I argued this one a number of pages back, but I think the uproar over this reclamation/royalty pilot is misplaced.
Reclamation spend is already deductible for royalty and tax purposes. This isn't a new concept. At least the way I understand it (oil sands is my area of expertise, not conventional).
So if these companies spent the money to clean the wells back in the day, they would have deducted those costs and Albertans would have received directionally less royalty and tax revenue.
But they didn't, so we got more...effectively meaning we "overcollected". This program would effectively undo that and net it all out (ignoring puts and take like on one side the time value of money benefit of keeping the extra money for a long time, and on the other the inflationary costs of clean up activities).
For those who may better understand the current conventional royalty and reclamation frameworks, what am I missing here?
I argued this one a number of pages back, but I think the uproar over this reclamation/royalty pilot is misplaced.
Reclamation spend is already deductible for royalty and tax purposes. This isn't a new concept. At least the way I understand it (oil sands is my area of expertise, not conventional).
So if these companies spent the money to clean the wells back in the day, they would have deducted those costs and Albertans would have received directionally less royalty and tax revenue.
But they didn't, so we got more...effectively meaning we "overcollected". This program would effectively undo that and net it all out (ignoring puts and take like on one side the time value of money benefit of keeping the extra money for a long time, and on the other the inflationary costs of clean up activities).
For those who may better understand the current conventional royalty and reclamation frameworks, what am I missing here?
Ryan Jesperson did a deep dive into it on his podcast today- worth a listen.
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In that case, they just fold the other company and create a new one? It doesn't seem to bother them much- Just ask Brett Wilson
The point of the liability management ratio is to make that choice unprofitable. Basically the value of your Alberta assets have to exceed the value of your reclamation liabilities or you can't get new well licenses (either by drilling or transfer iirc).
Maybe there needs to be a bigger safety factor, especially for firms that own lots of marginal wells where a small change in pricing would have a big change in value, since commodity prices are pretty volatile.
But that's all tinkering around the edges. And when prices are high would be a good-ish time to make that change, because operators could absorb it more easily.
Premier, natural kakistocratist, ardent oil well corporate socialism lobbyist and general legal system charlatan Danielle Smith says the RStar program is a good idea.
It is basically a handout as the companies doing the work will continue unchanged and those who aren’t won’t start because of some tax breaks. It’s just giving money to those are already doing it.
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It is basically a handout as the companies doing the work will continue unchanged and those who aren’t won’t start because of some tax breaks. It’s just giving money to those are already doing it.
Socialism for oil industry is ok, but everyone else should be pulling up their bootstraps, quitting Netflix and Starbucks and of course, no more avocado toast
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Nobody disagrees that cleaning up orphan wells is a good thing, the dispute is about whether the public should pay for it.
Oops, sorry everyone that blocked, I took the bait.
This is not for orphan wells, there is already a program for that. This program is for wells owned by operating oil & gas companies (and announced right around the time a bunch of them have been reporting record profits).
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The point of the liability management ratio is to make that choice unprofitable. Basically the value of your Alberta assets have to exceed the value of your reclamation liabilities or you can't get new well licenses (either by drilling or transfer iirc).
Maybe there needs to be a bigger safety factor, especially for firms that own lots of marginal wells where a small change in pricing would have a big change in value, since commodity prices are pretty volatile.
But that's all tinkering around the edges. And when prices are high would be a good-ish time to make that change, because operators could absorb it more easily.
The LLR calculation for wells uses a 3 year rolling average netback on the asset side of the equation to smooth out that volatility.
The government has only $283,000,000 in securities from companies with a sub 1.0 LMR. Put pressure on licensees that have many wells that are on the inactive list. Jack up the security requirements to put pressure on these companies that are not directive 13 compliant. Giving these companies a royalty break does nothing to incentive them. They have shut in most of their production. It's a handout to the companies that maintain a good LMR.
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I wonder what the UCP is afraid of? Perhaps results weren't to their liking?
Something to point out on the quality of governance. The NDP conducted a royalty review, hired experts, got a completely different result than they were expecting, then implemented the recommendations.
They didn’t bury the report.
There is one clear choice if you want governance that follows reasonable principles. You can disagree on policy but at least the process will be reasonable.
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