Alberta drilling incentives padded oil firms’ pockets, labour group charges

EDMONTON — Ed Stelmach's program to stimulate drilling during the recession cost taxpayers $2.9 billion and failed to create promised jobs, new wells or new investment in the oilpatch, says the Alberta Federation of Labour.

AFL president Gil McGowan said Friday the program merely padded the profits of oil and gas companies while depleting the treasury of revenue that could have been used to fund health care and education.

He has passed on AFL's findings to Alberta's auditor-general and also requested the all-party legislature public accounts committee investigate the program.

"When Albertans learn about this they will see this for what it is, which is an outrageous misuse of government funds," he said.

Hugh MacDonald, the Liberal MLA who chairs public accounts, said he will canvass the 17 members of the committee to determine whether they wish to call a special meeting to examine the program. Conservatives have 13 seats on the committee.

MacDonald suggested the auditor general's officer might have a better mandate to determine whether the program met its goals.

But Auditor General Merwan Saher tossed the ball back, noting his office has audited the program.

"At this moment, I don't have a compelling reason to launch a particular audit," Saher said.

He said McGowan's request for a public accounts review is "a legitimate request."

"He is asking the public accounts committee to do what public accounts committees do — examine how policy is being put into effect and whether Albertans are getting value for money."

McGowan said someone should investigate where the royalty tax credits went because a loophole in the program created a "grey market" that enabled companies that had more credits than they needed to sell them to other companies. The program allocated $200-per-meter drilling credits on a sliding scale based on how much the companies drilled in 2008.

Companies that purchased extra credits were able to defray the amount they paid in royalties owed to Albertans without having to hire more workers or drill new wells, McGowan said.

But Albertans won't know who cashed in the credits because Alberta Energy keeps that information secret, he complained.

The AFL produced charts showing the number of new wells being drilled decreased steadily during 2009 and 2010 and over the same period the province lost about 8,000 jobs.

Capital investment in the oil and gas industry swooned, but industry profits increased, the AFL said.

Alberta's rate of well completions for that period mirrored Saskatchewan and B.C., which didn't have programs as generous, and seemed to climb and fall with the price of oil, despite the drilling stimulus program, the AFL reported.

University of Alberta energy economist Andrew Leach said the program was likely not as successful as the government claims and likely not as dismal as the AFL contends, because it can't be determined how many more jobs might have been lost without it.

"I think the truth is probably somewhere in the middle," Leach said. "What you really need is an account of what would have happened in Alberta in the absence of the program."

But Leach said the provincial government has an obligation to be open and accountable to Albertans since they own the resource.

"I think the government should be providing information on who is drilling and what they are paying in royalties," he said. "I can't really see a downside in releasing those numbers."

Alberta Energy spokesman Derek Cummings said the steps to encourage energy investment in Alberta "undoubtedly worked."

"Drilling activity declined from an all time high with the price collapse but would undoubtedly been even lower had it not been for the royalty credit," he said.

He said giving companies the ability to sell the credits ensured that new companies and companies with small production volumes would be able to participate in the program to drill wells and employ Albertans.

"The program also encouraged new technologies such as horizontal drilling that have played a large role in the increased activity today," he said.

Cummings pointed out that the province set records in petroleum and natural gas land sales for the last fiscal year.

Travis Davies, a spokesman for the Canadian Association of Petroleum Producers, said the programs were successful at keeping drilling rigs working during the downturn in the economy.

Hours of operation for drilling rigs jumped from 47,000 hours in 2009 to 76,000 hours in 2010, he said.

"I don't know how that equates to reduced employment in the oil and gas sector," he said. "If you increase operational hours, I don't understand how you have reduced employment."

Calgary Herald, Fri Jul 15 2011
Byline: Darcy Henton

Be the first to comment

Please check your e-mail for a link to activate your account.