Tweaks to Alberta's royalty regime could give B.C. a leg up when it comes to oil and gas investment, an industry group says.
The Canadian Association of Oilwell Drilling Contractors (CAODC) is warning the Alberta government that its royalty review, released Friday, does not do enough to address the "competitiveness gap" between the province and its oil-endowed neighbours.
"(The review panel was) very transparent and open in terms of where Alberta stood in comparison to other jurisdictions," CAODC president Mark Scholz told the Alaska Highway News. "And B.C. and Saskatchewan were in some areas more competitive than Alberta from a royalty perspective."
"Today's report does not make significant changes to the overall royalty take by the province, however, it falls short of our recommendation to reduce rates in order to (incentivize) drilling activity to offset provincial taxes," Scholz was quoted as saying in a release. "Furthermore, the recommendations do not address Alberta's competitiveness gap with other Canadian oil and gas jurisdictions such as Saskatchewan and B.C."
The panel did find that "overall, Alberta's royalties are comparable with other jurisdictions," but that "there are issues with the royalty structures for crude oil, liquids and natural gas that need to be addressed."
While the CAODC says the panel's findings give the industry the stability it needs at a time when commodity prices are at historic lows, it finds the government's incentives to reduce costs through a proposed Drilling and Completion Cost Allowance "ironic" since the NDP government has "effectively increased industry's costs through... corporate taxes (and) carbon levies."
Overall, the report recommends few sweeping changes, and does not suggest any increase in oilsands royalties. The opposition Wildrose party called the review a "waste of time," saying it needlessly created a cloud of uncertainty over the industry.
While B.C. being at a competitive advantage for oil and gas drilling contracts could be a good thing for the local industry, an influx of Alberta service companies has put a strain on many Peace Region businesses struggling to stay competitive.
Art Jarvis, of Energy Services BC, says that to stay in the game, some service companies in the B.C. Peace are lowering fees for service to major oil and gas producers "in some cases to a point where they are just creating cash flow for the company—which is not going to save (them)," he said.
"The first time they get hit with a big expense, they don't have a budget for it. There are a lot of local companies that are suffering and having to tighten their belt."
'Race to the Bottom'
Some, like B.C. Green Party MLA Andrew Weaver questioned why anyone would want to have a royalty scheme similar to B.C's, which he termed a "giveaway," even if it did offer a competitive advantage.
"If you look at royalty revenues for the province of British Columbia, they have plummeted dramatically and it's a public resource."
Weaver said engaging in a "race to the bottom" to lower royalty rates to attract business is not how a government ought to manage natural resources.
"We can play the race for the bottom in natural gas (but) the reality is we're going to lose out on that."