Big wheels: major oil sands players claimed they would be hit hard by a proposal for higher royalties and taxes in the Canadian province
Imperial Oil chief hits at royalties report
The prospect of higher royalties and taxes is yet another cost being foisted on squeezed Alberta oil producers, Tim Hearn, the chief executive of Imperial Oil said today.
Hearn said recommendations released in Alberta yesterday calling for higher royalties payments by oil sands projects did not account for new burdens already placed on the industry.
These included a rapid rise in the Canadian dollar, levies for carbon-dioxide emissions, and tax breaks taken away from oil sands producers by the federal government earlier this year.
"There have been a number of policy initiative and market impacts that, if you add it all up, the cumulative impact can be quite significant," he told reporters. "You can look at each policy initiative and say 'Yeah, well, that's okay, we can deal with that,' but my concern is when you add it all up."
A panel commissioned by the Alberta government to examine the province's oil and gas royalty and tax regime concluded yesterday that the province was not receiving its fair share of revenues from the industry.
It recommended a 20%, or C$2 billion ($1.98 billion), boost to the province's take from oil and gas production and big changes to tax breaks awarded to oil sands projects a decade ago.
The provincial government has given itself a month to decide if it will accept the panel's recommendations. But the report is already being attacked by the industry lobby groups and executives.
"Someone who's going to make government policy on royalties needs to take a very, very clear and cogent and thoughtful review of the cumulative impact (of cost changes)," Reuters reported Hearn said. "The wisdom of the people who put the royalty thing together clearly did not, and were not, able to do all that."
Imperial, which is majority-owned by US supermajor ExxonMobil, had a record profit last year of more than C$3.04 billion.
Imperial pumps nearly 228,000 barrels per day last year from its Cold Lake project and its 25 percent share of the Syncrude development.
The company is also planning the 300,000 barrel a day Kearl oil sands project in northern Alberta.
The royalty review panel recommended that royalty breaks for oil sand projects be continued, while developers recouped their costs but rise to 33% of gross profit from 25% once the project paid for itself.
Former Alberta Premier Ralph Klein, credited with kick-starting the province's resources boom in the mid-1990s, has said he "fears" for the oil sector in the wake of the report.
"Alberta is known all over the world for its stable and fair royalty system and last night, I happened to have the opportunity to speak with a number of oil industry leaders, and they weren't pleased with the recommendations," Klein told Canada's National Press newspaper.
"One of three people in this province depend on the oil industry to make a living, so maintaining a regulatory system that is predictable and stable is vital to maintaining the thriving energy sector that creates these benefits - in my mind," Klein said in an interview.
Imperial's Hearn said the company was reviewing the proposals and was not yet ready to say if they would hamper its plans for Kearl or the C$100 billion in Alberta oil sands projects being proposed by competitors.
"We have some work in front of us to understand the royalty thing," he said. "I'm not in position today to say whether we've reached a tipping point or not because I can't tell you. But there's enough things working against us that if all this stays in place as is, there will be an effect in the industry, clearly."