Minister Melchin's announcement to end the Alberta Royalty Tax Credit is positive, but long overdue and in the big picture a minor step to ending government hand-outs to oil and gas companies. It does nothing to change the royalty regime for the oilsands industry which is expected to make up 75% of oil production in the province by 2011.
"Ending the royalty tax credit to oil and gas won't stem the mounting pressure to hold a public review of the oilsands royalty regime," said Amy Taylor, Director of Ecological Fiscal Reform at the Pembina Institute.
A recent poll shows that over 80% of Albertans support a public review of the oilsands royalty regime.
"Albertans get a meager 1% royalty on gross project revenue from oilsands until the developer has recovered all project costs plus a return on investment. The revenue to Albertans from a barrel of oil from oilsands has dropped from $2.85 in 1997 (when the current regime came into effect) to $1.74 in 2005. That's a sweet deal for companies, but isn't a very good investment for Albertans," said Amy Taylor.
The government needs to capture more revenue from oilsands development and get a better deal for the citizens of the province-the owners of the resource. This sentiment has been voiced by not only the citizens of Alberta, but by former provincial leader Peter Lougheed, who has called for a moratorium on oilsands development and said that the citizens need to get more revenue from oilsands developments.
Strong leadership is needed to overhaul a system that was established 10 years ago when conditions were different. In 1997 when the current regime came into effect, the technology was less mature and oil prices were lower. The economic reality has changed and the royalty regime needs to be updated to reflect these new conditions. To maintain investor confidence, the royalty regime should be aligned with current economics by making changes for new projects immediately and phasing in changes for existing projects over a longer period of time.
"Keeping a decade-old royalty regime designed to jump start oilsands, when now development is overheated, is irresponsible. The royalty regimes for the oil and gas industry need more than a minor tweak," said Amy Taylor.
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For more information contact:
Amy Taylor, Director, Ecological Fiscal Reform
Tel: 403-705-4954
amyt@pembina.org