Stelmach says he'd stand up to big oil; 'I won't be intimidated,' premier vows as Klein warns of industry opposition to report

Posted September 25, 2007 in [Energy]

Archie McLean, September 20, 2007, The Edmonton Journal - Critics who say Premier Ed Stelmach and his government lack the political guts to make changes to the province's royalty regime will be in for a "surprise," Stelmach said Wednesday.

"I won't be intimidated, as I said before, by any position taken by either the oil industry or others that may take a different opposing position," he said a day after the release of a controversial, 104-page report.

"We're there to make the best decision."

Stelmach's comments followed a Tory caucus meeting here where government MLAs were briefed on the report, which suggests the government extract an extra $2 billion a year from oil and gas companies.

Bill Hunter, who chaired the panel that wrote the report, said there was plenty of passion in the room.

"There were a lot of accolades and there were some people that were concerned mainly because they didn't understand and need the time to read the report."

Hunter's report, which he presented Wednesday to the government, says the people of Alberta aren't getting their fair take of the province's natural resources and haven't been for some time. The report recommends sweeping changes to the royalty regime, including increasing oilsands levies and a new, price-sensitive "severance tax" on bitumen extraction.

On Wednesday, most MLAs dodged questions on the potential impact of the report. Most said they needed more time to digest it.

Industry groups and insiders immediately criticized Hunter's report, warning it would cripple the provincial economy and stifle billions of dollars in investment.

Siding with the critics was former premier Ralph Klein, whose government set up the oilsands royalty regime in the mid-1990s. He said he "fears" for the oilsands sector.

"Alberta is known all over the world for its stable and fair royalty system and last night, I happened to have the opportunity to speak with a number of oil industry leaders, and they weren't pleased with the recommendations," Klein told the Financial Post.

Panel member Sam Spanglet, a former Shell Canada oilsands executive, said that while he understands their motivations, his former colleagues should stop whining. Instead of wasting resources fighting royalty increases, they should focus on things they can control.

"We as executives and managers in the oil and gas industry need to do a better job of controlling our costs," he said. "We have to look at the big picture here."

Spanglet said he and other industry executives have made a great deal of money in the past few years, as have shareholders and suppliers.

"Why can't the rest of Albertans get a bit more out of it?"

Pedro Van Meurs, an international expert in government royalty rates, agreed that industry's concerns are overblown. He has done consulting work around the world and has recommended increasing royalties on a number of occasions.

"The reaction from the oil industry is always 'don't do it, leave it alone,' " he said. "Obviously, that is what they're supposed to say."

In their presentations to the panel, industry often relied on a 1997 Van Meurs study, which showed that Alberta ranked very high in overall government take.

But times have changed and a 2007 Van Meurs report for Alberta Energy showed the province near the bottom of the barrel.

For that reason, Van Meurs said the panel's recommendations won't kill the economy -- they'll simply bring Alberta's royalty rates in line with the rest of the world.

"The recommendations are entirely reasonable -- if I was premier I would implement them in their entirety," he said.

After markets opened this morning, a number of oilsands companies did see their stock values slide somewhat. Stelmach said that was predictable.

"It wasn't any more than what many had predicted, but again, I can only listen to the evidence of those who have been the market for many years and understand," Stelmach said. "There was a slight drop in some of the stocks ... there was actually some increase, but there was also some decrease as well."

The royalty review fulfilled a pledge Stelmach made during the Conservative leadership race. He has pledged to respond to the report within weeks.

The Alberta Liberals, meanwhile, called for the auditor general to investigate the government's management of the royalty system. They say an intervention will be needed to sort out the mess.