BUSINESS

Minor royalty: big oil shows it’s no big deal

COLIN CAMPBELL December 31 2007
BUSINESS

Minor royalty: big oil shows it’s no big deal

COLIN CAMPBELL December 31 2007

Minor royalty: big oil shows it’s no big deal

COLIN CAMPBELL

If you listened to executives in Alberta’s oil patch a few months ago, you might have believed the sky was falling. When the government said last October that it would hike oil and gas royalty rates—and collect $1.4 billion more from the oil industry by 2010—many said they’d have no choice but to pull up stakes and leave. The province, they said, was doomed. But for all that bluster, the industry isn’t exactly running scared. In the past week, several major companies have announced they will actually boost spending in the oil sands in 2008.

Last week, Petro-Canada said it will increase spending at its Fort Hills oil sands project, as part of $5.3 billion in overall spending next

year. The oil sands “still look like pretty solid projects,” said Petro-Canada CEO Ron Brenneman last month. Husky Energy said it will increase spending by 28 per cent on oil sands and international ventures. EnCana said it would cut spending in Alberta by $500 million, but also announced that it would double its spending in the oil sands next year to $1.2 billion. “Ifyoulookatthe [royalty] announcement in terms of investment, they are still on track, very similar to what they were before,” says Amy Taylor, an economist with the Pembina Institute.

Royalties are expected to have a bigger impact on the conventional oil and gas industry, where spending could drop by as much as $5 billion in 2008, according to one report. But even here, there are other factors at work, including low natural gas prices and uncertainty over the future of energy trusts.

With oil prices soaring near $90 a barrel, demand for Alberta oil is flying high. And compared to the huge cost overruns and production delays now commonplace in the oil sands, royalties still seem like a pretty minor speed bump. M