Royalty review an opportunity to re-establish competitiveness

August 28, 2015 - Calgary, Alberta
The Alberta royalty review panel should propose new rules by the end of this year to help restore investor confidence, and should consider how to make the province more attractive and competitive for the oil and natural gas investment that generates jobs and government revenues, the Canadian Association of Petroleum Producers said today.

“Many Albertans are feeling the severe impact of low oil and natural gas prices that have resulted in one of the most dramatic economic downturns in a generation,” said CAPP president and chief executive officer Tim McMillan. “That’s why the royalty review should focus on how to re-establish Alberta as a province that is competitive with other jurisdictions. The more competitive we are, the more we can protect and grow jobs, investment and government revenues in Alberta.”

The royalty structure is an important part of Alberta’s competitiveness. An appropriate royalty structure helps attract investment, creates jobs, generates government revenue and builds communities. Alberta’s current royalty structure, put in place five years ago, has helped achieve these goals by being responsive to the ups and downs in the industry.

“While our industry did not ask for a review, now that we have one we believe it should be completed in a timely manner,” McMillan said. “A timely, open and transparent review of how to make Alberta more competitive could help to reduce market uncertainty and allow oil and natural gas companies plan for the future. It’s important the Alberta government gets this right.” 

CAPP proposes the government should:
  1. Pursue policies that make Alberta competitive to attract and retain capital investment;
  2. Support development of more ways to transport oil and natural gas to customers in existing and world markets, and to access world prices; and
  3. Encourage investment in the development of high-efficiency, innovative technology.
Under current global economic conditions, oil and natural gas capital investment is down significantly, and cash flow that drives investment is at lows not seen since the late 1990s. Alberta’s share of North American capital investment has eroded steadily since 2000, dropping from about 35 per cent to nearly 15 per cent today.

“Raising royalties would add even more costs at a time when new government policies are already reducing the competitiveness of the oil and natural gas industry – Alberta’s No. 1 economic driver and job creator,” McMillan said. “That is why royalties should not be considered in isolation. A thorough review seeking a balanced outcome should examine all factors impacting our industry, including the cumulative costs of government policies and market access. Doing so will position Alberta for the future.”

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