Reaction poured in Friday after Alberta Premier Rachel Notley announced the rates for oilsands projects will remain the same in an announcement that came after a five-month royalty review.
Rules around how costs are accounted for will be changed: companies will pay a flat five per cent royalty on wells until the industry average on upfront costs are recovered, then the rate will increase based on price. Royalty rates will also be changed to better take into account the costs of drilling.
The Canadian Association of Petroleum Producers (CAPP) applauded the report, calling it a fair and credible process and plans to review it to determine its full impact on the energy industry.
“The new royalty framework is principle-based and provides a foundation to build the predictability industry needs for future investment,” Tim McMillan, CAPP’s president and chief executive officer, said in a statement. “The report recognizes royalties are just one part of the competitiveness equation for Alberta. With today’s economic situation, now is the time for industry and the Alberta government to work together on solutions that will make Alberta a world-class province to do business.”
“I can say today that the grandfathering of existing projects, the fact that the new rules will only apply to projects starting in 2017, and maintaining the oil sands royalty regime, are signals that the government is serious about encouraging investment in Alberta at this difficult time.”
The Canadian Association of Oilwell Drilling Contractors (CAODC) said it is cautiously optimistic about Friday’s announcement, but concerned about the impact on the service sector.
“Today’s report does not make significant changes to the overall royalty take by the province, however, it falls short of our recommendation to reduce rates in order to incent drilling activity and offset higher provincial taxes,” Mark Scholz, president of CAODC, said.
“Furthermore, the recommendations do not address Alberta’s competitiveness gap with other Canadian oil and gas jurisdictions such as Saskatchewan and British Columbia.”
Watch below: Premier Rachel Notley announced the royalty review framework Friday morning in Calgary
But not everyone applauded the government’s acceptance of the report.
Bob Murray, with the Frontier Centre for Public Policy, said he was “fascinated” by the results in a tweet, but suggested it may have been less of a smooth process than how it was presented.
Alberta Liberal Leader David Swann said he was disappointed the government is choosing to adopt the review in its entirety, but commended the harmonizing of hydrocarbon royalties and increased transparency.
“The most glaring omission is the complete absence of any kind of incentive for environmental improvement by industry. Under this new royalty system the government is rewarding the environmental status quo.”
“Alberta’s energy industry is innovative and they deserve the opportunity to be rewarded for improved environmental practices. This is particularly prevalent in the decision to ignore the oilsands royalty process completely,” Swann said in a statement.
Swann said he was also concerned about the report’s impact on investment in relation to using the averaging system to determine the cost of a well.
“The report talks frequently about how improving competition and efficiency will beat the average, resulting in greater margins and higher investment,” Swann said. “Unfortunately, this implies that Alberta’s energy companies are currently inefficient and uncompetitive. I don’t believe this to be true.”
Alberta Progressive Conservatives called the review damaging and unnecessary, suggesting “minor tweaks” were “hardly worth the stress this process placed on our energy sector at such a challenging time.”
READ MORE: A look at Alberta’s current royalty regime
“We are extremely disappointed to see that the panel is unable to tell crude oil, natural gas and liquids producers what rate they will pay once allowable expenses have been recouped,” Rick Fraser, Energy Critic and MLA for Calgary-Southeast said in a statement. “The majority of these outfits are made-in-Alberta success stories that exemplify our province’s entrepreneurial spirit and it’s a shame that they have to continue living with this level of uncertainty.”
Wildrose leader Brian Jean said he is thankful royalty rates will remain “for the most part” stable, but adds there was damage done by the NDP calling the review in the first place.
“During low oil prices we did not need to do this,” Jean said. “Every step of the way… they (the NDP) have shown they are more in favour of economic experiments instead of showing restraints.
“Our heart goes out to the Albertans who suffered job losses because of the instability caused by calling the royalty review. The next step is to recover from the damage done by this review and the series of poorly thought out policies that are harming our energy sector. Alberta needs to start seriously evaluating how to restore our competitiveness on the world stage.”
Watch below: Wildrose leader Brian Jean addresses the media in Edmonton
The Canadian Taxpayers Federation’s Alberta director Paige MacPherson echoed comments that the review itself caused business uncertainty, but said the report was “not as bad as people were anticipating.”
“When you judge this compared to some of the language we saw in the NDP platform, which did sort of indicate that we might see a substantial royalty hike, then the result really is not so bad,” MacPherson said. “And that’s a really good thing to see for our industries right now, because there was that uncertainty from the review.”
MacPherson said she will be closely following the government’s proposal to introduce a working group on energy diversification that will follow the royalty review, suggesting it could be a waste of money, but praised the NDP for its transparency.
“We’re going to see the annual reports coming out, comparing us to other jurisdictions, so taxpayers will be able to measure our competitiveness,” she said. “That’s a really positive result.”
With files from Caley Ramsay, Global News.
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