New Alberta Premier: No Plans to Slow Energy Development

Dow Jones Newswires

CALGARY, Dec 04, 2006 (Dow Jones Newswires by the Wall Street Journal Europe)

Alberta Premier-Designate Ed Stelmach, the new de facto leader of the province, said Monday that he has no plans to slow down the development of Alberta's oil and gas resources.

However, he does plan to seek changes to the province's oil and gas royalty regime, and in particular will look to encourage heavy crude producers to process their output in Alberta.

"The government is here to deliver the services to allow growth," he said. "There's no such thing as touching the brake or anything like that."

Sunday, Stelmach won the leadership campaign for the province's ruling Progressive Conservative party, becoming Premier-Designate. Stelmach, who was seen as something of an outside candidate in the election race, replaces long-standing Alberta Premier Ralph Klein, who is stepping down.

Although Alberta's crude is difficult and expensive to extract because it's mixed with sand, higher global crude prices have made production here more economically feasible. Around C$125 billion ($109 billion) of projects is planned over the next decade, while crude production is expected to triple to 3 million barrels a day by 2015.

That's led to spiraling labor and equipment costs, as well as concerns over infrastructure limitations, especially in high-growth regions such as Fort McMurray, a remote town considered to be the oil-sands capital. Earlier this year, the municipality of Wood Buffalo, which includes Fort McMurray, asked provincial energy regulator the Alberta Energy and Utility Board to slow the pace of development to allow infrastructure to keep up.

"We need to ensure that these services are in place and that we have the people to do that," Stelmach said in a conference call.

Stelmach added that he does plan to look at Alberta's oil and gas royalty regime, which has been criticized in some quarters as not realizing enough tax revenues from the province's oil and gas production.

Currently, operators in the oil sands pay 1% of gross revenues until capital costs and a return allowance are recovered, after which the rate jumps to 25%. Oilsands companies are expected to pay out about C$2.5 billion this year in royalties.

In particular, Stelmach wants to ensure that as much heavy crude, or bitumen, is processed in Alberta as possible. Bitumen needs to be run through an upgrader, which lightens the quality of the crude, before most refineries can process it; while some companies are looking to construct upgraders for their future production in Alberta, others are seeking solutions outside of the province, where labor and materials are more available.

"If we insist on exporting this raw product out of Alberta, then the taxes will be exported out as well," he said.

Copyright (c) 2006 Dow Jones & Company, Inc.