Are We Competitive Yet?

Yesterday the Government of Alberta released their findings on the competitiveness review. The project committee released the final technical report on Alberta’s Natural Gas & Conventional Oil investment competitiveness to the Alberta Department of Energy on February 16, 2010...but was this needed?

When we go back to 2007 when Ed Stelmach's tories opened this can of worms, it was done much the same way as Bill 44, Bill 50, Bill 36, and Bill 19. No consultation with anyone outside of the usual blue ribbon panels. When Ed decided he would review the royalties, he spun the report with the title of "Our Fair Share", which of course convinced many Albertans that we indeed were not collecting enough for our resources. What he failed to mention was that one of the mandates was to cool the superheated economy, which unless you read the report you would not know. Was this a success? You be the judge, thousands of jobs were lost, many businesses closed their doors, and equipment and capital fled the province. Did we collect more in royalties? From the graph below showing the lowest royalty take since 1999 I would say this also was a failure.


In 2007 the goal was to increase the take of royalties for the province. Industry was outraged, immediately telling the government that the take was too much. They warned the Stelmach regime that if the Royalties were implemented in full form they would take their investment elsewhere. Many meetings with Mel Knight and the Premier ensued with the energy companies and investment community. They scolded the government over this move, affirming they would invest their money elsewhere. The service sector of Alberta's energy industry also cried foul, telling the government this move was a bad one. When the oilfield workers went to the legislature to speak their concerns regarding the implementation of the report, they spoke of job losses, investment dollars and the amount contributed to the Alberta budget. No GOA officials were there to speak outside of the Alberta Alliance parties sole MLA Paul Hinman. Many Albertans were also outraged that the GOA had been shortchanging them by an estimated $2 Billion dollars a year on lost royalties. Claiming the energy industry and investment community was bluffing, making the simple statement of where else could they go. There at this point was no winning for Ed Stelmach, with an election soon looming he had to decide on what to do.

With the title of "Our Fair Share" on the review panels report, many Albertans felt a certain entitlement to more of a royalty take. Shortly after Ed released his version titled "New Royalty Framework" or the NRF as we now refer to it. This was a framework that took slightly less than the original recommendations, but in the eyes of industry players was unacceptable. Almost immediately capital left and 15-20 percent of the service sector lost their jobs. Equipment started moving as well with the state of the art equipment following the work to the US and neighboring provinces. Ed however maintained he was serving Albertans needs, stating he had struck the right balance. The NDP and Liberals maintaining he had sold out Albertans, and the Alliance saying this would be a disaster. The writ was dropped and an election ensued in March of 2008 in which Ed Stelmach and his tories won a staggering majority of 72 seats. The Liberals managed to hang on to 9 seats, the NDP 2 seats, and the Wildrose Alliance lost their only seat.

After the election in 2008 land sales were recording their worst ever numbers in decades. The investment for drilling oil and gas wells in Alberta had came to a crawl. B.C. and Sask. were posting some of the best numbers in their history. The provinces were enjoying the interest and activity the oil and gas sector provided, with many saying it was Ed Stelmach to thank. The government realized it needed to act after polls showed Alberta was now a bad place to invest. Over the next year and a half the Stelmach tories tinkered with royalties 6 different times to no avail. Industry had lost confidence in the government and with the constant royalty adjustments it was impossible to look at long term investments. In the meantime an economic recession had moved in, that gripped much of the world. Oil and gas pricing collapsed, and plunged Alberta into record deficit numbers, forcing them to look at draining the sustainability fund. During the recession the shale gas plays in BC and the U.S. suffered modestly, while Alberta came to a standstill. Oil prices crept up over the next year to manageable levels which help cushion the blow in Alberta's economic forecast, but natural gas remained at low levels. Wildrose won a seat in the Glenmore by-election with the platform of "Send Ed A Message". Polls were released with the Wildrose showing significant gains politically on the Stelmach tories, causing him to try and stop the bleeding support from the PC party. Two PC Mla's also crossed the floor to the Wildrose and a cabinet shuffle was done placing Ron Liepert as energy minister to try and woo back the energy players. Bill 1, or the competitiveness review was announced with the information coming out March 12, 2010. The final curves will not be released until May 2010, but with the amount of input the energy sector had in the new royalty framework, I am sure it will be satisfactory to them providing he signs it in blood.

The next question will be where does this leave the Wildrose. Were they a one trick pony, or will they continue to gain support of Albertans? Either way without them the government would not have been pushed to reevaluate themselves and the way they conducted business. In the last couple of years whether it be Health Care, Landowners, Education, or the economy, the PC party has managed to in one way or the other to have Albertans questioning their logic. For me the PC party will remain as a government in need of replacing, for steering Alberta into one of the worst positions economically it has ever saw. Much the same as the NEP brought in by the federal government years ago. So Ed, since the numbers won't be released until May, and this is the 6th to 7th round of changing royalties-Are we competitive yet??