies "refocusing" their money versus the risk of more serious Oil price drops with no other industries to keep Alberta a float. It's absurd that we're still seeing people push back the diversification of our economy especially when our main industry is one with a limited shelf life. When are we going to finally wake up? When our reserves start to dry up? Is that what it's going to take? I guess that is the Alberta way. Go Go Go and then worry about the future when it arrives....

I think you guys are worried that O&G companies "refocusing" their money means less cushy, high paying jobs that Albertans seem to be so used too. Well, I think that's a sacrafice that needs to be made for the overall good of Alberta's economy long term. The jobs in theory would be replaced by the new industries the subsidies would attract, sure they might not pay as well and sure, basic trades might not pay 6 figures any more, but that's the price of maintaining our economy long term.

It's a simple solution. You take a paycut now so your kids and their kids can still find jobs in 50-60 years when Oil might be worthless for all we know.

Or we exploit it as hard as possible to generate wealth now that can be reinvested over longer periods of time (into other industries for example). Time value of money.

As for referring to O&G jobs as high paying and cushy, get over yourself. Albertans in this industry work their ass off to both get here and stay here.