Is rolling back royalty rates the right move for Alberta?

Alberta has rolled back the royalty rates it charges energy companies to develop the province's oil and gas resources, which will sharply slash government revenues but may boost investment.

The maximum rate for conventional oil will be cut to 40 per cent of revenues from 50 per cent, and the top rate for natural gas will be cut to 36 per cent from 50 per cent, the province announced Thursday.

The new rates come after a year-long government review of how competitive Alberta's industry is, compared with other jurisdictions.

The changes, effective January 2011, will result in a revenue loss to the province of $363 million in 2012 and 2013.

This royalty structure is similar to one in place before October 2007, when the Alberta Conservative government boosted its take by 20 per cent.

Here's a sampling of some recent reaction from prominent Albertans in the industry:

Andre Plourde, University of Alberta economics professor and member of the government's 2007 royalty review panel:

"It's clear the government is stepping back and I would argue probably has a shorter term focus now than it did some years ago and so it's their call. It's a political decision and we all have to respect that.

"I think it's clear that Albertans are getting less in terms of percentage … of the revenues. I'll let you draw your conclusions from that. The other thing however, it's clear that the North American natural gas business has changed dramatically over the last three to five years and it's clear that this will continue to be that way. Shale gas and, you know, similar types of constructs are becoming much more important. They're important reserves that were not economic to exploit five years ago that all of a sudden are.

"I welcome certainly the statement in the report saying that government that Alberta will monitor these developments in terms of the fiscal treatment of those resources. I would like to express the hope that whatever monitoring, the outcome of whatever monitoring is done is made public."

— From a March 11 interview on CBC Radio's The Homestretch

Dave Collyer, head of the Canadian Association of Petroleum Producers:

"I think it was a significant step forward in restoring investor confidence in Alberta and I think that makes it a good day for not just the industry but for Albertans. This is really about getting investment back into the province, getting Alberta back in the game and that creates activity and that drives jobs and that's good for the province overall. So I think it was a positive announcement in both tone and substance. So we're encouraged by it but we've got a ways to go yet in terms of getting the industry fully back on its feet."

— From a March 12 interview on CBC Radio's Calgary Eyeopener

Amy Taylor, senior economist with the Pembina Institute:

"First and foremost, we have concerns with the process that the provincial government embarked upon in which they came to the conclusion that they needed to make adjustments to the royalty scheme applicable to oil and gas in Alberta and more specifically, they made that decision based on conversations and meetings and negotiations that they had over the course of the last several months with industry and industry alone. And we're talking about a resource that is owned by Albertans. The citizens of this province own the resource and it's imperative in our opinion that they be consulted when these kind of changes are being considered."

— From a March 11 interview with CBC Radio

Frank Atkins, University of Calgary economics professor:

"We have to look at our personal tax rates relative to other provinces and it actually becomes one big package so we're only getting one little bit of it today [March 11]. The royalty … changes that has to be done, we have to start cutting through the red tape. There's so much bureaucracy involved in the oil and gas sector we have to cut through all of that, make that kind of go away and finally the whole big package is the government somehow has to regain the confidence of the oil and gas sector and that is not going to be an easy job."

— From a March 11 interview with CBC-TV