Official (Alberta) Oil Discussion Thread

[Harry Lime]

I'm interested in getting caught up on the narrative, but found myself skimming very quickly through the thread due to the political 'he said, she said. There always seems to be a negative backlash by the industry any time the topic of a royalty review rolls around, and it becomes more of a barometer for the will of the government than any kind of an actual review.

I was wondering, why does any action taken as a result of the review have to be static? Why not have a dynamic algorithm that reacts to the state of the industry, the price of oil and refinement? For example, when prices are low, as they are now, the royalties are subject to decline to support the industry, but when they chase $100, as they did recently, the royalties are altered in favour of the province to reflect the value of their commodity.

If it all came down to predicable math, would that settle the minds of the skittish oil companies? Wouldn't a declaration to that effect allow the government to not seem so easily pushed?

I apologize again, if these are the questions of a five year old, I just didn't have the patience to read all of the previous discussion.

[Jacks]

Originally Posted by Harry Lime

I was wondering, why does any action taken as a result of the review have to be static? Why not have a dynamic algorithm that reacts to the state of the industry, the price of oil and refinement? For example, when prices are low, as they are now, the royalties are subject to decline to support the industry, but when they chase $100, as they did recently, the royalties are altered in favour of the province to reflect the value of their commodity.

Because we don't save squat and spend every penny we get, as a result if they lowered royalites in bad times the government would run massive deficits. If we funneled resource revenues into the Heritage Fund and then paid out steady predictable returns to the government we would have the flexibility to raise and lower royalties without killing the budget. This should have started under Klein when the debt was brought under control but unfortunately politicians suffer from short sightedness and weak backbones. Now we are going back into heavy debt and are back to square one so I'm not holding my breath that the system is reformed in my tax paying lifetime.

[Harry Lime]

Originally Posted by Jacks

Because we don't save squat and spend every penny we get, as a result if they lowered royalites in bad times the government would run massive deficits. If we funneled resource revenues into the Heritage Fund and then paid out steady predictable returns to the government we would have the flexibility to raise and lower royalties without killing the budget. This should have started under Klein when the debt was brought under control but unfortunately politicians suffer from weak backbones. Now we are going back into heavy debt and are back to square one so I'm not holding my breath that the system is reformed in my tax paying lifetime.

Lord, that's depressing.

[rubecube]

Originally Posted by peter12

No, that is what at issue here. Applying for an additional environmental assessment through BC means that millions of more dollars will have to be funneled to First Nations under the guise of consultation. It is a shakedown, pure and simple.

So are you saying that the only thing that concerns all of these individuals is money, and that the supposed environmental and cultural concerns are just disingenuous fronts?

[Frequitude]

Originally Posted by Harry Lime

I'm interested in getting caught up on the narrative, but found myself skimming very quickly through the thread due to the political 'he said, she said. There always seems to be a negative backlash by the industry any time the topic of a royalty review rolls around, and it becomes more of a barometer for the will of the government than any kind of an actual review.

I was wondering, why does any action taken as a result of the review have to be static? Why not have a dynamic algorithm that reacts to the state of the industry, the price of oil and refinement? For example, when prices are low, as they are now, the royalties are subject to decline to support the industry, but when they chase $100, as they did recently, the royalties are altered in favour of the province to reflect the value of their commodity.

If it all came down to predicable math, would that settle the minds of the skittish oil companies? Wouldn't a declaration to that effect allow the government to not seem so easily pushed?

I apologize again, if these are the questions of a five year old, I just didn't have the patience to read all of the previous discussion.

The current structure for oil sands is already set up this way actually. Royalty rates fluctuate with the price of oil. Pre-payout they are 1%-9% of gross revenue (i.e. sales). Post-payout they are 25%-40% of net income (i.e. profit).

The oil sands structure is pretty great actually. It's a simple cash flow based system. It probably needs some tweaking though so that companies can't job the system to keep assets in pre-payout by doing things like "expansions" which are really just new projects.

What needs an overhaul is the royalty system for conventional oil and gas. I don't know it that well, but it's a complicated mess where your royalties depend on all sorts of things like quality, rates, types of wells and so on.

To be honest, I'm not scared much at all about what will be announced. I can't imagine they're going to actively kill anything. What sucks though is that it's taken this long to announce. Uncertainty keeps a non-zero amount of capital on the sidelines.

[DoubleK]

Originally Posted by CampbellsTransgressions

http://calgaryherald.com/opinion/col...into-this-mess

Excessive cuts do not help in the long term.

We've spent years making up for Ralph Klein's infrastructure deficit and still experience high costs due to infrastructure shortages, particularly in healthcare. The worst part is that the cuts were done to eliminate 8 billion dollars in debt, an amount that only takes the province two years to accumulate in a downturn as the oil royalties diminish.

Comrade, keep speaking the NDP truth!!!!

[DoubleK]

Originally Posted by Harry Lime

I'm interested in getting caught up on the narrative, but found myself skimming very quickly through the thread due to the political 'he said, she said. There always seems to be a negative backlash by the industry any time the topic of a royalty review rolls around, and it becomes more of a barometer for the will of the government than any kind of an actual review.

I was wondering, why does any action taken as a result of the review have to be static? Why not have a dynamic algorithm that reacts to the state of the industry, the price of oil and refinement? For example, when prices are low, as they are now, the royalties are subject to decline to support the industry, but when they chase $100, as they did recently, the royalties are altered in favour of the province to reflect the value of their commodity.

If it all came down to predicable math, would that settle the minds of the skittish oil companies? Wouldn't a declaration to that effect allow the government to not seem so easily pushed?

I apologize again, if these are the questions of a five year old, I just didn't have the patience to read all of the previous discussion.

Might suggest that you spend the effort to read the thread. Most of your questions have been answered 10 times over...

[Slava]

Originally Posted by Frequitude

The current structure for oil sands is already set up this way actually. Royalty rates fluctuate with the price of oil. Pre-payout they are 1%-9% of gross revenue (i.e. sales). Post-payout they are 25%-40% of net income (i.e. profit).

The oil sands structure is pretty great actually. It's a simple cash flow based system. It probably needs some tweaking though so that companies can't job the system to keep assets in pre-payout by doing things like "expansions" which are really just new projects.

What needs an overhaul is the royalty system for conventional oil and gas. I don't know it that well, but it's a complicated mess where your royalties depend on all sorts of things like quality, rates, types of wells and so on.

To be honest, I'm not scared much at all about what will be announced. I can't imagine they're going to actively kill anything. What sucks though is that it's taken this long to announce. Uncertainty keeps a non-zero amount of capital on the sidelines.

First, let me say that I agree and its crazy that they've let this drag out. But the question I have is how much capital we're really talking about here. With WCS in the teens and no indications of a sudden rebound to anything economical its not like companies are chomping at the bit to deploy cash here. I definitely see that the uncertainty they've caused by these delays is bad, and I don't love a lot of their policies. If people want to say the carbon tax is a problem for the oil patch I can totally see that angle. I just think that the issues around how much investment are taking place are really out of their hands. Maybe a couple percent is related to the uncertainty from the royalty review and what, 98% is due to the fact that the commodity is uneconomical at this point. That's obviously a made-up number on my part. As much as I would love to say "its their fault" the reality is something different, unless there are obvious things I am overlooking?

btw, thanks for your posts here Frequitude. Its great to get some of the industry views and info for those of us who are elsewhere!

[OMG!WTF!]

I think the frustrating thing is that it doesn't matter what oil prices are. If they were high we'd still be getting this royalty review and we'd most definitely be charging industry more as indicated in every NDP platform statement. And then we'd see the exact same result we got when Stelmach tried to get us "our fair share" in 2009-2011. We've done this before. You can blame low oil prices now but ultimately doing what the NDP wants to do has a huge effect on business.

[Suave]

Here is a summary of active rigs over the past couple of years. Data is from old First Energy reports.



Not a lot of difference between provinces. BC being helped by the focus on gas drilling.

[Fuzz]

Amazing how many rigs are in the US. Someone invested a big chunk of money in them...

[ranchlandsselling]

Originally Posted by Suave

Here is a summary of active rigs over the past couple of years. Data is from old First Energy reports.



Not a lot of difference between provinces. BC being helped by the focus on gas drilling.

Not on a relative basis but on a $ value Alberta obviously punished with 218 less rigs working.

[peter12]

Originally Posted by rubecube

So are you saying that the only thing that concerns all of these individuals is money, and that the supposed environmental and cultural concerns are just disingenuous fronts?

Hate to sound cynical, but...

[IliketoPuck]

Originally Posted by rubecube

So are you saying that the only thing that concerns all of these individuals is money, and that the supposed environmental and cultural concerns are just disingenuous fronts?

[Resolute 14]

Originally Posted by rubecube

So are you saying that the only thing that concerns all of these individuals is money, and that the supposed environmental and cultural concerns are just disingenuous fronts?

I am quite certain that many of the people on the ground are very much concerned about the environmental issue. However, most of the money that is coming into these groups is coming in from the US. And those same donors aren't putting nearly the same effort into their fight against American "dirty" oil. It isn't exactly a giant leap to argue that the fight to destroy Canada's oil industry is driven primarily as a means to protect America's oil industry.

[VladtheImpaler]

Originally Posted by peter12

Hate to sound cynical, but...

The Pope is Catholic, right?

[undercoverbrother]

Gas down to $0.76

[CaptainCrunch]

I remember back in college I used to be able to put $5.00 worth of gas in my car and drive for a week. This morning I put about 20 bucks worth of gas in my car, and thought, it wasn't that long ago that gas was double this price.

[undercoverbrother]

Originally Posted by CaptainCrunch

I remember back in college I used to be able to put $5.00 worth of gas in my car and drive for a week. This morning I put about 20 bucks worth of gas in my car, and thought, it wasn't that long ago that gas was double this price.

Yeah I remember high 20's and low 30's gas, also $0.25 bags of chips.

[Regorium]

Originally Posted by Red

Seems like I ruffled some feathers here. It's not cool to defend the NDP, should have known better. Especially when facing an angry mob of unemployed oil workers.....dude, projects were getting shelved and people getting laid off before Prentice even called an election. Heck, the recession is the reason he is not the premier. Some of you have very short memories.

Look at my original post here, it was a response to someone putting blame on the NDP for a lot more than just perhaps having some hard to define impact. Thats why I asked what exactly they did to ruin Alberta already. They are an easy target. I bet if the PCs were in power we would be blaming them for everything too....such creatures we are. But let's get real here. As of today, this government had little to do with Alberta's recession.

But what do I know...NDP did it....

This is really interesting to me. You made a silly statement. Then you project what you reading from crazies on FB to the very reasonable statements made in this thread, and call us ignorant, stupid and getting our feathers ruffled. Nobody has said a single thing about ruining Alberta. In fact, several posts clarified your question, and then responded directly to it.

Have you ever considered that you are exactly like the people you claim to hate, except on the left-wing side?

Here's a super reasonable post that you seem to have conveniently ignored:

I welcome you or anyone to provide a logical arguement against the following statement:

Higher corporate taxes, higher carbon taxes, royalty framework uncertainty, and campaigning against pipelines all have directionally negative consequences on the oil and gas industry in Alberta.

Go ahead.

PS. Your very post in this thread responded to someone that called the NDP's policies "economically irresponsible". The first person that used "ruin Alberta" was you.