Alberta Premier Ed Stelmach is hiking royalty rates on the province’s hydrocarbons to bring in about an extra $1.4 billion for the government starting in 2010. A review panel had suggested the figure ought to be $2 billion, starting sooner.
The industry’s unhappy:
Pierre Alvarez, president of the Canadian Association of Petroleum Producers, said he had “tremendous concern.”
“Financial markets are going to respond negatively,” Mr. Alvarez said, adding that the government didn’t listen to industry’s questioning of the costs to produce oil and gas in Alberta.
“The market may be surprised that more was done than less, and that the government didn’t back off on more of the provisions,” said Ari Levy, a vice-president at TD Asset Management Inc. “I fear the risk premium may rise on future projects built in Alberta.”
But NDP Leader Brian Mason says the premier has caved in to Big Oil.
“The phasing in of the royalty program means that the take will be significantly less … than the royalty task force has proposed,” he said. “I think the premier has compromised yet again on a report that represented a compromise in the first place.”
He said Alberta will continue to be one of the lowest royalty jurisdictions in the world under the new formula.
While Stelmach’s betting Albertans will be satisfied and — having become premier after the last guy retired and not yet won an election — might call an election to reinforce popular support for his choice.
Is it the right call? As I wrote last week, nobody has the faintest idea, though I’m pretty confident that one government-set price for anything is likely to be wrong.
The only way to set a “fair” price for Alberta’s oil and gas, as Andrew Coyne echoed yesterday, is to make the companies decide how much the rights are worth for themselves and bid on them. Anything else — the existing price, a higher one or a lower one — is bound to lead to an inefficient, inappropriate price.