Effective reform of the oilsands royalty regime could result in substantially higher resource revenue for Albertans and continued profit for investors, according to a report released today by the Pembina Institute.
The Institute's analysis, based on detailed "net cash flow" models of typical oilsands projects, shows that Albertans are currently paying commissions worth more than 50 per cent of the available revenue to companies developing the resource. That means less for Albertans - the resource owners.
Royalty reforms modelled by the Pembina Institute, however, show that Albertans could be retaining an additional $7 billion to $29 billion in revenue from every oilsands project.
"The options we considered would result in around 70 per cent of net revenue staying with Albertans, while allowing companies to achieve attractive rates of return," says Amy Taylor, Senior Economist with the Pembina Institute. "This is precisely what an effective regime should do: maximize revenue for Albertans while maintaining the economic viability of investments."
The current regime, by contrast, was designed a decade ago, when the goal was different: spur the development of the fledging oilsands industry by using low royalty rates to overcome barriers to capital investment.
Says Taylor, "Those barriers no longer exist. Capital investments have soared by 400 per cent in the last decade and production is expected to more than triple by 2020. Oilsands developers no longer need a sweetheart commission deal to succeed."
The Pembina Institute will present recommendations for reforming the royalty regime based on its report, Royalty Reform Solutions, to the Alberta Royalty Review Panel today in Calgary.
The recommendations include three different options for adjusting the so-called "post-payout" royalty - the rate applied to profits once companies have recovered costs plus a basic return on investment. The three options would involve applying:
1. A post-payout royalty of 55 per cent, up from the current 25 per cent;
2. A post-payout royalty of 30 per cent until profits exceed a specified threshold, at which point a 60 per cent royalty kicks in; or
3. A post-payout rate of 40 per cent alongside a new environmental levy on carbon dioxide emissions.
In each case, companies earn a fair return, while citizens are able to retain about 70 per cent of the resource value.
"The provincial government manages the resource on Albertans' behalf, and bears responsibility for ensuring that projects only proceed if the terms are fair and in Albertans' interest," adds Taylor.
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For more information:
Amy Taylor
Director, Ecological Fiscal Reform
Cel: 403-996-0510
Download:
Royalty Reform Solutions (Fact Sheet)
Royalty Reform Solutions (Full Report)
Speech to the Alberta Royalty Reform Panel