October 16, 2008 / 7:00 PM / in 9 years

Alberta sticks with oil royalty plan, open to talks

CALGARY, Alberta (Reuters) - Alberta will press ahead with plans to boost oil and gas royalties at the start of 2009 despite skidding crude prices and the credit crunch hammering the industry, the Canadian province’s energy minister said on Thursday.

However, Energy Minister Mel Knight said the door is open to discussing adjustments to parts of the hard-fought fiscal regime that could prevent damage to investment in the country’s biggest oil-producing province or to its economy.

Knight said the volume of calls to his office from the oil industry -- the province’s economic engine -- has jumped as weakening financial and oil markets have forced oil companies reexamine their business plans.

“I don’t call it pressure. I‘m absolutely open to suggestions from industry. They come to me now with very constructive, progressive discussions around the issue,” Knight told reporters after speaking to a business audience.

“I continue to listen and, of course as I have said, the implementation date is fixed ... we continue to work on the economic trouble spots that industry are facing.”

Alberta’s oil and gas industry railed against the C$1.4 billion ($1.2 billion) hike in royalties when the government of Premier Ed Stelmach announced it in late 2007. Companies threatened to chop spending in the province and concentrate their operations elsewhere.

Earlier this year, Knight made some adjustments to the plans to deal with “unintended consequences,” including those that would have made drilling for some types of hydrocarbons, like deep natural gas, uneconomic.

Now, the industry faces frozen credit markets and oil prices that, at Thursday’s close of $69.85 a barrel, are less than half of what they were at their peak this past summer. Investors have hammered energy-company stock prices.

This week, EnCana Corp postponed its planned split into two separate companies, blaming the uncertain markets, and analysts have predicted multibillion-dollar oil sands projects may face delays or redesigns.

“Of course there has been a tremendous change in the economic situation that we’re facing in the last 30 days -- and tremendous changes in the last two or three days,” Knight said.

He declined to say what adjustments to the new royalty regime he may be willing to make to stave off financial pain, and suggested that other solutions might be possible.

“It’s unfair for me to say to you that it’s all relative to the royalty structure, because there’s a tremendous amount of pressure here around commodity pricing and access to capital, productivity, the cost arrangement,” he said.

“So those are some of the issues that we’re talking with industry about, and are there things that we can do together to try to mitigate there serious consequence around those issues?”

Meanwhile, Knight said the government aims to deliver a decades-long energy strategy in November that will detail how the province, whose oil sands represent the largest oil deposits outside the Middle East, will move forward with development.

($1=$1.19 Canadian)

Editing by Peter Galloway

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