Petro-Canada will continue preliminary engineering work on $15 billion worth of new oilsands projects, the company announced in the wake of an announced hike in Alberta energy royalties.
Petro-Canada did emphasize Friday that a go-ahead decision on the two projects is still months away. One project is the expansion of an existing operation, while the second is a new mine and upgrader.
However, "with the clarity that the government provided around the oilsands royalty base, we said, 'Should we stop that front-end engineering and design?'" Andrew Stephens, Petro-Canada's senior vice-president for corporate communications, said Friday.
The news came as fears of a big selloff in energy stocks failed to materialize on the Toronto Stock Exchange. Some attributed high oil prices for cushioning the impact, with oil going as high as US$92.22 on the New York Merchantile Exchange.
Alberta boosts royalty take
Premier Ed Stelmach said Thursday that Alberta would boost its total royalty take from the province's energy industry by $1.4 billion, starting in 2009.
A review panel had recommended the province increase its royalty take by nearly $2 billion per year, which would have represented a 20 per cent hike.
The oil industry -- which had earlier attacked the panel's assumptions as deeply flawed -- wasted no time in complaining about the hike, but an Alberta-based think tank pronounced itself disappointed with Stelmach's move.
"The oilsands royalty regime hasn't changed for 10 years, and the regime for oil and gas hasn't changed substantially for more than 14 years, so we haven't been keeping the systems up to date," The Pembina Institute's Chris Severson-Baker told Canada AM on Friday.
Besides the review panel, Alberta's auditor-general also found that Alberta was under-collecting on royalties, he said.
Stelmach has decided to take in substantially less money that what the panel recommended and hasn't explained why he rejected about half of its recommendations, Severson-Baker said.
Severson-Baker said the panel's recommendations already represented a compromise.
However, the provincial Progressive Conservative government watered down even those recommendations, he said.
"What we've seen ... is that all the oilsands recommendations have been rejected, without any analysis or justification," he said.
Severson-Baker said Stelmach blinked in the face of "the fear campaign and intimidating remarks made by CEOs in Calgary."
Tough talk
On Thursday, industry representatives said the decision meant oil companies now have $1.4 billion less to reinvest. As a result, activity in the oilpatch might decrease, some predicted.
Such tough talk may help increase uncertainty, suggested one analyst.
"Uncertainty as to if and how much investment will be cut by oilsands and oil and gas companies, going forward, will make investors more cautious in general," commented Desjardins Securities analyst Jeff Roberts.
"We will likely hear lots of negative forecasts on Alberta growth and Alberta energy companies and income trusts, which should scare off some potential homebuyers who will rather stay in their apartments during this time of uncertainty.'
Roberts added: "Despite current negative sentiment, the medium- and long-term strong growth positive outlook for Alberta remains intact.... However, the next three to six months or so may well be turbulent for the stocks amid negative headlines and forecasts."
Natural gas prices have been sliding in recent months, which could depress exploration and production without a change in royalty rates, but oil prices have been in the US$90 per barrel-range recently.
The rates for oil are based on a sliding scale that rises as the price increases.
"People are looking at this saying 'Wow, that's outrageous,' but they aren't taking into account the (maximum) rates are based on $120 (U.S.) a barrel oil," Randy Ollenberger, managing director at BMO Nesbitt Burns Inc., told The Globe and Mail.
Besides being an economic issue, the royalties question is a political one in Alberta, which is the energy capital of Canada. Energy royalties currently put $10.5 billion annually into the province's coffers, representing about one-third of all revenues.
The Alberta Liberal party, which forms the official opposition, has supported full implementation of the review panel's recommendations. Polls suggested that the public wanted to see royalty rates increase.
Some have speculated that Stelmach might call a snap election over the issue if it appears Albertans embrace his decision.
"I'm not doing this because I'm going to an election. I'm doing this because it's right for Albertans," he said.
With files from The Canadian Press
