"Alberta must be internationally competitive and developers must be rewarded for their risks and investments. Nonetheless, the fact remains that the resources do not belong to the developers; they belong to the people."
-- Our Fair Share: Report of the Alberta Royalty Review Panel
Since its release in mid-September, a startlingly anti-business report has caused some serious shudders up in Alberta. The above statement pretty much sets the tone for the 100-plus-page tome. The report's premise is that Albertans aren't benefiting enough from oil and gas development in the province. The panel's prescription is to hike the government's take by 20%, or about $2 billion annually.
You can imagine how industry players have reacted to this report. Our neighbor to the north has been dubbed Canazuela, or -- my personal favorite -- Albertastan. As much as I love wordplay waggery, this characterization is clearly over the top. There's no expropriation suggested here, and no revocation of licenses on legal technicalities. Alberta still offers one of the most stable political and business environments of any hydrocarbon haven in the world. Conducting business there just might get meaningfully more expensive.
Cost inflation is a tax
The timing here probably couldn't be much worse. Costs in the Canadian oil patch are running extremely high. EnCana
Now, enormous EnCana, which has an enterprise value greater than Devon Energy
Now, I don't know what good all that marginal oil and gas will do for The People when it's left in the ground. But I can envision the economic harm from all of the secondary and tertiary employment that would evaporate if the energy companies pack up and shift their resources to projects elsewhere.
Running the numbers
The CEO of TransCanada
The most interesting figure, which is one that I would have expected the royalty panel to calculate, is the amount of money that will disappear from the economy for each marginal barrel left in the ground. TransCanada's CEO pegs it at $20 to $30. I'm not equipped to evaluate that assertion, but a panel stacked with economists and industry analysts surely was. The closest the report ever comes to acknowledging the impact of its recommendations on activity levels is the statement that "higher royalties and taxes will slow the pace of oil sands investment."
The Foolish bottom line
Is this specter of disappearing jobs just an industry bogeyman? I don't think it is, but then again, I don't have much information at hand. This panel of experts spent reams of pages pointing out how much the government can get away with, and very little space addressing the implications of the hike, other than the fact that the take will be more on par with places like Texas.
I can only guess that the likes of Imperial Oil