Don't kill the golden goose

Article originally published on July 10, 2015 by the Calgary Herald. Original article can be found here: http://calgaryherald.com/opinion/columnists/mcmillan-grow-the-energy-industry-dont-just-tax-it 

By Tim McMillan

These are challenging times for Alberta, the energy sector and for the people and communities who are essential to our province’s ongoing success.

A growing and healthy oil and gas sector is directly linked to the prosperity of Alberta and Alberta families. When the sector is strong, we see this prosperity reflected every day in our quality of life.

But today, we are not strong. Over the past eight months we have experienced the effects of a dramatic drop in the world prices of oil and gas. We have seen this before. Albertans know well the realities of being engaged in a commodity business, with its highs and lows.

Each time we find ourselves facing difficulties, we refine our approach, meet things head on and ultimately emerge stronger and more prepared to succeed. The drive to innovate and persevere in the face of adversity is the Alberta way.

Today, we find ourselves in an economic environment that is as alarming as any we have experienced in several decades. Oil and gas sector revenues and capital expenditures are collapsing and forecast to be down about 40 per cent this year. That means less money to grow the industry for the future, to employ people tomorrow and to generate government revenues today.

Raising corporate taxes 20 per cent and doubling the carbon price has
 added about $800 million in extra costs over the next two years to an
industryalready suffering. Larry Macdougal / The Canadian Press

About 35,000 Alberta oil and gas jobs already have disappeared this year and a recent industry report projected a total of about 185,000 direct and indirect industry jobs would be lost — most of them in Alberta. Today, close to 44,000 Albertans are now receiving employment insurance benefits, up 42 per cent from last year. According to Statistics Canada, the number of beneficiaries in Alberta has grown for the sixth consecutive month.

At the same time, the number of wells drilled, which put crews of Albertans to work every day, is forecast to be down 50 per cent from last year. The price paid for a hectare of public land for future drilling, which generates government revenue, is down about 62 per cent, selling on average for $165 this year compared to $436 last year. Values decline when investment confidence in the province declines.

These are important indicators of future activity in the oil and gas sector, activity that employs more than a half million Canadians, activity that usually generates billions in revenue for the Alberta government.

And what these factors indicate is Alberta’s oil and gas “pie” is getting smaller at the very time everyone wants a bigger “slice.”

We are at a tipping point and every Alberta community has been affected in one way or another.

But I would be remiss if I did not say the concern is getting worse.

Quite frankly, the mounting pressures on Alberta’s top job-creating industry are starting to layer on top of one another. In just the last month alone, we saw corporate taxes increase 20 per cent and a doubling of the carbon price. These two changes added about $800 million in extra costs over the next two years to an industry already suffering.

Add to that the growing uncertainty from a new royalty review, a new carbon program, and many more potential changes. Albertans are right to ask, “How will our industry compete and succeed in the future?”

Now is the time for Alberta government policies to stimulate activity in the oil and gas industry. Let’s keep Albertans working. Let’s build new markets for Alberta’s energy resources. Let’s grow the pie, not carve it up into smaller bites.

I am encouraged by Premier Rachel Notley’s positive remarks at several Stampede events this week, where she praised the oilsands as an “international showpiece.” I welcome her acknowledgment that private investment is needed to grow the oilsands, employ more Albertans and invest in new technologies. Her words are a good first step to restoring investor confidence in Alberta.

But working Albertans need more than words — they need positive government action. Recent history shows us the damage changes in government policy can do during difficult times.

In 2007, the Alberta government changed royalties and called for a 20 per cent increase. The result: the industry drilled 16,000 wells in 2008 and only 6,700 in 2009. Capital investment also dropped by about 50 per cent. Dollars paid to the government for land sales dropped 25 per cent.

And no small irony, total royalties paid to the Alberta government declined from about $10 billion in the 2008/09 fiscal year to $6 billion in 2009/10.

These results took a terrible toll on Albertans. The job loss was felt across the province, inside and outside the oil and gas industry, in cities and small towns.

As the new royalty review moves forward, we are confident Albertans can compete with anyone. To ensure this, we have tabled principles to maintain stability for our industry.

First, we have asked the Alberta government for a public commitment to maintaining a vibrant and competitive oil and gas industry. This week we have started to see evidence of this.

Second, the royalty review should be conducted by experts and aim to provide stability and predictability beyond political cycles, for the long-term. Any changes should be durable, predictable and competitive.

Finally, any potential royalty changes must take into account the mounting costs imposed by the recently announced policies on carbon and corporate taxes, and various other policies under consideration by the Alberta government.

As Albertans, we are committed to this province and its prosperity. Our collective responsibility to ensure growth in our industry will affect hundreds of thousands of jobs, large and small businesses, unions and communities, charities and social services. That means every Alberta family.

With all of our efforts pulling in the same direction, I am confident we can keep Alberta as a leader in Canada and on the world stage.

Tim McMillan is the president and chief executive officer of the Canadian Association of Petroleum Producers.