The only Stability is Instability for the Stelmach PCs

For Immediate Release

The Stelmach government continues to fiddle with investment rules and a Global Investment Survey revealed Alberta to be an uncompetitive place to do business. This ranking encompasses the reasons behind the lower levels of economic activity, building permits, and employment rates. Meanwhile, his MLA’s and Ministers that should be primarily responsible for reversing these trends seem focused on ill-advised parenting advice and bikini car washes.

A Global Petroleum Survey yesterday announced Alberta ranks 92 out of 143 jurisdictions and dead last of the Provinces in Canada. Premier Stelmach announced an extension of a royalty incentive plan for one year, previously announced in the spring. Unfortunately, the original proposal hasn’t helped drilling rates as evidenced by the historically low drilling levels that continue. In fact, less than 10% of rigs available are working in Alberta right now which is a multi-year low. Further, land sales in the Province total just over $100 million this year versus the almost $3.5 billion in 2006 and $178 million just last week in BC. Land acquisition is the ultimate leading indicator of future activity for without the land to drill upon, there is no drilling. With no drilling, the impact of these incentives is small. The NRF also takes away alot of the cash flow from current wells that would have been able to finance future drilling.

Interim Leader Paul Hinman commented “For the first time in memory Alberta is losing people to Saskatchewan, a province that under Premier Brad Wall is experiencing economic surplus while Alberta under Premier Ed Stelmach is experiencing economic deficits. This isn't market failure. This is government failure!”

“This is another revision of their New Royalty Framework and I don’t think I have enough fingers to count the number of revisions.” Mr. Hinman continued, “Albertans and industry need some form of certainty in planning their future and the Stelmach PC’s only provide instability. I’m looking forward to the bye-election campaign in Calgary Glenmore where Albertans will have the chance to send Ed a message!”

The Wildrose Alliance calls for the cancellation of the NRF and to bring back the former Royalty Framework that led to over-flowing government coffers rather than empty cupboards. The old system provided healthy employment levels where anyone who wanted a job could get a job. The stability of the former Royalty Framework brought billions of dollars of investment into the Province. Alberta truly had an advantage with low taxes, fully funded health care and education, a strong economy, and cared for its’ seniors.

FOR MORE INFORMATION:
Paul Hinman
Interim Leader
Wildrose Alliance
Phone: 403 479-6000

info@wildrosealliance.ca

A Message to all Concerned Albertans

Today's letter is from Blaine Maller. This one I think has certainly travelled the farthest. Not only have I received feedback from all over Alberta, but also from other provinces, the United States and even Dubai.

It is an excellent example of why people should never think they can't make a difference; you can. You just need to step up to the plate.

February 9, 2009

To all Concerned Albertans,

I have made every effort to reach out to the Premier and the Energy Minister as well as my MLA and the PC Party and have come to the realization that the Premier is no friend of the oil and gas industry. Now many of you have already come to that conclusion but in my mind I wanted to do my homework and give him the benefit of the doubt and directly have him respond to the concerns that many of you have for the future of Alberta’s energy industry. It was unfathomable that the progressive conservative Premier would jeopardize the health of the energy industry. To me that would be irresponsible. Why would any Premier of Alberta put into question the viability of its major revenue stream?

Unfortunately I received a dose of politicking and re-learned a valuable lesson. Common sense has nothing to do with the PC party politics. My research has exposed what I believe is an anti-industry hidden agenda which began with the election of Mr. Stelmach as leader followed by the announcement of a royalty review, the appointment of the “Expert“ Royalty Review Panel and the presentation of their recommendations to the Premier. This was followed by the release of the NRF (New Royalty Framework) in October 2007 and implementation of the NRF in January 2009.

The recent announcement by Minister Knight of a new advisory panel comprised of Energy and Finance officials and CAPP and SEPAC is the result of the pressure that industry continues to put on the Premier and Minister as well as pressure from rural MLA’s whose towns and small cities and hamlets are feeling the brunt of the industry downturn. The Premier’s recent announcement of some form of relief for small and mid-cap oil and gas companies and tax incentives adds more confusion to the mix and short of the complete scrapping of the NRF, will have no effect short or long term on industry activity.

The unintended consequences have multiplied and the failure of the government to properly review, consult and forecast the effects of the NRF has come back to haunt them. Minister Knight told me that the royalty review panel experts would not be welcomed back to the new panel and that this government/industry review should have been done before the royalties were increased. This was recommended by many in the industry long before the royalty review panel was appointed. The government ignored these requests from industry.

The oil and gas industry was initially cautious and slow to respond publically to the announcement of the NRF, preferring to prepare submissions for the panel and appear before the panel and meet in private with the Energy Minister and Premier in an effort to convey the potential damage to the junior oil and gas sector and major oilsands projects. All this fell on deaf ears and the result is where we find ourselves today.

The industry was surprised and caught off guard by the magnitude of the royalty increases and the Premier dug in. And he remains dug in. He would not back down or back off. He was a man of his word and he promised the public their fair share. He embarked on a campaign that would discount and discredit the industry’s warnings and foretold consequences. “Big Oil” can afford it and that meant us all; start-ups, juniors mid-size and major oil and gas producers. Lost in all of this is the fact that the junior and mid-cap oil and gas sector accounts for +/- 70 % of the conventional oil and gas drilling activity in the Province.

These smaller companies are both public and private but rely solely on cash flow, occasional share issues and bank lines of credit to finance the exploration and development of their lands. These companies acquire leases and seismic, shoot seismic and interpret data, choose a location, acquire the surface rights of access, survey the wellsite and access road, license a well, drill it, complete it, tie it in and equip the well for production. The risk of success or failure is borne solely by the oil and gas companies and their shareholders; by and large Albertans but also includes investors from other provinces and countries.

Many senior energy executives have met privately with the Minister and Premier. The Premier and Energy Minister, while willing to listen, were unwilling to accept the representations of the industry and unwilling or unable to relate to our deep concerns for the health of the energy sector as a whole but more importantly the effects that all Albertans would realize if the NRF was not amended, cancelled or otherwise repealed, etc. It exposed the Premier as being an adversary to the industry as a whole. Everyone was “Big Oil” in his mind and he was going to call the shots. This despite what he says in public.

The special circumstances of the junior and mid-cap oil and gas companies and the role they play in the development of the remaining conventional oil and gas reserves in the Province was dismissed and ignored. The ever increasing costs of development in combination with diminishing production capability in a mature basin were dismissed. The material cost increases in regulatory compliance, delays in standard every day approvals, compliance with new regulations and environmental reviews and public consultations was also dismissed. No credit is given to companies for these sunk costs. They are the costs of doing business we were told. And the cost of doing business in Alberta had not so suddenly gone too far.

The removal of all drilling incentives including deep drilling incentives was dismissed as was the removal of the ARTC (Alberta Royalty Tax Credit) which allowed the deduction of Crown Royalties paid by the oil and gas companies from the corporation’s taxable income. This was implemented in the 70’s to counter a move by the federal government to eliminate tax deductions for royalties paid by oil and gas companies. The ARTC was used by small oil and gas companies as collateral for bank loans and accounted for 15-20% of their cash flow.

Every incentive to drill in Alberta has been taken away. And the assigned percentage of reserves that all oil companies held on Crown lands and that they held on their books prior to the NRF was drastically reduced when the NRF came into effect.

How does this affect the oil and gas companies?

Continue reading.

It is no secret that Blaine's letter has resulted in a boost to the Party, he said as much in his CBC interview a few weeks ago. It has prompted other Albertans to write similiar letters and to speak their mind. We must never be afraid of getting the facts out and helping other Albertans understand our current situation.

Alberta Needs Your Help

Over the last few months I have enjoyed meeting and speaking to many Albertans. Many are contacting us for the first time and they have been motivated by letters they are reading.

This week I will be featuring the letters that are creating the buzz.

February 7, 2009

Friend and Fellow Albertan:

Because of low commodity prices, the worldwide credit crisis, and the policies of Alberta Premier Ed Stelmach, our oil industry is going to have a long, tough year. Two are beyond our control. I’m writing about the third.

In the two years since Premier Stelmach announced the public royalty review process, we’ve all wondered what his agenda was. My investigations lead me to conclude he doesn’t understand or trust the oil industry. Many Tory MLA’s, particularly from northern and rural Alberta, share this view. Somehow, under his leadership, Stelmach has split our province on a north/south, anti-Calgary basis. There is no other possible explanation why he would ignore the mountain of expert advice and subject our industry to punitive royalty increases that will ultimately damage all Albertans.

Stelmach’s recent announcement that he’s going to somehow help junior oil companies without improving investment economics by reducing the Crown share proves once again he just doesn’t comprehend how the wealth-creation process works. His advisors, many political scientists and journalists, and many Albertans don’t understand it either. This is why the “us versus them” aspect of the royalty issue still permeates the public debate.

For 30 years in print and electronic media, I’ve been a vocal supporter of the oil industry. I continue today on a monthly basis in Oilweek and The Calgary Herald. Although I’ve been asked to go into politics many times, I’ve avoided it so I could remain independent as a journalist and commentator. However, the damage being inflicted by the Stelmach government on our company, our employees, our industry and our province is so great and so unnecessary that I have to get involved.

Therefore, I’ve joined a group of likeminded individuals in the Wildrose Alliance Party in a policy and fundraising capacity to create a viable alternative to the current government. I’ve concluded that the only pressure that this government understands is the loss of political power. Many Tories I know are very discouraged with the current leadership and claim that they can change their party from within. While this may be the case in a few years, Alberta can’t wait. Certainly many smaller E&P and service companies and their employees are out of time. We must act now.

As for Wildrose Alliance, what you see today is not the final product. We’re building a centrist, “big tent” party with broad appeal to Alberta’s diverse citizens. But our party will have the true small “c” conservative economic policies the Tories have abandoned. To view an overview I co-authored with party leader Paul Hinman and President Jeff Callaway, go the Wildrose Alliance website and click “Policy Presentation”. There will be many changes to Wildrose Alliance in the next few months.

But we need money to do the foundation work for a major public launch later this year. I’ve personally donated $5,000 in the past 12 months. In the best interests of our province, I’m asking you to make as large a donation as you’re comfortable with. Nothing is the wrong answer. There is no downside to helping. If we create a viable, centre-right alternative to the Tories our province needs, we’ll have a choice next election. If our actions cause the Tories to wake up and become responsive to the needs of working Albertans and its most important industry, then our efforts will be
rewarded much sooner.

I’m working on this a few hours a week because, like you, I have major obligations in ensuring our company emerges from this downturn with the least possible damage. To do this we laid off about 5% of our staff on February 2. Hopefully, it won’t get worse. But I also believe that my modest contribution of time and money to get the Alberta government back on the right path will ultimately help our company.

Sincerely,
David L. Yager

David Yager a columnist with Oilweek and the Calgary Herald. He is also the CEO of an oil service company. You can find a printable PDF version of his letter at the Grassroots Oilworkers website.