Alberta Royalty Review Part One: Introduction

I plan to write a few articles reviewing the Alberta Review Panel Final Report (PDF, 2.25mb). Before writing those articles, however, I should provide you with more of my background.

During the 1990s, when the National Oil Sands Task Force (NOSTF) lobbied the provincial and federal government for an oil sands fiscal regime, I worked for Syncrude Canada Ltd. in its business development group. I was the analyst who performed the majority of the numerical analyses for the NOSTF efforts in lobbying the governments. Moreover, I participated in many high level discussions with the industry players as well as the governments. Thus, I am extremely well versed in the fiscal terms and how the fiscal terms were arrived at.

The two dominant oil sands players in the 1990s were Suncor Energy Inc. (SU) and Syncrude Canada Ltd. I believe, though am not positive, that Suncor began its operations sometime in the 1960s, and Syncrude began its operations in 1978. When Syncrude began, it was a joint venture of several companies along with the provincial government. To encourage Syncrude's development, both the provincial and federal governments gave Syncrude a unique set of fiscal terms that were set to expire in 25 years or 2003. Syncrude's initial fiscal terms were generous and not likely to be replicated into the future. Furthermore, all oil sands projects had unique fiscal terms that reflected a company's bargaining strength at the time.

Syncrude knew that it would have to renegotiate its fiscal terms soon. Like most companies, it wanted to expand its operations. And it wanted to create an industry set of fiscal terms so that it would not have to negotiate on a one off basis and so that all companies would be treated equally. If a company negotiated a one off set of fiscal terms, then the government had all the negotiation strength. It could examine the economic strength of the proposed project and set the fiscal terms accordingly. I believe most industry players wanted an industry set of fiscal terms so that individual companies would be compared on an operational basis, not on a fiscal term basis. That is, Company A is doing better than Company B because it is a better operator, not because it negotiated better fiscal terms.

Industry pundits and various futurists were predicting that oil prices would remain in the $20 – $30 real region forever because technology would allow companies to find smaller pools of oil for less cost. Also, there was a fear that another energy source might be developed soon that could displace oil. Thus, the oil sands industry needed a set of fiscal terms that were attractive to encourage development. With oil sands development, the governments could monetize the value of the oil sands while oil sands were still valuable.

I will try to find an online source of the NOSTF report for those who might be interested.

This article summarizes my role with the NOSTF, which created the current fiscal framework. You should know my prior involvement because it will undoubted color my views as I comment on the Alberta Royalty Review.

Edmonton model Nikki G is featured in the photograph, which is hosted at Flickr. If you click on the picture of Nikki, you will be taken to where you can view a larger version and see even more pictures of her.