Backtracking on the Royalties

So it appears that the Alberta Government is going to relax the royalties and taxes on the oil industry…  This is a good thing, and hopefully will help the economy and the industry be more competitive in this market place…

Premier Ed Stelmach announced a new five-year plan that lets producers pay less than the rates set in next year’s revamped royalty regime, a move that affects thousands of conventional oil and gas wells.

In making the surprise announcement, the premier said this change is needed to shake off the effects of a slowdown in Alberta drilling and the global economic crisis.

He argued extra tinkering to the province’s royalty framework — announced with much fanfare in October 2007 — will help spur drilling of new wells between 1,000 and 3,500 metres deep.

“The world has changed in recent months and we must respond. We must be competitive, so we’re making this change to encourage new activity in the oilpatch,” Stelmach said.

“This is all about accessing risk capital and ensuring that the jobs are maintained here in the province of Alberta.”

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Smaller Oil Producers may Sell Out

Right now with some economic uncertainty, some smaller players in the oil industry may look at selling vs. pushing through this time.  We may see take-overs starting to happen more frequently in the months ahead.  Some of these companies who would rely on outside investment and capital to run their business, might need to look for funds elsewhere.

But overall, Canada’s oilpatch comes out of the market meltdown relatively unscathed with the exception of some battered share prices.

That’s because the industry has traditionally relied on internally generated cash flows to fund growth.

Hal Kvisle, president of pipeline giant TransCanada Corp. said “If you go back to the start of my time in this job, we were generating about $1 billion a year in cash flow, of which the first $400 million went to the payment of debt. Now we generate $3 billion and the first $700 million or $800 million goes to the payment of a dividend, so we have five or six times as much available financial strength.”

There is a ton of money in the larger companies right now.  The revenue they have generated over the last couple of years, plus having majority of budgets based on the $70-$90 per barrel price, they will be able to weather the economic uncertainties in the coming months.

Does Canada Have the Dirtiest Oil?

Would love to hear your comments on if Canada’s Oil is the dirtiest?  What do you think?