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The Alberta Oil and Gas Royalty Change

Defusing Alberta's Royalty Time Bomb

Written by Keith Kohl
Posted February 1, 2010

Politics is a dirty game.

I'll admit that most of the time, I wouldn't touch it with a ten-foot pole. But sometimes, politics are unavoidable — especially when they directly affect our investment decisions.

I'm not referring to U.S. politics, which are about as nasty as it gets. Today, my attention is fixated on Alberta: Canada's Energy Giant.

The Beginning of the End

I've been covering the ongoing debate over Alberta's oil and gas royalty changes for several years. In fact, I distinctly remember the day the Alberta Royalty Review Panel's report crossed my desk.

The title of the report was "Our Fair Share." The conclusion was easy enough to guess... In a nutshell, the report stated that Albertans do not receive their fair share; it went even further, saying that the government had failed to collect royalties already owed.

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From that moment on, I had this eerie feeling that Alberta was in for some trouble.

And sure enough, five weeks later, I read another report about the new royalty framework. The first sentence stood out: In the words of Alberta's Premier, Ed Stelmach, "I made a commitment and I delivered."

His commitment was to review the current oil and gas royalty structures in Alberta.

Well, he definitely delivered.

Unfortunately, he sent energy companies scrambling to get out of the province.

Trust me, the ball hasn't been dropped this bad since Edmonton sold Gretsky to the Kings... I'm sure my Canadian readers — especially those of you in Alberta — still have some anger issues over that debacle.

Of course, when it comes to politics, the approval of your constituents could mean the difference between another term and a plane ticket home... 

So how have things turned out for Mr. Stelmach?

Suffice to say you'd be hardpressed to find someone with lower approval ratings.

Okay, maybe it's not fair to compare Ed with U.S. presidents... but just to give you an idea, think about our pal G.W., who left the White House with a 22% approval rating — the lowest in history. Now compare that with the abysmal 14% carried by Stelmach at the end of 2009.

Sure, you can pin the blame on the economic turmoil. Or can you?

Remember how I said that these royalty changes have sent energy companies running? Well, you can take a guess on where those companies went. Don't worry — you won't need more than one. Saskatchewan Premier Brad Wall is enjoying a 58% approval rating — the second highest rating among the provincial leaders.

Then again, he's reiterated his stance on not changing Saskatchewan's royalty structure too many times for me to count.

Considering 30% of Alberta's revenue comes from royalties from non-renewable resources, driving away that oil and gas development certainly isn't helping matters.

The Competitiveness Review Report: Stelmach's Last Chance to Save His Job

Since I first read that report in 2007, it has changed approximately five times. But this is this simply a case of "too little too late" for attracting more energy companies.

Believe me, the new set of changes needs to sweeten the pot if Alberta wants to keep up with its neighbors.

Something else to consider is whether or not Alberta has burned its bridges with the energy industry.

Anyone else remember Chavez nationalizing Venezuela's oil industry? Do you find it surprising that their latest auction for oil-drilling rights only brought in two bids? Only three projects received offers.

Alberta hasn't dug themselves that far into a hole, but time is running out.

In a matter of weeks, we might have our answer. Alberta's energy department is expected to release a new competitive review report. The competitive review was first announced last summer, as a growing number of companies flocked to neighboring provinces.

Profiting from Inevitability

While there's no doubt the upcoming revisions in the competitiveness report will be favorable for Alberta energy companies, the terms may turn out better than expected. Offering more favorable terms is the only thing Alberta can do to save face with the energy industry.

How far the government is willing to go is another matter itself, but we'll know the conditions soon enough. I'd love to hear you weigh in on this subject — especially my Canadian readers. Just click on the Comment/Rate this Article button below to give me your two cents on the matter.

Judging from the latest conversations I've had with my readers living in Alberta, I'm not alone in pointing out Stelmach's failures.

It's time for Alberta to sink or swim.

You see, upcoming unconventional plays like the Horn River Basin in British Columbia, or even the mighty Bakken oil play in Saskatchewan, are constantly stealing the spotlight.

It's difficult for me not to talk about some of those plays.

Take my readers at the $20 Trillion Report, for example. They've made a small fortune from Canada's energy war. One play alone has given them gains of 241%, 300%, 127%...

If you haven't joined their success, take a few minutes to read over this free special report. Inside, you'll finally understand why the one of the hottest oil plays in North America has been grossly underestimated for the last fifty years. Just click here to access to the report.

Yet no matter how much Alberta's situation appears to be nothing but doom and gloom, don't think that Alberta is down for the count.

In fact, there's one very specific reason why Alberta getting back on track.

I like to think of it as the ace up Alberta's sleeve. Within the next few days, I'm going to tell you all about it — including several investments that are giving Alberta oil fever all over again.

Until next time,

keith kohl

Keith Kohl

Energy and Capital

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