Thursday, October 25, 2007

Alberta's Ed Stelmach - the new Hugo Chavez?

A couple of hours ago, Alberta's Premier Ed Stelmach went on live television to announce a new royalty regime for oil and gas developments. The new regime will put an extra $1.4 billion into Alberta coffers by 2010. This is about a 25% reduction from the recommendations of a panel set up to study the new royalty plan. A National Post editorial thinks that this is so significant that it will end Alberta's boom, and compares Alberta to "banana-republics" like Venezuela (Chavez) because it is not being friendly to big oil, in fact, starting a "new anti-oil industry" era.

I have to wonder about how many $billions oil companies have made already from the Alberta oilsands, and how much they will still profit even with Alberta's new royalty policy. It was not stated in the NP piece. Are oil companies really just scrapping by? From reading the National Post, one might think so. How much profit is enough?

When one hears references that the oil sector will hurt as a result, one should not necessarily view it as some poor sap of a business put out of business. Today, the Globe & Mail reported that Suncor's profits were down. It will earn a third quarter profit of $ 677 million, but that's down from $682 million from a year ago:(

Many already think that big oil, like banks, are the poster children for greed. Like banks, oil companies are regularly making record profits in quarterly reports, and will likely "survive" Alberta's new royalty rate. Despite being a rich province that has eliminated its debt a few years back, Alberta still has problems in health care, and it's share of social problems. An extra $1.4 billion could go a long way to alleviating problems and helping secure peoples' future and well being.

NP's Claudia Cattaneo says that the oil companies are responsible for "lining the pockets" of Alberta, but from an outside observer's point of view, it was quite reciprocal. Alberta has been very friendly with oil & gas companies, but it seems they will always have allies with Canada's "national" newspapers.


Anonymous said...

Instead of impairing the obligation of contracts voluntarily entered into, perhaps Alberta should enter only those contracts that meet the will of its people ex ante and keep them. Trust is a thing tough to earn but easy to lose.

Charles Cheeseman said...

That is a good point, and the oil and gas sector may flex its muscle to have a negative impact on Stelmack's bid for a new term as Premier, and some may threaten to pull out of of AB. As a general news watcher I feel the oil industry can easily take the hit. If there are some companies that will actually not be profitable as a result of this, then yes, it is a negative decision. I just found a news item from today about Suncor's profits, and added in the post. They certainly don't seem to be hurting. As you mentioned though, trust is an issue, and even though big oil will still profit, they can highlight the trust issue for Albertans. Right now, however, 80% support a bigger take from oil profits.

BNB said...

It has to be pretty hard for journalists like this one to keep a staight face when they whine that we are not being kind to big oil.

According to the hits from oil concerns on my own site and others big oil invests heaviliy in keeping an ear to the ground about the industry. This feds their lobbying efforts and builds on their greed.

Alberta is not going to suffer an end to their boom because they are standing up for a fair share.

Poor Big Oil - Cry me a river. Better still, cry me a well.

Charles Cheeseman said...

Bnb, with oil at $80 + a barrel, why don't we start a site to help big oil be compensated for the devastating losses they will suffer as a result. Public donations will be welcome. In the meantime I'm heading to the gas pumps to help more.