Petro-Canada and the former CEO of Talisman Energy Inc. joined the growing chorus voicing their disapproval for proposed changes to Alberta’s oil and natural gas royalty regime.

In separate letters Tuesday, Calgary-based Petro-Canada and the former CEO of Talisman, a producer also based in Calgary, sent letters expressing their disapproval to the proposed recommendations of the Alberta Royalty Review Panel. The report’s recommendations have caused a firestorm of criticism from producers and energy analysts since their release last month (see Daily GPI, Oct. 3).

Albertans “should rightly expect royalty income to the province to increase as oil and gas prices rise,” Petro-Canada stated. “But those royalty increases must be balanced against investment and job creation in the industry to maintain the prosperity that all Albertans want to enjoy.” The royalty revisions “will not achieve that balance,” and if implemented, “wold seriously impair investment in the province.”

The province’s oil and gas industry competitiveness “is not judged upon royalty rates…but on investment returns,” Petro-Canada noted. “Those returns are impacted by the higher costs, smaller finds and lower well rates in Western Canada’s mature basin.”

The report’s conclusion that 82% of natural gas wells will pay lower royalty rates without the revisions is misleading, said Petro-Canada. “Almost all wells will pay higher royalties at current prices.” Higher royalty rates, it said, would only add to the more than 30% decline in drilling activity and corresponding job losses already experienced this year.

“We are reinvesting a good portion of the money we make back into Alberta projects — more than C$2 billion this year,” said Petro-Canada CEO Ron Brenneman. “This investment creates jobs and spin-off benefits in major centers, like Calgary and Edmonton, but also in rural communities around the province. We want to continue to invest here, so it’s important that we find a solution that works for everyone.”

Jim Buckee, who was CEO of gas-directed Talisman for 14 years until his retirement this year, said the debate overlooked important points. He also said Talisman likely would cut its investments in Alberta by around C$500 million next year if the panel’s recommendations are approved.

“World oil prices may be at $80 per barrel…but we need to distinguish between oil and natural gas,” Buckee said in an open letter to Alberta Premier Ed Stelmach. “The vast majority of conventional drilling in Alberta is for natural gas and the price of domestic gas is around $5 per gigajoule, or $30/boe. The government takes its share from revenues, not from profits, which effectively lowers Alberta natural gas prices by an additional 20%.

In the Western Canada Sedimentary Basin, said Buckee, “new gas is being found in smaller quantities or in deep, technically difficult plays. Industry finding and development costs are running around $20/boe and operating costs are near $10/boe. Producing natural gas at a cost of $30 in a $30 price environment doesn’t leave much pie to share. This may seem tough to fathom in a world where the industry is reporting record profits; however, these profits come largely from the oil side or from natural gas discoveries made when costs were much lower. The decisions being made now affect the investments required to make future natural gas discoveries. You can’t get royalties from wells that are not drilled.”

At current gas prices, he said, “I believe it will be difficult for anyone to grow their natural gas production in Alberta. and if you implement these proposals we will see a significant loss of investment, jobs, taxes and the loss of world-class technical expertise. If the natural gas price were to be $10 to $12 per gigajoule, there would be something to talk about. At current prices, there are only degrees of pain.”

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