CAPP Says Royalty Panel Report Flawed

The Canadian Association of Petroleum Producers (CAPP) welcomes Premier Stelmach's decision to consult with Albertans on the Royalty Review Panel's final report.

"We are committed to staying focused on the facts and working constructively with government throughout this process," said Pierre Alvarez, CAPP President. "Every Albertan wants their government to have all of the facts, the best possible analysis and all sides of the story in making this important decision."

The panel's report promises a future that the oil and gas industry sees as unrealistic. It calls for significantly higher royalties and taxes, but suggests there will be no overall impact on industry investment, activity and growth. "The basic assumption is that the size of the 'pie' will not change," said Alvarez. "Past experience, in this country and around the world, just doesn't support the panel's view."

Industry will be sharing its concerns with government during the consultation process. Some of CAPP's concerns are:

- The panel acknowledges increased royalties and taxes will slow oil sands investment and activity, but suggests this will be balanced by an upswing in conventional oil and natural gas activity. The panel claims that 82% of gas wells will actually pay lower royalties under their approach. This is only true at low and uneconomic prices. At prices expected over the next year, all gas wells will pay higher royalties (see Attachment 1) which will only make the current drilling downturn worse.

- The panel points to a single report to back its argument that Alberta's share of revenues is low in comparison to other jurisdictions. This report was not raised for discussion during the public hearings. In fact, the report was only released after the close of public hearings. Reports prepared by other independent and qualified consultants are readily available. One report that was given to the panel shows Canada providing the lowest return on oil and gas investment (see Attachment 2). It appears this side of the story was not considered by the panel.

- The panel ignores the real costs facing the industry. For example, the costs for a typical oil sands project are stated to be $5-6 billion by the panel, but the actual costs are $10-11 billion. These costs, such as the price of steel, are largely driven by global factors and are not within control of the industry.

"This debate is often painted as industry versus government or the public," said Alvarez. "The truth is that we are all in this together. One in six Albertans work for or alongside the industry. Industry revenues are reinvested in the economy, generating further prosperity and growth. We all know this issue is too important not to get right."

The Canadian Association of Petroleum Producers (CAPP) represents 150 companies that explore for, develop and produce natural gas, natural gas liquids, crude oil, oil sands, and elemental sulphur throughout Canada. CAPP member companies produce more than 95 per cent of Canada's natural gas and crude oil. CAPP also has 130 associate members that provide a wide range of services that support the upstream crude oil and natural gas industry. Together, these members and associate members are an important part of a $100-billion-a-year national industry that affects the livelihoods of more than half a million Canadians.

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