While all sides say details like rates and schedules remain negotiable, it appears industry rapidly lost the battle to enlist the hearts and minds of Albertans for its war against an overhaul of provincial royalties. Within two weeks of a stunning report advocating $2 billion in annual royalty increases by a provincially appointed review panel, polls showed opinion swung overwhelmingly in favor of change — including in the Calgary capital of Canada’s natural gas industry.
The polling — done for the Edmonton Journal and Calgary Herald by Leger Marketing — found an 88% majority of Albertans believed the province has not taken a fair share of the proceeds from increased oil and gas prices in recent years.
The score was no surprise in the political capital of Edmonton, which long ago earned the nickname Redmonton, as a blue-collar northern industrial city liberally sprinkled with big concentrations of academics and civil servants and virtually no corporate head offices or allied financial houses.
But Calgarians lined up virtually the same, with 84% agreeing the province is not receiving a fair share. Outside the two major cities, each with populations of about one million, opinion in favor of overhauling the revenue system ran at 91% among another 1.4 million residents of smaller centers.
Opinion also ran fully 67% in favor of just enacting the review panel’s recommendations without further consultations between industry and the government.
Support for change, at the industry’s expense, appears to have solidified after EnCana Corp. cast the first big stone against the panel by saying its Alberta gas budget would be cut by about $1 billion next year if the panel’s proposed royalty increases were enacted (see NGI, Oct. 1). In Calgary and Edmonton, the statement was widely taken as fighting words and provoked knee-jerk reactions along the lines of “Who do they think they are?”
The feeling of being threatened had potentially serious consequences in communities where the company operates outside the big cities, industry sources added. Nervous employees, field contractors and services such as motels and work-wear suppliers were looking over their shoulders and for other customers.
The polling also confirmed that the opinions are strong. Fully 89% of the sample of adult Albertans said the royalty decision will be a major test for the provincial Conservative government of freshman Premier Ed Stelmach. The results also showed 79% believe the issue affects them directly and 77% said the Conservative government’s performance will affect how they vote in a provincial election expected this fall or next spring at the latest.
Stelmach and his aides have set a target of mid- to late-October for a government response to the royalty review. He appointed the six-member panel — a group drawn from industry, government, academic and financial circles — as his first priority after he won a hard-fought Conservative leadership contest last winter to replace retiring premier Ralph Klein. All serious candidates for the job pledged a royalty review.
The heated royalties debate highlights a seldom-acknowledged but profound difference between Canadians and Americans, even in an Alberta occasionally celebrated as “the Texas of Canada.” Provincial ownership of natural resources is a hallmark of the Canadian constitution. Four-fifths of Alberta mineral rights are owned by the provincial government in a relationship traditionally portrayed by officialdom, and popularly regarded, as a trust.
The sense of resource ownership has been bred into the Alberta public as long as there has been a population in the area. Since the late 19th Century, as part of the central government laying foundations for Alberta’s formation as a province in 1905, mineral rights were excluded from land surface titles granted to settlers. Almost the sole exceptions were land grants given as incentive payments for construction of the Canadian Pacific Railway.
Among historically conscious Albertans, the current royalties debate evokes a history which is both proud and a demonstration that the smart course of action is not to knuckle under to industry. Last time Alberta Conservatives stirred up a hornet’s nest by raising oil and gas royalties, the province kept score on the aftermath.
“We heard many dire predictions,” former premier Peter Lougheed reminded the legislature in his first annual state-of-Alberta address on Oct. 25, 1972. Six months earlier, public hearings on Tory royalty proposals rang with warnings of hard times ahead if they were enacted. The industry chorus included Lougheed’s brother Don, doing his job as Calgary drilling and production chief of then Toronto-based Imperial Oil.
The Independent Petroleum Association of Canada, an ancestor of today’s Canadian Association of Petroleum Producers, predicted losses of 50,000 jobs. Investors would shun Alberta — and not least because the plan tarred the province’s reputation for stability by scrapping a decades-old economic compact between the former Social Credit regime and industry, financial gurus said.
The Tories promptly enacted their royalty hikes, including a then-radical procedural step entitling the cabinet to change rates rapidly by amending regulations rather than passing bills in the legislature.
About two years later the Department of Mines and Minerals, ancestor of Alberta Energy, printed a poster-sized scorecard on government revenues and industry activity. In 1970s style, before public relations ballooned into a big business, the document was all numbers. Just the facts were dramatic.
Provincial royalties nearly doubled to C$319 million for 1973 from C$167 million in 1971, the last year of the old Socred 16.6% flat rate regardless of energy prices.
But industry activity also grew, the scorecard showed. By year-end 1973 the number of drilling rigs at work rose by 13% to 172 from 152 in late ’71. The number of wells completed increased by 73% to 3,513 in 1973 from 2,025 in ’71.
More was happening on the oil and gas scene than royalty changes, industry records kept by CAPP show. The Organization of Petroleum Exporting Countries was beginning price hikes that turned the ’70s into the “energy crisis.” During 1971-73 the annual average wellhead price fetched by Alberta oil, excluding pipeline tolls then built into quoted market prices, climbed 23% to C$3.48 a barrel from C$2.82.
Natural gas rose 18% to C19 cents per thousand cubic feet from C16 cents. The increase, while modest, was just the beginning of a trend that was more predictable than OPEC oil price postings because it was made in Alberta.
The gas gain was an early result of a chapter in industry history that free-enterprisers prefer to forget, like the invention of the oilsands production process by government scientists and the pedigree of EnCana. Canada’s biggest gas producer is a combination of two firms that owe their existence to governments, Alberta Energy Co. (AEC) and PanCanadian Energy.
AEC was created by the legislature, endowed with rich gas and oilsands assets, and part-owned by the province for most of its history. PanCanadian was heir to the federal land grants given to builders of the CPR. AEC, formally incorporated in 1975 as a labor of love by Lougheed and political right-hand man Don Getty, grew out of the same economic activism that sired the royalty and gas price increases.
In the 1950s, ’60s and early ’70s there was no gas market in any meaning of the word that today’s business community would accept. Only one purchaser took most Alberta production: TransCanada PipeLines, which at the time was a powerful middleman that owned the gas it carried for resale to central Canada and the United States.
After raising royalties the early Tories ordered the Energy Resources Conservation Board (ERCB), ancestor of the Alberta Energy and Utilities Board, to hold an inquiry into gas prices. The report confirmed that in the absence of a market where producers could shop around for customers, gas fetched only a fraction of its value as energy compared to oil.
Armed with the ERCB inquiry, the province fired one of the biggest salvos in the famous 1970s “energy wars.” Drilling and production companies did not object, but Ontario’s Conservative government threatened to fight Alberta in the courts and enlisted political support from the Liberal regime in Ottawa. Alberta’s Tory cabinet, in effect, staged a boycott against then Toronto-based TransCanada and its primarily eastern owners and supporters.
In early 1973 Alberta announced that no new “removal permits,” or licenses to ship gas to out-of-province consumers, would be granted unless prices were renegotiated to fair levels as measured on a yardstick derived from the ERCB inquiry.
TransCanada renegotiated. Between 1973 and 1979, annual average gas prices received net of pipeline tolls jumped nine-fold to C$1.68 per thousand cubic feet from C19 cents. Drilling, jobs, investment, profits, government revenues and Alberta’s population multiplied in a mostly fondly remembered 1970s “energy boom.”
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