Energy companies should quit whining: royalty review member

Amember ofa government panel that hasrecommended hiking energy royalties says Alberta's oil and gas companies should stop complaining about rising costs.

"As a former executive, I'm a little bit tired from hearing my peers, my colleagues, whining about costs," said Sam Spanglet, who used to work for Shell.

"Cost is the industry's control. It doesn't have anything to do with Albertans. We executives, we are in control of costs, and we have done a pretty lousy job in this aspect to be honest with you."

Spanglet helpedwrite a report that looked at the royalties energy companies pay the province in exchange for the right to extract oil and gas. It concludes Albertans have been shortchanged on billions of dollars for years, and recommends dramatically boosting royalty rates, especially in the oilsands.

The report released Tuesday, titled Our Fair Share, says Alberta should charge oil and gas companies an extra $2 billion a year.

The Tory caucus began meeting in Calgary Wednesday morning to go over the report's recommendations, which havestunned the oilpatch and pleased longtime critics of the formula.

Oil and gas companies warned any meddling with the current royalty structure would scare off investors. Many said they're disappointed with the recommendations, which are more far-reaching than they expected.

"Someone who is going to make government policy on royalties needs to take a very, very thoughtful review of the cumulative impact of all these things," Imperial Oil CEO Tim Hearn said in a conference call to investors Wednesday. "I guarantee you the wisdom of the people who put the royalty thing together clearly did not and were not able to do all of that."

Hearn said a number of factors, such as a strong Canadian dollar and high production costs, make it difficult to turn a profit in Alberta.

Gary Leach, executive director of the Small Explorers and Producers Association of Canada, said the report comes at a time when companies in Alberta's junior oil and gas sector are reporting losses.

"There's thousands of people that have lost their jobs in the upstream petroleum sector this year alone due to dramatic declines in drilling activity, primarily impacted by low natural gas prices," Leach said.

"So again, the notion that the petroleum industry is not contributing its fair share and that we can without difficulty absorb higher royalty rates I think is the wrong conclusion."

Critics pleased

The royalty review backs up what critics have been saying for years, that the royalty formula is too low and overdue for an overhaul.

"This is the kind of report that we were hoping for," saidChris Severson-Baker of the Pembina Institute. "It matches much of the areas that were in our original recommendation and it's quite close to what we had originally recommended, as well."

The Pembina Institute, an environmental think-tank, made one of 300 submissions to the six-member panel that toured the province earlier this year.

Severson-Baker said the suggested increases would put Alberta in the middle of the pack in terms of world-wide royalty rates, while still allowing industry to reap great profits.

Even though crude oil futures hit another record high Wednesday, the energy sub-index of the Toronto Stock Exchange fell almost three per cent, as stocks in oilsands developers were hit by theroyalty-hike proposal.

Shares in Suncor fell more than four per cent and Nexen sharesdropped almost as much. Smaller operators in theoilsands, such as UTS Energy and Synenco Energy, slid 12 per cent and 15 per cent, respectively.

'Absence of accountability'

The panel also discovered "an absence of accountability" in how the government kept track of how much the industry was paying in royalties.

"The Tories have failed the people of Alberta and they have failed them badly. And they have been failing them for years and, given the fact that they've done a number of internal reviews, they've probably known they've been failing the people of Alberta for years," Liberal Leader Kevin Taft said on Tuesday.

The recommendations and criticisms pose the biggest challenge yet for the Tory governmentof Premier Ed Stelmach. He has not committed to adopting the report but has promised an official response by mid-October.