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Misplaced Generosity: Alberta Government Set To Forego $55 Billion In Royalties Over Next Three Years

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Misplaced Generosity

Alberta government set to forego $55 billion in royalties over next three years

Parkland Institute

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A new report from the U of A’s Parkland Institute says that despite a provincial deficit, the Alberta government will forego some $55 billion in potential revenue over the next three years as a result of overly generous royalty cuts and the government’s failure to meet even the modest targets set by previous administrations.

The report, an update to Misplaced Generosity: Extraordinary profits in Alberta’s oil and gas industry, published in 2010, looks at the most recent data on profits in the oil and gas industry versus government share, and determines that despite tremendous growth in the industry the share of profits going to Albertans continues to shrink.

“We’ve gone from capturing close to 40% in 1979 to only 10% in 2009 and 13% in 2010,” says report author David Campanella, public policy research manager for Parkland Institute. “That is all money that has gone directly from serving the public interest to serving the bottom lines of huge oil and gas corporations.”

Peter Lougheed set a target of capturing 35% of the revenue from oil and gas production, which his government met or exceeded every year from 1977 to 1981. Ralph Klein lowered those targets significantly, and in most years failed to meet even those lower targets. If Lougheed’s 35% target had prevailed, and been met, Alberta would have collected an extra $195 billion in revenue between 1971 and 2010. Even by just capturing 25% of tar sands revenues, we would have received an extra $33 billion since 2000.

The current provincial budget seeks to capture only between 9% and 12% of oil and gas revenues. Working instead to reach Lougheed’s target of 35% for conventional oil and gas, and 25% in the tar sands would yield an extra $55 billion in revenues over the next three years.

“By properly managing oil and gas revenues in Albertans’ interests, we could easily pay off our current deficit and begin to build a sizable fund that could generate enough revenue to support budgets for generations to come,” says Campanella.

The Parkland Institute is a non-partisan public policy research institute in the Faculty of Arts at the University of Alberta. Misplaced Generosity: Update 2012 is available on the Parkland web site at parklandinstitute.ca or in hard copy from the Parkland Institute at 780-492-8558.

Related research:

Misplaced Generosity: Update 2012:

Extraordinary profits in Alberta's oil and gas industry

by David Campanella

download the full report

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Recently released data on the tar sands industry reveals that things have returned to normal. Unfortunately for Albertans, “normal” is a royalty regime that ensures the vast majority of wealth goes to the private oil companies rather than the public, the owners of the bitumen. The diverging fortunes of the province and the oilpatch are clearly evident from the contrast between the government’s ongoing revenue crisis, which has resulted in a $3 billion deficit, and the growing profits being reported by the oil industry. Suncor, Canada’s largest oil and gas company, reported yearly profits of $4.3 billion, while Imperial Oil, which is 70% owned by U.S.-based ExxonMobil, made profits last fiscal year of $3.37 billion, the second largest in its record.

The provincial government claims to have a royalty system that is “maximizing benefits to Albertans,”3 yet the data indicates that the public provides substantial subsidies to the oil companies by refunding investments through the provision of virtually royalty-free bitumen. In an update to Parkland Institute’s 2010 report, Misplaced Generosity, the following fact sheet details the extent to which Alberta’s royalty framework is forsaking much-needed public revenues.




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I read an article on Alberta royalties recently, and unfortunately can't find a link. It outlined the oil sands royalty system, and said that royalties - while currently low - are set to increase in the next few years.

Basically when the government negotiates with oil companies, they outline a royalty scheme, not unlike a mortgage. Early on in the drilling process, the oil company gets to keep most of the revenue, then as the rig gets established and capital expenditures come down, the royalties go up. It is set up this way to encourage the oil companies to do business there and let them quickly recover their investment, since they incurred the financial risk. Royalties then remain high throughout the life of the project.

While currently they may be running a deficit, the forecast is for obscene surpluses in the near future as the royalties start to kick into high gear.

I wouldn't worry about Alberta; they are doing alright economically.

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Good idea for Canada? Norway's oil and gas revenues have provided Norwegians with $550 billion pension fund

Norway's oil and gas industry revenues have provided the country with a $550 billion pension fund. Why isn't Canada following their lead?

Alexis Stoymenoff

Posted: Mar 21st, 2012


In Norway, oil strategy is carefully planned by people like Petroleum and Energy minister Ola Borton Moe | Photo by Berti Roald/MPE

With a world-class pension fund delivered by oil and gas revenues, Norway has mastered the balance between its oil and gas industry and its national interests. Now as debates heat up over Canada's oil sands and its economy, critics are calling on Harper's Tory government to learn from Norway's success story.

Norway's oil boom and smart energy strategy

Norway's oil and gas boom started in the late 1960s when exploration revealed huge offshore oil and gas deposits in the continental shelf. Since then, the nation has become known around the world for its bold energy strategy and policies—including high taxation rates for oil companies and permits that regulate the volume of extraction.

Through the State’s Direct Financial Interest (SDFI) arrangement, the Norwegian State participates directly in the petroleum sector as an investor, and reaps all the associated rewards. According to the Ministry of Petroleum and Energy website, “the net cash flow resulting from the SDFI portfolio constitutes a predictable, long term and secure revenue to the Norwegian State.”

With a population of just five million, the small Scandinavian country is now the second largest gas exporter and the seventh largest oil exporter globally. The government owns significant stakes in the international oil giant,Statoil, in addition to the state-owned company Petoro. Most importantly, the revenues generated by state involvement in oil and gas have allowed the country to not only eliminate its debt but also to create an impressive $550 billion government pension fund—one of the biggest in the world.

During a lecture last November at the University of Ottawa, Norwegian Minister of Petroleum and Energy Ola Borten Moe told Canadians how this arrangement has created a reputable balance between resource development, the national economy and the environment.

“The right to any subsea deposit of oil and gas is vested in the state. This is crucial when you want to manage the resources to the benefit of the people,” said Borten Moe.

“We had the resources under the seabed. The companies contributed with their skills and knowledge, both to discover fields and produce them. At the same time, they were obliged to help us build national experience.”

While they invited the international oil industry to take the lead in development, the Ministry says the state has maintained a healthy relationship with industry stakeholders: the oil companies are seen as “helpers” in harnessing the country’s natural resources, but ultimately, the oil belongs to the nation and to citizens.

Despite 40 years of intensive production, the country has still got about 60 per cent of their resources left. And separating resource revenues from the rest of the economy has also helped Norway avoid the so-called “Dutch Disease”, said to occur when an oil-based economy raises the currency and displaces a crucial manufacturing sector.

Oil and gas resource management, done right

The idea of using oil and gas revenues to benefit citizens is not new to Canadians, though many would still love to see it implemented here on a national level. As noted in 2010 by Green Party leader Elizabeth May, the big irony is that Norway’s pension fund was actually modeled on the Alberta Heritage Fund, launched by Conservative Premier Peter Lougheed in 1976.

Though there has been a more recent push to build up the fund, it’s currently still sitting at just over $15 billion. Within the same timeframe, Norway has managed to collect over 35 times that amount.

Peter Nemetz, an economics professor from the University of British Columbia’s Sauder School of Business, says Canada’s current stance on royalties and regulation is to blame for this drastic difference.

“The Norwegians…have insulated their economy from the 'Dutch Disease' by investing this money in foreign assets and financial instruments. In contrast, Alberta has built up only a modest fund, largely because of their timid approach to royalties,” said Nemetz.

He recalled a “blue ribbon panel” of experts commissioned by Premier Ed Stelmach in 2007, which at the time recommended that the province boost the fund to $110 billion by 2030. Jack Mintz, who led the panel four years ago, recently told the CBC that saving that money makes even more sense now than it did at the time.

With business thriving in the tar sands and oil prices on the rise, critics and economists say the government needs to seriously consider increasing royalty rates for resource extraction.

“As I remember, the government started to implement these rates but backed off because of industry threats to take their business elsewhere,” Nemetz said.

“This strikes me as a hollow threat, because the energy resources remain in Alberta and are highly prized.”

Government vs. oil companies: who gets the upper hand?

Even if Canada were to hike up royalties and put more resource revenues into pension funds, there’s still a broader issue at play that separates our case from Norway’s.

In Norway, the state has the upper hand—they ultimately retain control of the resources and oil companies generally play by the government's rules. Here in Canada, however, industry players appear to have an increasingly dominant role in determining policy.

“I think it is reasonably clear that the oil and gas industry in Alberta and Canada have a great deal of influence. It also appears likely that this influence has grown under the current Conservative government in Ottawa given the Prime Minister's political background in Alberta,” said Nemetz.

“This influence has been evidenced more recently in the federal government's domestic and international campaign on behalf of the oil sands, as well as the recent initiative to ‘neuter’ the Fisheries Act, which has played a critical role in protecting water quality in Canada for several decades. It has been posited recently that one of the motivations for the proposed changes to the Fisheries Act is the desire to facilitate the Enbridge pipeline across BC.”

Whether it’s “streamlining” environmental reviews or getting pesky fisheries regulations out of the way, the federal government seems to be dead set on making it easier for oil companies to do business. Will they increase royalties and put more of the benefits into the hands of Canadians?

As it stands, all signs point to ‘no’.


Why are Canadians forced to look at sensible policies like kids through the looking glass of a toy store? Our government is only aiding in siphoning billions of dollars into pockets of international oil corporations. And when that oil runs out? Canadians will be left with empty hands and empty lands, because yet another conservative government is all to happy to swing the scales into oil corporations' favor. Who gives a damn about the people to whom this land belongs? There's another exec who needs another boat to take another politician on another tour of the Mediterranean. No wait, Canadian politicians fly in rescue helicopters.

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  • 1 month later...

Managing Oil Wealth

The Alberta/Canada Model vs. the Norwegian model

by Bruce Campbell

National Office | Commentary and Fact Sheets

Issue(s): Economy and economic indicators, Energy policy

April 30, 2012

The post-2000 petroleum-led resource boom is substantially reshaping the Canadian economy. It has driven up the dollar exchange rate from 62 cents to parity with the U.S. dollar, squeezing out other export sectors: traded services, tourism, forestry, and most notably manufacturing, where it has dramatically reduced output and employment.

More than 600,000 manufacturing jobs have disappeared in the last decade. (Economists refer to this hollowing-out phenomenon as “Dutch disease,” after a similar occurrence in Holland in the 1960s.) The OECD estimates that the Canadian dollar is now 25% above its fair value or purchasing power parity rate of $0.81.

Reversing a 40-year trend towards higher-value finished goods exports, Canada is regressing to its traditional role as a resource exporter in the global economy. Two-thirds of Canada's exports are now unprocessed or semi-processed products, with higher value-finished products accounting for just one-third of our exports. Just over a decade ago, in sharp contrast, almost 60% of our exports were higher-value-added products.

Despite the resource surge since then, exports have not been sufficient to compensate for the decline of non-resource exports. Canada’s current account balance (goods, services, and investment income) averaged a $48 billion deficit in the last three years.

The epicentre of the petroleum boom is Alberta. By far the richest province in Canada, it continues to distance itself from the manufacturing heartland of Ontario and Quebec, with its GDP per person reaching $48,500 in 2011.

A recently published report by the Parkland Institute paints an unflattering picture of how the Alberta government been managing its oil wealth. It calculates that, since 1986, the oil industry has reaped $260 billion in pre-tax profits from the tar sands while the public share has been less than $25 billion.

According to the Parkland report’s author, David Campanella, under a weak royalty framework that was effectively drafted by the oil companies, the Alberta government has been able to collect less than half the economic rents — or excess profits — from conventional oil over the last decade, and just 9% of the rents from the tar sands. Moreover, provincial oil company income taxes are set at a very low 10%.

In 1976, the Alberta government created a Heritage Fund to manage its oil wealth, protect against economic instability, and provide a buffer for future generations. Today, however, 36 years later, the fund contains a mere $15 billion.

With virtually no oil wealth set aside and insufficient revenue flowing into government coffers, Alberta has been running deficits for the last three years. Its education, health care, and other public services are underfunded. Inequality and poverty in the province are among the highest in Canada.

Yet, during the recent provincial election, the Progressive Conservatives and the Wild Rose Party both committed to maintaining petroleum royalties and taxes at rock-bottom levels.

* * *

Alberta is not an island. It is a partner in the Canadian federation. The federal government is responsible for managing the impact of the oil boom on the nation as a whole, for minimizing the negative effects of “Dutch disease” on the rest of the national economy, for ensuring that Canada is meeting its international legal obligations to reduce carbon emissions, and for enhancing the well-being of all Canadians.

To meet these responsibilities, the federal government has the authority, for example, to impose an oil export tax, or levy a special oil company tax to capture a greater share of the economic rents, or impose a carbon tax. It could instruct the Bank of Canada to include, among its monetary policy priorities, an exchange rate that ensures the long-term viability of non-resource exports.

Clearly, the current government does not interpret its responsibilities in this fashion. The federal corporate income tax rate (including on oil companies) is now just 15%, down from 28% a decade ago. Low taxes and free trade pretty much sum up its hands-off approach to this very serious economic challenge.

Far from taking its climate change obligations seriously, the Harper government is moving in the opposite direction: cutting research capacity, cutting retrofit and other conservation programs, and weakening environmental reviews of ar sands initiatives — even as it continues to hand out $1.4 billion in annual subsidies to the fossil fuel industry.

* * *

Norway provides a stark contrast to Canada’s management of its resource wealth. With a population comparable to Alberta’s, Norway is the world's seventh largest exporter of oil and the second largest exporter of natural gas. Its oil and gas exports in 2010 were US$78 billion, compared to Alberta's exports of $51 billion.

Norway has managed its oil wealth extraordinarily well. It has integrated natural resource industries with the rest of the economy, and has developed institutions to handle shocks to its economy caused by oil price volatility and currency pressures. It has also wisely used a portion of its oil and gas wealth to provide one of the most generous and sustainable social welfare systems in the world.

A centrepiece of the Norwegian model is its petroleum fund — called the “Government Pension Fund–Global.” Created in 1996, and ironically patterned after Alberta's Heritage Fund, it has amassed some $550 billion, and continues to grow.

All government revenues from petroleum — including various taxes as well as profits from direct state ownership — are transferred to the Fund, which then invests exclusively in foreign securities. Only the long-term real return on Fund investments (valued at 4% of assets) is put back into government coffers (amounting to one–quarter of state revenues) for public expenditures. The Fund has now reached a size where the annual return on its investments is greater than its annual oil revenues. It has effectively converted its oil wealth to financial wealth.

By separating oil revenues from the rest of the economy, Norway has insulated itself from “Dutch disease.” Norway has a stable, high-productivity, highly unionized economy with 3.3% unemployment and 1.6% economic growth in 2011 — a stable currency, a healthy budget surplus, and a balance of payments surplus.

* * *

What accounts for Norway’s success? First and foremost, the state retains control of all aspects of petroleum activity and sets the rules by which the private oil companies play. In Canada, by contrast, the major oil companies are in the driver’s seat in determining oil policy.

The Norwegian government levies a 28% ordinary tax rate on oil companies. On top of this, it imposes an additional 50% tax to capture the economic rent, or excess profits, for a combined 78% marginal tax rate. Companies, however, can claim reimbursement of the tax value of exploration costs and other development costs.

Companies also pay environmental taxes and various fees. But there is no royalty regime.

Finally, the government owns two-thirds of Statoil, the Norwegian oil giant, from which it collects a huge cash dividend.

Petroleum has been integrated with the rest of the economy through active industrial policies that create forward and backward linkages to the capital equipment, oil-rig construction, petrochemicals, and other sectors.

There is also a deeply held egalitarian consensus within Norwegian culture. It has one of the lowest levels of inequality in the world. It is a high-tax country whose tax revenue constitutes 42.8% of GDP, compared to Canada's tax revenue at 31% of GDP. Social expenditure per person in Norway is almost double the level in Canada. The proportion of low-wage workers in Norway — that is, who earn less than two-thirds the median hourly wage — is 8%; in Canada it’s 20.5%.

For many countries, oil wealth, has been more a curse than a blessing. The Venezuelan founder of OPEC once described oil as “the devil’s excrement.” The Norwegian example, however, shows that, properly managed, oil and gas resources can be a blessing.

Unfortunately, the conditions enabled Norway’s success, are not in place either in Alberta or nationally in Canada.


Albertans must be very generous people. :bigblush:

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Majority of oilsands ownership and profits are foreign, says analysis

By Mike De Souza, Postmedia News May 10, 2012 7:19 PM

More than two-thirds of all oilsands production in Canada is owned by foreign entities, sending a majority of the industry's profits out of the country, says a new analysis released Thursday by a British Columbia-based conservation group.

Photograph by: MARK RALSTON , AFP/Getty Images

OTTAWA — More than two-thirds of all oilsands production in Canada is owned by foreign entities, sending a majority of the industry's profits out of the country, says a new analysis released Thursday by a British Columbia-based conservation group.

The research by Forest Ethics Advocacy was based on an analysis of shareholder information in January 2012 from Bloomberg Professional of more than a dozen companies, including nine with headquarters in Canada, and six with their head offices in other countries. It found 71 per cent of the ownership of oilsands production was foreign, while the foreign-based companies controlled 24.2 per cent of the sector's production.

"Some notably Canadian oil companies, such as Suncor, Canadian Oil Sands and Husky, are predominantly owned by non-Canadians," said the report. "The data also shows us that more than half of Canada's oil and gas revenue goes to foreign entities."

At least one oilsands producer, MEG Energy, said the conservation group's research was "just plain wrong," estimating that less than 60 per cent of the company was held by non-Canadian shareholders, as opposed to the Forest Ethics estimate of 89.1 per cent.

The environmental group said it supports foreign investment in Canada, but wanted to see more laws and regulations to ensure that companies do not leave Canadians with excessive environmental risks while the foreign owners are reaping the profits.

"The bottom line is Canada's policies need to be designed for Canadians, not just for big oil and foreign investors," said Tzeporah Berman, co-founder of Forest Ethics. "Our data today is an important part of the conversation around who is benefiting from this dramatic push and expansion."

But Travis Davies, a spokesman for the Canadian Association of Petroleum Producers, noted that companies pay billions of dollars in royalties, not including about $766 billion in estimated taxes to be collected by federal and provincial governments over the next 25 years.

"Furthermore, employment doesn't occur in a vacuum," Davies said, in response to the report. "It's fine for ForestEthics to point to the producing sector and say employment is relatively small. However, that ignores the over half a million Canadians that depend on the oil and gas industry for their employment."

The analysis, which also used production data in January from Oilsands Review — a publication that focuses on unconventional oil issues — found $11.7 billion of investments in oilsands production between 2007 and 2011 were coming from China, making up about 16 per cent of the total investments of $73.6 billion in that time period.

Alberta's oilsands sector has become a target of many well-organized environmental campaigns because it requires huge amounts of land, water and energy to extract heavy oil from the natural bitumen deposits that are considered to make up one of the largest oil reserves in the world.

But Prime Minister Stephen Harper's government responded by launching an international lobbying and marketing campaign, in partnership with industry and the Alberta government, to promote the oilsands industry abroad and counter foreign environmental policies that target the sector's footprint on the atmosphere.

Internal federal documents have concluded oilsands production is the fastest growing source of greenhouse gas emissions in Canada.

Scientists and governments from around the world say all sources of the heat-trapping emissions must be dramatically reduced to avoid potentially irreversible changes to the planet's ecosystems, atmosphere and the global economy from climate change.

Meantime, the Canadian Energy Research Institute, a government-funded think-tank, has estimated that the oilsands sector is responsible for more than 100,000 direct and indirect jobs in Canada, and will contribute more than $1.7 trillion to the country's economy over the next 25 years. But the institute's research has been challenged by some economists, including former Insurance Corporation of British Columbia president Robyn Allan, who have argued this analysis doesn't adequately consider the impact of fluctuations of the Canadian dollar or oil prices, among other factors.

Forest Ethics Advocacy said that its own analysis on ownership demonstrates that recent efforts by Harper's government to weaken Canada's environmental protection laws and speed up approval of industrial projects are not in the national interest.

"Since the beginning of the year, our federal government has either cut or gutted every piece of environmental legislation designed to protect our land, air, and water while aggressively pushing for the expansion of the tarsands and the building of new pipelines, such as the controversial Enbridge Northern Gateway pipeline and supertanker project," concluded the report. "Harper has claimed to do this in the name of Canada's national interest while attacking anyone who disagrees."

Natural Resources Minister Joe Oliver dismissed the report, noting that apart from the economic benefits, the foreign ownership "control" of the Canadian oil industry was about 35 per cent, according to Statistics Canada.

"We will continue to promote the oilsands as a safe secure and socially and environmentally responsible alternative source of energy for the world," Oliver said in a statement, emailed to Postmedia News.

Berman also criticized the federal government for attacking charities which receive a small fraction of their funding — less than five per cent — from foreign sources, noting many environmental groups have succeeded in pushing government policies to reduce acid and clean up the Great Lakes.

Meantime, she noted that an estimated two million Canadians are now employed at registered Canadian charities.

Read more: http://www.canada.co...l#ixzz1uWe6m6rY

I know this is probably just more of my nitpicking, but...

“Growing concern has been expressed to me about the use of foreign money to really overload the public consultation phase of regulatory hearings just for the purpose of slowing down the process,” the Prime Minister told reporters Friday in Edmonton. (


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