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Alaska-Style Revenue Distribution Proposed in Alberta

Alberta's upstart Wildrose Alliance party thinks it has a winner in the April 23 provincial elections, promising that each of the 3.8 million men, women and children who live in Alberta will receive direct annual payments by 2015 of $300-400, or a total of $1.10-1.5 billion of the expected $10 billion in oilsands royalty revenue.

The idea -- nicknamed Dani dollars, after Wildrose leader Danielle Smith -- is a potent ingredient in a political formula that U.S. voters would recognize as borrowing heavily from the Alaska Permanent Fund and the fiscally conservative Tea Party. The scheme calls for mandatory cash distributions of 20% of provincial revenue surpluses as an Alberta Energy Dividend, with checks going to every resident of the province.

Like the Alaska dividend, the Alberta version would be paid in variable amounts depending on how much the books run in the black. The province already has a Heritage Fund for revenue surpluses and an Alberta Investment Management Co. that would manage the dispersal.

The political formula appears to be working. As of last week, the latest Alberta election poll, by Think HQ for the CTV television network, has the Wildrose ahead in popularity rankings at 43% while the Conservatives trail at 29% and the Liberals and New Democrats eat dust with less than 15% each.

The Conservatives held 66 of 83 seats in the Alberta legislature when the campaign started in late March. The Wildrose, named after an official provincial flower that grows in abundance, had only four seats and no pedigree of election victories.

But the Wildrose patch in the capital in Edmonton was composed of recent defectors from the ruling Conservatives who turned out to be just the early top of a crop of discontent and desire for change. After almost 41 consecutive years in power, the Conservatives have trouble at the top, a divided organization weakened by a steady drain of defections to the Wildrose, and a widespread image as worn out.

The previous premier, Ed Stelmach, resigned last year rather than seek a second four-year term in office after the Conservatives suffered a stinging defeat at the hands of the Wildrose in a Calgary by-election and then sank in province-wide polls. The current premier, Alison Redford, won a hard-fought party leadership contest last fall by coming up from behind as a compromise candidate acceptable to deadlocked front-runners.

The energy dividend scheme highlights prospects of a brightening future painted for Alberta by the current provincial budget and industry analysts. The books record financial effects of an industrial makeover that the province is going through.

Pain brought on by poor natural gas prices is ending as Alberta switches its industrial and revenue base over to oil, the budget says. Since North American prices peaked in 2005, annual provincial gas royalty revenue has plummeted by 86% to C$1.2 billion from C$8.4 billion. But annual oil sands royalties have already rocketed upwards eight-fold from C$700 million in 2004 to an anticipated C$5.6 billion this year.

Even using conservative oil price forecasts, the Alberta government predicts that its bitumen bonanza will climb to oil sands royalty revenue of C$7.6 billion in 2013 and C$9.9 billion in 2014. The incoming flow of cash will keep on swelling to far more spectacular levels as oil sands production grows, calculates the Canadian Energy Research Institute, an independent Calgary expertise house supported by government and industry funds.

Barring surprise outright defeats by environmental opponents or a global market collapse, the institute says Alberta "royalties collected from the oil sands industry are expected to exceed C$10 billion by 2016 and $30 billion by 2024."

The calculations rely on steady production increases and virtually constant prices, with oil rising at about the rate of inflation. Northern Alberta bitumen production, from currently operating projects and known industry plans, is projected to rise to about 5.3 million b/d from the current 1.6 million.

Government revenues go up faster than production due to the structure of the royalty system. The regime sets rates at a token level as low as 1% until project construction costs are recovered. Rates then climb as high as 40% of net revenue after production costs, on a scale that automatically generates increases as oil prices rise. "Between 2011 and 2045 a total of over C$1.2 trillion is estimated to be collected by the Alberta government from oil sands operators," the research institute reports in an annual survey of the sector.

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