Drop in investor confidence following Alberta’s 2007 royalty review offers lessons for Notley government

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Drop in investor confidence following Alberta’s 2007 royalty review offers lessons for Notley government

by ahnationtalk on July 9, 2015326 Views

July 9, 2015

CALGARY— If history is any indication, the NDP government’s review of Alberta’s energy royalty regime could serve as a deterrent to new investment in that province’s oil and gas industry, finds a study released today by the Fraser Institute, an independent, non-partisan Canadian policy think-tank.

“While the Notley government is delivering on a campaign promise to review royalty rates paid by the province’s oil and gas producers, it must tread carefully. When the Ed Stelmach government launched its review in 2007, there was an immediate plunge in investor confidence,” said Kenneth P. Green, Fraser Institute senior director of energy and natural resources and author of Fallout from the 2007 Alberta Royalty Review Panel.

In 2007, the so-called Royalty Review Panel (RRP) concluded that Albertans were not receiving their “fair share” of revenues from the province’s energy resources, suggesting the need for significant increases in royalty rates.

The Stelmach government acquiesced — the result was a marked drop in perceptions of Alberta as an attractive jurisdiction in which to invest.

The study draws upon the Fraser Institute’s annual Global Petroleum Survey—an international survey of senior executives in the upstream petroleum sector.

In the 2007 survey, energy industry professionals ranked Alberta as the number one jurisdiction in Canada with regard to perceived attractiveness of its fiscal regime (including royalties but not corporate and personal income taxes, capital gains taxes, or sales taxes).

But following the royalty increases,  Alberta plummeted to sixth place in the 2008 survey and last place in 2009, a year in which  70 per cent of survey respondents said the province’s fiscal terms would deter oil and gas investment.

The royalty review and pessimistic survey responses corresponded with an immediate decline in exploration and development dollars flowing into Alberta. Meanwhile, investment in British Columbia’s and Saskatchewan’s energy sectors increased.

Revealingly, Alberta rebounded in the 2011 Global Petroleum Survey after the government restored royalties to their pre-review levels.

“If the government chooses to proceed regardless of past history, they would best advised to ensure that the review process is a highly transparent, with clearly defined dates, clearly defined and delimited goals, and clearly defined public and private consultation with all stakeholders from the outset,” Green said.

“Alberta is dependent on the petroleum industry for private-sector jobs and tax revenues that pay for public services. Facing depressed energy prices and a large budget deficit, the government cannot afford to create additional uncertainty in the oil patch at this time.”


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