Stuck between a rock and a hard place
Stuck between a rock and a hard place… That’s where our Premier is right now after oil and gas giant EnCana gives him an ultimatum.
If Ed Stelmach decides to hike the provincial royalty rates by 20 per cent, the company says it will slash capital investment in Alberta by $1-billion next year. Although the energy company did take part in the royalty review hearings, EnCana officials were shocked when a report by the review panel suggested the hike in rates.
EnCana says most of the spending cuts would occur in areas where increases would make exploration and development uneconomic or uncompetitive. EnCana, North America’s largest natural gas producer, said it had been planning to spend $2.5-billion to $3-billion on Alberta-based activity in 2008. Officials with the company tell 660 News their announcement today is not a threat, just an economic reality and they’re simply looking for a win/win situation.
Earlier this week energy research company Wood Mackenzie said Alberta would reduce the value of oil sands projects by US$26 billion if it adopted the recommendations to boost taxes and royalties.
But some view the situation in a different way.
The controversial report by the royalty review panel said Albertans have been shortchanged by the oil patch for years. It also says oil sands projects should be paying roughly 36 per cent but high-production oil and natural gas wells should be paying higher royalties, with low-production wells paying less.
The big question is: What will Stelmach do?
Political scientist Keith Brownsey at Mount Royal College, says this move by EnCana may actually backfire on them. Brownsey says when push comes to shove Premier Stelmach may actually take a stand against the oil and gas industry and adopt the report in its entirety.
But he adds that Stelmach could easily side with the oil and gas companies on this one and keep the money where the oil is. Brownsey says it isn’t going to be easy for “Steady Eddy.” He says our Premier has the choice between going against public opinion or losing investment in the oil patch.
So what is the best move for our province and will Stelmach make that move? It seems only time will tell.
Have a great weekend mulling this one over.
October 1st, 2007 at 1:06 pm
Of course Encana is going to try everything it can to try and stop the royalty increase even though they are getting an almost free ride with the 1% royalty for the heavy oil. The CEO wouldn’t be doing his job if he didn’t try!
I have worked in the oil & gas industry most of my life. And yes incentives were needed when there was plenty of oil to go around for everybody, because they would drill wherever the best profits could be made.
But things have changed now big time. The $80 a barrel will probably be the base price now, and could easily go to $120 a barrel. Although the oil companies costs have gone up, they have not doubled as the price of oil has. And this is reflected in their profits, the highest profits they have ever had.
If Encana wants to cut back, then that’s great because that will allow someone else to step in, and they will because they can still make money, and they don’t have to deal with kidnappers, al-Qaeda and regimes like Hugo Chavez.
Maybe Stemach should take a page out of Chavez’s book and nationalize the oilsands! Then Encana wouldn’t have to worry about cutting back their investment!
October 4th, 2007 at 5:35 pm
But Encana have now become only one of the first in a series of companies that claim they will drop investment if the report is adopted in full.
There are now many others who want to pull out of our province if the measures are taken.
Will that not affect the industry at all?
Or do you believe this is where the oil is and no matter what there will be investment and profit?
(Ihave to play both sides of this argument … it’s my job)