PC royalty miscalculation robs Alberta of $13.5 billion

A royalty miscalculation by Alberta’s governing Progressive Conservatives robbed the province of $13.5 billion, according to a University of Alberta study.

Alberta introduced new royalty formulas in 2009, expecting to collect an additional $2 billion per year in royalties, but, instead of collecting an additional $10 billion over the following five years, total royalties collected went down by $13.5 billion, the report by the University’s Parkland Institute shows.

Billions Forgone: The Decline in Alberta Oil and Gas Royalties authored by Jim Roy, the former Senior Advisor for Royalty Policy for Alberta Energy from 1985 to 1993, blames the PC’s miscalculations during the royalty review for the the loss.

The findings are expected to further erode re-election chances for Premier Jim Prentice, who has ironically attracted the #mathishard hashtag on social media for his comment during the party leaders debate where told NDP leader Rachel Notley that “I know math is difficult.”

“Some say it was bad luck; the government points to the price and claims that nobody can control it,” Roy wrote in the report. “However, the average annual value of production was $83 billion in the five years before 2009 and $82 billion in the five years after; this is not an overall drop in price.”

“The big change was in gas royalties, which dropped by just over $5 billion per year following the 2009 change,” Roy points out. “Gas went from providing two-thirds of total royalties to providing only one-sixth of total royalties.”

The big difference, according to the report, is how the rate of production affected royalties.

“In 2002, Alberta collected 15% royalty on a well with average production and 23% royalty on a well with twice-average production,” Roy notes. “In 2012, a well with average production paid 5% and a well with twice-average production also paid 5%. Wells with the highest production paid the same rate in both years (27%), but there were not enough high-producing wells to make much difference.”

“Another way of expressing the difference is to note that the previous formula started collecting above-minimum royalties when revenue exceeded $5,000 per month, whereas the new formula does not collect above-minimum royalties until revenue exceeds $20,000 per month,” Roy wrote.

Notley, whose victory has been deemed “inevitable” by opinion pollsters, has vowed to correct the costly error by carrying out a cautious royalty review while keeping in mind the need to maintain Alberta’s competitive edge.

“We’re acutely aware of the pressure that low oil prices have put on the oilpatch, and the Alberta budget,” Notley said. “We’re committed to ensuring that Albertans are getting value for our resources. That means we understand that competitiveness matters.”

Prentice has ruled out fixing the mistake calling a royalty review “the worst thing we could do right now.”

Wildrose leader Brian Jean shared Prentice’s sentiment saying a royalty review would make Alberta look like a “banana republic” in the eyes of stock market and businesses.

17 Responses to PC royalty miscalculation robs Alberta of $13.5 billion

  1. Anonymous says:

    Whenever PCs make a math error, Albertans suffer. Get out and vote folks.

    • J White says:

      There is a math error in this article. His gas prices are wrong. Gas was not $4/GJ in 2012. This article is a lie…..

  2. Warren Walker says:

    Are Prentice and friends really that stupid or are they laughing all the way to the bank before they detour to jail on fraud and corruption charges?

    It still mystifies me how Harper managed to become an economics professor before he became a politician.

    I still think the Chinese have a better system for creaking with orrupt/stupid high level civil servants and politicians…firing squad.

    • Anonymous says:

      Harper was not an economics professor. Google it.Harper has been the Member of Parliament (MP) for the riding of Calgary Southwest in Alberta since 2002. Earlier, from 1993 to 1997, he was the MP for Calgary West. He was one of the founding members of the Reform Party, but did not seek re-election in the 1997 federal election. Harper instead joined and later led the National Citizens Coalition, a conservative lobbyist group. Harper enrolled at the University of Toronto but dropped out after two months.[6] He then moved to Edmonton, Alberta, where he found work in the mail room at Imperial Oil.[6] Later, he advanced to work on the company’s computer systems. He took up post-secondary studies again at the University of Calgary, where he completed a bachelor’s degree in economics. He later returned there to earn a master’s degree in economics, completed in 1993. All from Wikipedia.

  3. Warren Walker says:

    Are Prentice and friends really that stupid or are they laughing all the way to the bank before they detour to jail on fraud and corruption charges?

    It still mystifies me how Harper managed to become an economics professor before he became a politician.

    I still think the Chinese have a better system for dealing with orrupt/stupid high level civil servants and politicians…firing squad.

  4. Shaun says:

    There is no reason why they cant go back on the oil companies and demand payment…

    • Kory says:

      They already paid their bill. If a restaurant for got to put appetizer on the bill but tried to add it to your bill the next day what would you say? It’s not that they made an error in collecting they just didn’t charge them. The conservatives are so corrupt it’s sickening. And now they’re refusing to fix their giant mistake. They should be in jail not in office

      • Carlos says:

        If the government under taxed a private citizen and realized their error you can bet they’d collect.

        • Anonymous says:

          They wouldn’t come back to your taxes and say, naaaaah I want an additional twenty percent.

          • Anonymous says:

            Could and would and do… It’s called an audit

          • anon says:

            nah, an audit is if they think you misreported something. there’s a difference between the oil companies lying/miscalculating their info and the government changing a law. they can’t announce today that taxes from the last 5 years will be recalculated under a new law.

  5. marlene stobbart says:

    This article had not clearly defined the year and why the change in the royalties. Who decided the adjustment and moreover, why?

  6. rt says:

    A fairly quick google search will show that the gas production in Alberta has declined substantially over the last 5 years, which is the cause of this “miscalculation”. The fact that they predicted the lower NGas production, basically tricked the oil companies by lower the Ngas royalty, and increased the royalty on crude production is a fairly big positive in my eyes. Interesting how this liberal based website would overlook such an easy item to research. *rolls eyes*.

    Comparing the royalty revenues of 2002, literally the highest NGas production year in AB history, to 2012 our lowest production year in literally 2 decades, is purely malicious, PC hating, bush league reporting.

    • Anonymous says:

      I was wondering if anyone would point that out as well as the price of gas at the time then what it is now.

  7. CMG says:

    Declining royalties aside, whatever happened to the Heritage Fund?

  8. Jim Bates says:

    A royalty miscalculation ?????There is no doubt in my mind the miscalculation was well planned and thought out to further muddy the waters and to ensure Harper and friends are well rewarded regardless of their intent to mislead. Typical. Once he is gone, his dealings should be scrutinized with a fine tooth comb to shine light on Harper’s sucking dry of the province. The finding should also see the light of day, something Harper would never allow to happen under his regime.

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