Royalty redux? You be the judge

http://communities.canada.com/calgar...

By Renata D’Aliesio

Here's a copy of the draft terms of the province's competitiveness study, obtained by Herald political affairs columnist Don Braid.

Competitiveness Study 2009 - Terms of Reference

Draft – for Discussion Purposes

Purpose: To determine the investment competitiveness of Alberta’s conventional oil and natural gas resources.

Background:
The Provincial Energy Strategy emphasizes that the ongoing development of Alberta’s energy resources will be a platform for continued economic growth and success. To this end the Provincial Energy Strategy identifies a number of important outcomes for the energy sector in Alberta:
Alberta can take a number of steps to derive greater wealth over the longer term and in a more sustainable way through its energy industry. They includes optimizing the recovery of our energy resources—tapping more of what we are currently leaving in the ground, developing our substantial unconventional gas (coalbed methane, shale gas, tight sands) and reaching our oil sands resource potential.
Successful economic development requires the appropriate regulatory and fiscal structures. The appropriate regulatory and fiscal structure must in turn be determined in the context of the province’s investment competitiveness.
Recently the oil and gas industry and many in the investment community have argued that resource development opportunities in Alberta have become uncompetitive with the introduction on January 1, 2009 of the New Royalty Framework (NRF), particularly as it relates to conventional oil and natural gas and in comparison with similar opportunities in North America, including those in jurisdictions such as British Columbia, Saskatchewan, and the onshore USA; e.g., Texas.
Alberta’s fiscal system functions within the broader contexts of resource development and overall macroeconomic policy. Successful development of Alberta’s resources for the benefit of Albertans will require the active cooperation of all stakeholders. As implementation of the Provincial Energy Strategy begins, it is critical at the outset that all stakeholders – industry, governments, regulators, the financial community, and resource owners (Albertans) acknowledge the different perspectives involved and understand the value and competitiveness of Alberta’s conventional oil and natural gas resources.

Scope:
With the assistance of a facilitator the Alberta Department of Energy will lead a focused competitiveness study that will compare the investment competitiveness of Alberta’s conventional oil and natural gas sector with that of appropriate competing jurisdictions, both domestic and international. The study will take into account conventional oil, enhanced oil recovery, conventional gas, and unconventional gas, including coal bed methane and tight sands development.
The study will provide details about Alberta’s and competing jurisdiction’s resources and production profiles; resource conditions; market conditions; finding, development, and operations costs; fiscal terms; and regulatory environment. Such details will include:

* Oil and Gas Reserves, Pool Sizes, Production Profiles, and Future Potential

* Resource Conditions – Depth, Location, Reservoir Characteristics

* Market Conditions – Transportation costs and Netback Prices

* Costs - Finding, Development, and Operations:

* Well Drilling Costs – Drilling, Completion, Equipment, and Tie-In

* Drilling Success Rates – Exploration and Development

* Lifting, Gathering, and Compression

* Processing Costs

* Overhead, and General and Administrative Costs

* Fiscal Terms – Royalties, Corporate Income Taxes, Other Taxes (including Severance Taxes and Property Taxes), Rentals and Fees, and Bonuses

* Regulatory Environment:

* Tenure process and unitization

* Well licence approval process

* Well density regulations (Pad Drilling)

* Commingling regulations

* Resource management data requirements

* Other Environmental Compliance (e.g., groundwater testing, minimum distances from dwellings, etc…)

This review is limited to conventional oil and natural gas for two primary reasons: (1) concern has been expressed with respect to these resources and it is important to confirm a level of consensus among stakeholders necessary to move forward early as Alberta begins implementation of its Energy Strategy and (2) large developments such as oil sands and coal are already being considered separately in the context of enhanced value added in Alberta.

Decisions with respect to deliverables from the report are internal to government and beyond the scope of this review.

All information deemed by ADOE to be critical to the determination of Alberta’s investment competitiveness such as that related to pool size, well productivity, costs, and fiscal terms must be fact-based and shown to be representative, objective, unbiased, and verifiable.

Methodology:
Investment competitiveness will be determined on the basis of discounted cash-flow analysis and established and accepted investment criteria for measuring profitability, risk, and fiscal system performance. **

Deliverables:
Deliverables from the review will include:
• A comprehensive assessment of the economic value of Alberta’s conventional oil and natural gas resources by area and resource type, including a comparison of Alberta’s attractiveness relative to that of competing jurisdictions.
• A thorough comparison of the characteristics of Alberta’s oil and gas resources relative to competing jurisdictions, with particular focus on British Columbia, Saskatchewan and on-shore United States; e.g., Texas.
• An assessment of the regulatory framework to identify potential impacts on competitiveness (e.g., impacts on costs and resource recovery) and to identify key enablers and barriers for future oil and gas development in Alberta.
• Where appropriate, recommendations for future studies and / or policy considerations.

Facilitator:
The Facilitator will advocate for fair, open, and inclusive procedures to accomplish the group’s work and assist the steering committee in reaching a common understanding based on the facts.

Timing:
The project will start in January 2009 and be targeted for completion by September 2009. This time frame will be altered if planned resources are not available.

Membership:
Project Sponsor: Peter Watson, Deputy Minister, Alberta Department of Energy (ADOE)

Steering Committee:
• David Breakwell, ADOE (Chair)
• Barry Rodgers, ADOE (Vice-Chair)
• Other ADOE; e.g., Tenure - Rhonda Wehrhahn
• Alberta Finance and Enterprise
• Alberta Energy Resources Conservation Board (ERCB)
• Greg Stringham (CAPP)
• Gary Leach (SEPAC)

Project Technical Team Members:
• Team Lead - Barry Rodgers
• Technical Leader - Matthew Foss
• Business Leader - Sharla Rauschning
• Other Energy Ministry staff - Pierreanglo Grande, ?
• Other Department staff
• Industry Representatives

** Measures of Investment Competitiveness include:
• Rate of Return (IROR)
• Net Present Value (NPV)
• Expected Monetary Value (EMV) – Risked NPV
• Profitability Ratio (PFR)
• Risked PFR
• Price / Cost Ratio
• Cost per Unit (Barrel of Oil or Mcf of Natural Gas)
• Resource Owner Share
• Degree of Fiscal Front End Loading
• Incremental Investment Impacts; e.g., Company Taxable Position – full credit vs stand alone, new entrants)
• Fiscal System Performance: Equity, Efficiency, Neutrality, and Robustness