Ed blinks... Alberta rejigs royalty regime

[photon]

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.

I agree other companies can and should get breaks, and I think they do in many ways. Businesses came to Alberta because the government's economic policies were conducive to doing business, lower taxes than other provinces, etc.

As someone's already pointed out, the "break" in this case is kind of deceptive, while buddy with the IT company pays $10 tax the oil and gas company paid $20.. now with the break they're paying $18, still more than their "fair" share.

But I totally agree, I would love to see huge incentives for alternative energy sources, big rebates on electric cars and more efficient appliances and furnaces, etc etc. People won't change unless doing it means the path of least resistance, so take the surpluses and allocate some to getting people to change.

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

I don't know nearly enough to even pretend to make an educated guess as to what the right thing to do there is. On one hand I don't like rewarding mismanagement, on the other laws and regulations are in place to stop companies from getting away with things that will ultimately hurt themselves. So on one hand I say let them fall, on the other you have to ask if the same goal of improving the industry so things like that can't happen again without destroying the economy along the way.

I'm a pragmatist.. if the minimum amount of suffering results in some fat cats getting away with poor management (intentional or not), so be it, next time try to do a better job of catching this stuff before it gets out of hand.

[Muta]

Originally Posted by First Lady

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.

Uh, okay, I think you missed the point of what I said, but whatever.

Remember this?

Originally Posted by First Lady

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

Goes right along with your brothers socialistic statement.

... pretty much goes hand-in-hand with you being an opponent of the implementation of the royalty rates right from the get go. Which is what I inferred from your post.

Turns out it you who needs to pay a little bit more attention, not me.

Originally Posted by First Lady

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.

I just get a kick out of you in general. If you have such left-leaning tendencies, no one here has evidently seen them.

[Muta]

Originally Posted by photon

I agree other companies can and should get breaks, and I think they do in many ways. Businesses came to Alberta because the government's economic policies were conducive to doing business, lower taxes than other provinces, etc.

As someone's already pointed out, the "break" in this case is kind of deceptive, while buddy with the IT company pays $10 tax the oil and gas company paid $20.. now with the break they're paying $18, still more than their "fair" share.

But I totally agree, I would love to see huge incentives for alternative energy sources, big rebates on electric cars and more efficient appliances and furnaces, etc etc. People won't change unless doing it means the path of least resistance, so take the surpluses and allocate some to getting people to change.



I don't know nearly enough to even pretend to make an educated guess as to what the right thing to do there is. On one hand I don't like rewarding mismanagement, on the other laws and regulations are in place to stop companies from getting away with things that will ultimately hurt themselves. So on one hand I say let them fall, on the other you have to ask if the same goal of improving the industry so things like that can't happen again without destroying the economy along the way.

I'm a pragmatist.. if the minimum amount of suffering results in some fat cats getting away with poor management (intentional or not), so be it, next time try to do a better job of catching this stuff before it gets out of hand.

For the most part, I agree. Great post.

[First Lady]

Originally Posted by Ozy_Flame

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.

I see, so when companies complain about being over taxed and paying too much in Royalties, (ultimately impacting their bottom line); they are making too much money.

I guess we could apply your stance to the citizens of Calgary too. If we are complaining about being over taxed and can't make ends meet (our bottom line); it is a sign we are profiting too much.

[Ozy_Flame]

Originally Posted by First Lady

I see, so when companies complain about being over taxed and paying too much in Royalties, (ultimately impacting their bottom line); they are making too much money.

I guess we could apply your stance to the citizens of Calgary too. If we are complaining about being over taxed and can't make ends meet (our bottom line); it is a sign we are profiting too much.

The royalty rates were introduced because the oil companies were unfairly making more wealth than was being provided back to the people of Alberta. Of course they're going to complain about it, but I would say the concerns of all Alberta residents are more important than lesser profit margins shareholders will make.

The royalty rates were not designed to put companies out of business. They were designed to balance our wealth distribution.

BTW, you're losing me on the City of Calgary argument. If we can't meet our bottom line (which, by the way, is the minimum amount needed to cover costs, not a minimum profit margin), then we need to increase the tax rate. That's exactly what's happening in Calgary today. Too much growth too fast, and now we're playing catch-up.

[First Lady]

Originally Posted by Muta

Uh, okay, I think you missed the point of what I said, but whatever.

Ok, what was your point then?

... pretty much goes hand-in-hand with you being an opponent of the implementation of the royalty rates right from the get go. Which is what I inferred from your post.

I have never said there should not be any royalties. I realize they are necessary. Where I draw the line, is when they start to impact the profitability of a business to the point that is no longer viable to conduct business in AB.

So yes, I disagreed with the regime as introduced in 2007; but I agree that today's move was a step in the right direction. (From a fiscal perspective, not necessarily an environmental one.)

I just get a kick out of you in general. If you have such left-leaning tendencies, no one here has evidently seen them.

Glad to entertain you. Maybe one day some of the "left leaning" issues will come up.

[First Lady]

Originally Posted by Ozy_Flame

The royalty rates were introduced because the oil companies were unfairly making more wealth than was being provided back to the people of Alberta.

We had years of Klein ignoring that he could have introduced incremental increases. When it was discovered by the auditor general, they came up with the "Fair Share" review; which by it's very nature set up the industry to receive a raw deal.

Of course they're going to complain about it, but I would say the concerns of all Alberta residents are more important than lesser profit margins shareholders will make.

Then you should understand that the less business they conduct in AB, the less benefit the residents will receive. Increasing the slice of the pie doesn't make an difference if you have shrunk the size of the pie.

BTW, you're losing me on the City of Calgary argument. If we can't meet our bottom line (which, by the way, is the minimum amount needed to cover costs, not a minimum profit margin), then we need to increase the tax rate. That's exactly what's happening in Calgary today. Too much growth too fast, and now we're playing catch-up.

I was refering to individual taxpayers' bottom line. Not the city's.

[Ozy_Flame]

Originally Posted by First Lady

Then you should understand that the less business they conduct in AB, the less benefit the residents will receive. Increasing the slice of the pie doesn't make an difference if you have shrunk the size of the pie.

Let's look at it this way - oil companies are operating in the black. The government just wants to take some of that "black" and give it back to the people of Alberta in the form of provincial funding. This would be like the government taxing disposable income on individuals - there's still going to be disposable income, just not as much of it, and ultimately comes back in the form of better services for the taxpayer to use.

Royalties would be a horrible idea if these oil companies were operating in the red, which they are far, FAR from it.

I think you can see that even if the pie "shrinks," the point is there is still enough pie for everyone to enjoy, even during recessionary times.

[First Lady]

Originally Posted by Ozy_Flame

Let's look at it this way - oil companies are operating in the black. The government just wants to take some of that "black" and give it back to the people of Alberta in the form of provincial funding. This would be like the government taxing disposable income on individuals - there's still going to be disposable income, just not as much of it, and ultimately comes back in the form of better services for the taxpayer to use.

Royalties would be a horrible idea if these oil companies were operating in the red, which they are far, FAR from it.

Yet you agree with the city raising taxes (that effect everyone) with many, many families living on the brink of poverty.

See it effects every family regardless of financial position in life. Just like the royalities effect every O & G business, regardless of profit level.

You think it will hurt the bottom line of the big ones; yes it will impact them. But the smaller ones will not weather the storm so well; it at all.

[Ozy_Flame]

Originally Posted by First Lady

Yet you agree with the city raising taxes (that effect everyone) with many, many families living on the brink of poverty.

See it effects every family regardless of financial position in life. Just like the royalities effect every O & G business, regardless of profit level.

You think it will hurt the bottom line of the big ones; yes it will impact them. But the smaller ones will not weather the storm so well; it at all.

My head hurts - are you just arguing for the sake of arguing now?

Let's leave the City taxes issue alone - you have yet to respond to my post about the City finding ways to reduce taxes, which I'm waiting dilligently on in the other thread.

As for the royalties, there is a difference between a family in poverty and an oil and gas company making less profit. The former doesn't have enough money to meet its basic needs; the latter has more than enough still to survive.

Please don't compare the oil companies to poverty-stricken families. That is a horrible, HORRIBLE comparison that I beg you to not go there with.

[Mr.Coffee]

It's all about looking at the big picture here. Oil & Gas prices were heating up, so drilling was heating up, so costs were heating up, and so the royalties are heating up.

Prices have dropped significantly... so what do we all think is going to happen here? Come on people... we don't need econ degrees to figure this out. And guess what else? This happens ALL the time... this is a cyclical industry.

Oil & gas companies are PRIVATE companies that act in the best interests of their shareholders. At the end of the day, that's what they do whether you like it or not, and whether you like how much they earn or not. A private company is not going to drill a well and lose or break-even. They're going to shift investment into neighbouring provinces or countries where they can get their shareholders the returns they promise them. That's common sense, I'm sure we'd all agree.

It's called running a business, and the government just admitted with this announcement, that they may have been over-burdensome with this new regime. The fact that people in this thread think companies make "too much money" should take some of their own money, and invest it in some oil and gas companies if they are agitated by the "extreme profit" being found here.

A royalty isn't a tax, it's a royalty because oil and gas companies are removing substances from the province. A royalty is to REIMBURSE the province for the winning, taking and removing of resources because the province owns them, but doesn't have the ability to remove them all on their own. Some places do try to do it all on their own, see anywhere in the world with a nationalized oil & gas industry (Saudi Arabia, Norway, Venezuela......). In Alberta we've decided to not do this (to encourage competition which drives this society), and therefore the province must somehow be reimbursed. A bank or insurance company shouldn't have to pay a royalty, because they aren't sucking the province dry of resources, they are providing a service- and this is the difference.

I bet you there's some environmental companies out there making "too much profit" too. That concept is absolutely hilarious.

Alberta's just not a good place to drill right now. It's an old, mature province, it's been developed far more than it's neighbours, and it sure doesn't need anymore dis-incentive to drill like huge royalties, at this point in time (but perhaps in the future!).

[Mr.Coffee]

Originally Posted by Ozy_Flame

My head hurts - are you just arguing for the sake of arguing now?

Let's leave the City taxes issue alone - you have yet to respond to my post about the City finding ways to reduce taxes, which I'm waiting dilligently on in the other thread.

As for the royalties, there is a difference between a family in poverty and an oil and gas company making less profit. The former doesn't have enough money to meet its basic needs; the latter has more than enough still to survive.

Please don't compare the oil companies to poverty-stricken families. That is a horrible, HORRIBLE comparison that I beg you to not go there with.

I realise where your head is at with this one... but look at this way:

-There are rich families.
-There are poor families.
-If city taxes go up, it can really screw over poor ones but the rich ones will survive.

-There are rich O&G companies (big ones)
-There are poor O&G companies (LOTS of little ones)
-If royalties go up, it can really screw over the poor ones and put them out of business, but the big ones will most certainly survive.

[First Lady]

Originally Posted by Ozy_Flame

Let's leave the City taxes issue alone - you have yet to respond to my post about the City finding ways to reduce taxes, which I'm waiting dilligently on in the other thread.

Hmm, I hadn't realized. Send me a link, I will try to rectify that.

As for the royalties, there is a difference between a family in poverty and an oil and gas company making less profit. The former doesn't have enough money to meet its basic needs; the latter has more than enough still to survive.

Please don't compare the oil companies to poverty-stricken families. That is a horrible, HORRIBLE comparison that I beg you to not go there with.

The point I am trying to make, is that you are lumping all the oil companies into the "Shell and Syncrudes of the world". The industry is much more than that.

When the big ones have to tighten their belts or look elsewhere to invest their dollars; it is the smaller companies they sub-contract to who feel the pinch. It is the trickle down effect.

You can deny it all you want but, we have all but closed our doors; I am living with the reality. We are not the only ones; other companies have gone under as well.

The 3 people we laid off are living with the reality of having skills that are no longer of any use to them in this province and they are dealing with the reality of being underemployed and not being able to make their rent.

[Muta]

Originally Posted by Mr.Coffee

I realise where your head is at with this one... but look at this way:

-There are rich families.
-There are poor families.
-If city taxes go up, it can really screw over poor ones but the rich ones will survive.

-There are rich O&G companies (big ones)
-There are poor O&G companies (LOTS of little ones)
-If royalties go up, it can really screw over the poor ones and put them out of business, but the big ones will most certainly survive.

Well, I don't agree that lots of small oil and gas firms are 'poor', but okay. If they were poor, that would imply they are very basically making profit and just scraping by, which is still... profit. Obviously, they are still surviving, as being 'poor' doesn't mean bankrupt, otherwise they wouldn't exist. Perhaps they are just barely covering costs for their company and making little profit, but I digress. A poor company is still an active company.

The problem is, a family is a family, which is at a very basic level of needs to satisfy. Even the highest oil executives are family members, and understand this on a very simple level. No one wants to see homelessness and poverty, which are bigger, more complex and more important issues to deal with than corporate oil profits are.

An oil company, if not surviving, is not essential. That means there's someone else out there doing better than them - better product, better efficiency, whatever. It will dissolve, and the employees will seek work elsewhere. Happens all the time. Work is essential, but the oil and gas industry isn't in a grand sense of things. Oil and gas is work, but work doesn't necessarily mean oil and gas.

The oil and gas community is essentially getting a 'bailout' of sorts, in order to keep their business here. That's the government's perogative, fine (and it looks like egg on the face of the government, I admit); but what about the other industries? Do we get these types of bailouts, too? If we don't, why not? We're all being hit by the economic downturn, not just oil and gas companies. Can't we be helped out too?

If only the strong oil and gas companies survive, then that's the way it is, isn't it? If the demand exists, a sufficient amount of new small oil and gas firms will be created to satisfy the demand if the established, big businesses cannot handle it. That's capitalism at its finest, and to those that suggest that the 'too much profit' argument is bunk because there's no such thing, well then - this type of 'bailout' is alot less capitalistic than one would think.

Anyhoo, I thought the original issue was whether or not new drilling establishments would create a bigger environmental impact, would it not? This issue has gotten way off topic, lol.

[Mr.Coffee]

Originally Posted by Muta

Well, I don't agree that lots of small oil and gas firms are 'poor', but okay. If they were poor, that would imply they are very basically making profit and just scraping by, which is still... profit. Obviously, they are still surviving, as being 'poor' doesn't mean bankrupt, otherwise they wouldn't exist. Perhaps they are just barely covering costs for their company and making little profit, but I digress. A poor company is still an active company.

The problem is, a family is a family, which is at a very basic level of needs to satisfy. Even the highest oil executives are family members, and understand this on a very simple level. No one wants to see homelessness and poverty, which are bigger, more complex and more important issues to deal with than corporate oil profits are.

An oil company, if not surviving, is not essential. That means there's someone else out there doing better than them - better product, better efficiency, whatever. It will dissolve, and the employees will seek work elsewhere. Happens all the time. Work is essential, but the oil and gas industry isn't in a grand sense of things. Oil and gas is work, but work doesn't necessarily mean oil and gas.

The oil and gas community is essentially getting a 'bailout' of sorts, in order to keep their business here. That's the government's perogative, fine (and it looks like egg on the face of the government, I admit); but what about the other industries? Do we get these types of bailouts, too? If we don't, why not? We're all being hit by the economic downturn, not just oil and gas companies. Can't we be helped out too?

If only the strong oil and gas companies survive, then that's the way it is, isn't it? If the demand exists, a sufficient amount of new small oil and gas firms will be created to satisfy the demand if the established, big businesses cannot handle it. That's capitalism at its finest, and to those that suggest that the 'too much profit' argument is bunk because there's no such thing, well then - this type of 'bailout' is alot less capitalistic than one would think.

Anyhoo, I thought the original issue was whether or not new drilling establishments would create a bigger environmental impact, would it not? This issue has gotten way off topic, lol.

nm

[photon]

It's not a bailout if the government was the one that increased the costs of doing business in the first place. It's backing off on an increase because the economics have changed.

And even if it was a decrease, that doesn't imply a bailout, it implies a change.. there's no "right" level of taxation and going below that is a bailout, you want to charge the minimum necessary tax to encourage the most business possible. Lowering taxes is one way to encourage growth in a sector; lowering taxes for alternative energy companies would incentivize them, is that a bailout?

If O&G was taxed less than other industries you might have a point, but from what I understand they pay more than other industries per dollar earned.

Plus as has already been said, it's not always a case of a company not surviving, it's a case of a company deciding the grass is greener elsewhere and leaving. We're not a closed ecosystem.

Company A pays $1million in taxes, employs 200 people who also generate $1 million in taxes. Government increases taxes to $1.5 million to get $500,000 more. Company A leaves, government ends up loosing $2.5 million in revenues.

[Mr.Coffee]

Originally Posted by Muta

Well, I don't agree that lots of small oil and gas firms are 'poor', but okay. If they were poor, that would imply they are very basically making profit and just scraping by, which is still... profit. Obviously, they are still surviving, as being 'poor' doesn't mean bankrupt, otherwise they wouldn't exist. Perhaps they are just barely covering costs for their company and making little profit, but I digress. A poor company is still an active company.

www.sedar.com lists all active public companies (this doesn't even include the hundreds if not thousands of private ones) in the Canadian Oil & Gas industry. By "poor" I meant zero profit. I meant, they make money, but it gets 100% re-invested to cover costs, and if the company is unable to cover costs, to cover some of its debt which is undoubtably growing. In the long-term, it's unsustainable and a bullet train to receivership, in the short-term, it can at least keep the lights on in your office while you desperately search for a location to spud that will get you some oil or gas, and even then, that you can get the product to market (tie-in to an existing pipeline). There is an enormous amount of oil and gas companies that go out of business because the nature of the business is inherently risky. If you drill a dry hole, and only have enough money to drill one well, guess what? Your company is poor. You are making ZERO dollars. There's TONS of companies like this, and have a peek at unrecognizable oil and gas companies on sedar there (these will likely be small ones), look at the balance sheet / cash flow statements, and you'll see what I mean. I don't have time to go through the literally hundreds of examples. Your wrong about that.

Originally Posted by Muta

The problem is, a family is a family, which is at a very basic level of needs to satisfy. Even the highest oil executives are family members, and understand this on a very simple level. No one wants to see homelessness and poverty, which are bigger, more complex and more important issues to deal with than corporate oil profits are.

An oil company, if not surviving, is not essential. That means there's someone else out there doing better than them - better product, better efficiency, whatever. It will dissolve, and the employees will seek work elsewhere. Happens all the time. Work is essential, but the oil and gas industry isn't in a grand sense of things. Oil and gas is work, but work doesn't necessarily mean oil and gas.

Yeah, I agree with you that family is the most important thing. Your right about this, I was just trying to get you to see the other side a bit.

Originally Posted by Muta

The oil and gas community is essentially getting a 'bailout' of sorts, in order to keep their business here. That's the government's perogative, fine (and it looks like egg on the face of the government, I admit); but what about the other industries? Do we get these types of bailouts, too? If we don't, why not? We're all being hit by the economic downturn, not just oil and gas companies. Can't we be helped out too?

Absolutely not a bailout. Here's why. The government is merely reducing a new royalty scheme that was arbitrarily and with little warning- thrusted onto already existing Crown agreements struck with the private sector. That is to mean, companies leased lands on the premise they'd pay royalties pursuant to the existing royalty system. Now the government has balked on these agreements and enforced a raise in royalties- fine- this is their prerogative because they represent the people of Alberta. But here's the thing- they are doing this in an attempt to make more money. They realise that the existing structure has reduced drilling commitments considerably, so much so that there will not be the same landsale revenues, not the same new drills, not the same oil and gas development, and therefore not the same oil and gas production. Less production = less money for the government under the new royalty regime. So please don't paint this as a "bailout" when it truly is a self-fulfilling move to stimulate Albertan investment. The U.S. bailout was an act of desperation to inject artificial (and borrowed) money into an economy that faced it's major banks collapsing. This new look at royalties is nothing more than a "uh oh.. we may have gone overboard, lets back it up to keep the pie as big as we can get it". I think there's a difference (and I'm sure you agree).

As to your second point... no, you shouldn't get a bailout if your in a different industry. As I said, the oil and gas industry is a RESOURCE based business. It's unique because it is extracting resources from the province. The private sector buys leases from the province, to win take and remove their resources and sell them. That is why the royalty exists. Other businesses, and other industries are different because they manufacture products and sell them, or offer services. These are not resource based businesses, and these businesses do not pay royalties because there is nothing to pay a royalty for.

Here's a good simple example: You own a pie shop. You buy all your materials, make the pies, and sell them. The government leaves you alone.

I own a pie shop, I buy most of my materials on my own, but the pie filling I lease from the government. I sell the pie, and in exchange for the government giving me filling, they take 10% of my sales.

Originally Posted by Muta

If only the strong oil and gas companies survive, then that's the way it is, isn't it? If the demand exists, a sufficient amount of new small oil and gas firms will be created to satisfy the demand if the established, big businesses cannot handle it. That's capitalism at its finest, and to those that suggest that the 'too much profit' argument is bunk because there's no such thing, well then - this type of 'bailout' is alot less capitalistic than one would think.

I agree, capitalism is a bitch for those who fail. Your right. (Still not a bailout).

Originally Posted by Muta

Anyhoo, I thought the original issue was whether or not new drilling establishments would create a bigger environmental impact, would it not? This issue has gotten way off topic, lol.

I think some of the best threads on this board are the ones that wobble off topic and generate discussion.. but to each their own.