Sunday, March 6, 2011

What will we do when the piggy bank's empty?

What will we do when the piggy bank's empty? | Mindelle Jacobs | Columnists | Comment | Edmonton Sun

It hasn’t happened. Instead, even though oil is about $100 a barrel, the province hasn’t changed the royalty regime to reflect higher oil prices. Drilling companies are laughing all the way to the bank on account of the absurdly generous royalty incentives, and Alberta is saddled with a multibillion-dollar deficit.

“We’re just leaving all sorts of money on the table that we should be entitled to,” says Ricardo Acuna, executive director of the Parkland Institute.

“It just seems counterintuitive that we’ve got this incredibly valuable resource with prices going through the roof and we’re actually putting into place a mechanism that’s charging them less royalties than we would otherwise,” he says.

Another columnist that doesn't pay attention to history. Perhaps Ms. Jacobs would like to research what happened in Alberta after Mr. Stelmach made adjustments to the royalty rates a few years ago.

The fact is that Alberta is getting all they asked for in royalties from oil and gas, but the problem isn't that they aren't getting enough, it's that they're SPENDING TOO MUCH. It's a simple fact, and one that many people don't seem to grasp - if you increase my cost of ANYTHING, I may start looking somewhere else. It's nothing against you, per se, but many people have to remember that corporations don't have emotions. Corporations don't have a personality. Corporations aren't going to stay with you for any real sentimental reasons.

I'm going to say that again, because it's important: Corporations will not stay with you for sentimental reasons.

A corporation is there to receive maximum benefit for their shareholders (that's you and me). If a corporation figures out that they can send their drilling rigs to, let's say, a neighbour because it's cheaper than leaving the rig at home and paying higher extraction costs, the corporation will only consider how long that will be the case before they jump to the neighbour. And given that drilling an oil or gas well is a very short process compared to building a mine, that becomes an opportunity cost to your province because the money spent to drill that well is never coming back in any tangible form.

So, Ms. Jacobs, would you like to raise your royalties again, or would you like to tell your government to stop spending like a bunch of drunken sailors on shore leave? Seriously? We'd love to have all the extra work in Saskatchewan that comes with Alberta raising its royalty rates again, but we're also going to need more of your people too. I'm sure that we'd be happy to headquarter your oil companies too if you want to mess with your corporate tax rates too.

1 comment:

  1. If I could "Like" a blog post I would "Like" this one. Everything you say here is right on. Oil companies don't owe Alberta anything, least of all loyalty, and we have plenty of oil here for the reaping. Where does the bottom line lay? Where they can make the biggest profit.