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Rich pickings: Alberta reportedly ignored reports showing it could afford to increase royalties charged to energy companies operating in the Canadian province

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Edmonton 'sat on royalty boost advice'

Alberta's government sat on internal reports showing it should increase its take from oil and gas companies by as much as C$2 billion (US$2 billion) a year, the oil-rich province's spending watchdog said today in a scathing assessment of its royalty system.

Alberta's energy department was advised by its own staff to boost oil and gas royalties in reviews which date back at least three years, but which were never made public, Fred Dunn, Alberta's auditor general, said in his annual report.

"The principals of transparency and accountability, I believe, were not followed," Dunn told reporters.

"The department should demonstrate its stewardship of Alberta's royalty regime and provide analysis to support that stewardship and this was not done."

Dunn's report comes against the backdrop of a battle over the findings of a top-level royalty review panel, which recommended last month that the government of Premier Ed Stelmach boost its take by C$2 billion, or 20%, a year.

The industry has taken pains to discredit the panel's report, warning it will spend its money elsewhere if it is forced to fork out more for the right to develop the province's oil, gas and oil sands.

Last week, Canada's biggest explorer EnCana said it would slash 2008 spending by C$1 billion in the province if the recommended rates were adopted.

Investment house Tristone Capital was the latest to fire a salvo, issuing its own report today that said adopting the recommendations would force oil companies to flee the province, Reuters reported.

Dunn's report shows that the government of then-Premier Ralph Klein began to review the royalty regime in 2000, when oil and gas prices started to jump.

In its 2003-04 annual report, the energy department said the royalties "successfully encourage continued development while collecting a fair share of resource development profits".

However, a royalty review that was discussed with then Energy Minister Greg Melchin in December 2004 concluded royalties for oil, gas and oil sands should be lifted to reflect higher prices.

A 2005 report said royalties could increase "by an absolute minimum" of C$1 billion to C$2 billion annually with gas prices above C$5 per thousand cubic feet.

"The department's monitoring and technical review findings were communicated to decision-makers. The question is: Did they hear or were they listening?" Dunn said.

"At the end of the day, I don't know, but they chose not to act."

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