Ed and his Pink Hat go Drinking
A reaction to Ed Stelmach's royalty plan
First off, drilling levels will be fine through this winter. Companies have already bought their land rights, so they are already committed to winter drilling projects. This will be great for Ed and the Progressive Communist party of Alberta. Ed will be able to sit back on his throne, sometime in mid February and point triumphantly to the record drilling levels and say “see, helping Albertans did not deter drilling. We must not be afraid of the big oil companies”. Most people will cheer and then once summer comes, and the election is over, and pink Eddie is re-elected, the industry will come to a grinding halt, but the pubic won’t be interested in the debate anymore. The lack of drilling will be attributed to a downturn in the industry, a bust cycle, possibly blamed on a high dollar or more access to middle east oil.
The big energy companies like Encana, Talisman, Conoco, CNRL… etc will spend their dollars elsewhere (see Saskatchewan) out of principle. They will make a stand because they know who’s next in line (see looting feds) for their profits. People think it is hard to move a giant corporation like Encana. Well its not, Encana is just a bunch of engineers. Pipelines, compressors and pipelines can be rebuilt (cost can be spread out amonst competitors) or in a lot of circumstance already exist on other parts. All the equipment associated with oil production is owned by Albertans— the rigs, wellheads, pipe, welding units, trucks, trailers, tools, and heavy equipment are all owned by Albertans who rent their capital to energy producers. The energy companies have no stake in any of this capital expenditure.
Some other points:
So the Alberta government decides to raise royalty rates on oil 20%— and oh by the way they want to get into the bitumen upgrading game as well. This is a direct transfer of wealth from the people who extract bitumen to the people that upgrade it. As I said in my last post this is the moral landscape of the mixed economy.
The feds created the NEP (the nationalizing of the energy industry) and they crippled the province. The government bought all the foreign owned companies for 10 times their worth and then watched the industry die. Then they got out of the energy game by reselling all the same companies that they had just bought for inflated prices for 10 cents on the dollar. Next the government spends tax payer dollars in order to create incentives for rich oil giants to drill again. Then, predictably energy companies use our money to drill again (sometimes knowingly dusters—very funny to hear these stories). 20 years later, companies are drilling at ultra high levels with their own money and the government steps in raises the royalty taxes on oil to potentially 50%. I wonder what happens nex?
I hate having to hear people say “A slowdown is good for the province” —huh 8.5% unemployment is better than 4%. Investment leaving the province is better than investment coming into the province. Stagnation is never beneficial. Alberta has bought into the Canukistan dream.