It's Time to Get a Better Deal from Big Oil: Albertans deserve a fair share of the money made from their natural resources

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To paraphrase Ralph Waldo Emerson, build a better mousetrap and the world will beat a path to your door.

The philosopher, essayist and poet was not talking about the benefits of invention, but explaining the dynamics of supply and demand. If you have what people want, they will come to you for it. You are in control. You have the power. This is a lesson the government of Alberta needs to learn.

Alberta has what the world wants, the raw material to meet the soaring global demand for energy. Unfortunately for Albertans, for decades the Progressive Conservative government has sold those resources for much less than they are worth.

"The oil, gas and oil sands in Alberta belong to the people of this province. Those resources are finite – once they are gone, they are gone for good," says Gil McGowan, president of the Alberta Federation of Labour (AFL), the largest labour group in the province with 137,000 members. "It is the government's job, its duty in fact, to get a fair value for those resources and to use what it gets to build a long-term future for the province."

Regan Boychuk, public policy research manager with the University of Alberta's Parkland Institute, says that what the government has actually done is consistently let oil companies pay too little for the resources.

In a report last year titled Misplaced Generosity: Extraordinary profits in Alberta's Oil and Gas Industry, he revealed that the government had failed to meet its own targets for collecting revenue from conventional oil and gas operations almost every year in the last decade.

The government's target was to collect 50 to 75 per cent of the resource rent from conventional oil and gas operations. Rent is the financial surplus left after industry recovers costs and makes a reasonable profit from selling the resource. Alberta failed to take even the minimum level almost every year between 1999 and 2008. Even if it had collected only in the middle of its target, it would have brought in another $37 billion – and that's not counting revenue from oil sands operations.

The government's response to the report "has not been particularly insightful," Boychuk said in a blog posting last month. "The report's conclusion that tens of billions of dollars have been lost by the Progressive Conservative government's failure to meet its own modest royalty targets was dismissed by Energy Minister Ron Liepert as 'socialist' and by former energy minister Murray Smith as 'the Libyan model.' "

In February, the AFL asked the Auditor General to investigate why these billions of dollars have not been collected on behalf of Albertans.

According to Boychuk, instead of responding to legitimate criticism of its failure to meet its own targets, the government chose another tack – it stopped setting targets. Rather than name a specific target of a percentage of resource rent, the government said in its budget last year: "Alberta will have a combined royalty and tax rate that is among the top three lowest/most competitive compared to similar jurisdictions."

Alberta's got a great hand!

Global energy demand will triple by 2050, according to Royal Dutch Shell, as emerging nations enter an energy-intensive growth phase, becoming more industrial, building infrastructure and increasing transportation use. There will be a shortfall of supply versus demand equal in size to industry's total output in 2000, it says.

Unrest in the Middle East has raised global fears over the security of oil and gas supplies from other regions. Meanwhile, the reputation of nuclear energy as an alternative energy sources has been damaged by the crisis at the Fukushima plant in Japan after the earthquake and tsunami last month.

Oil prices are likely to remain high. In a report last month predicting that Alberta's economic growth will lead the nation in 2012 – at 3.5 per cent, compared to the national average of 2.5 per cent – TD Economics said: "Our outlook assumes that oil prices will average US$95-100 per barrel throughout this year and next ..."

Alberta's oil sands contain proven oil reserves of 171.3 billion barrels, the third-largest proven crude oil reserve in the world, according to the Alberta government. It says there is enough oil to meet Canada's current demands for almost 400 years.

• Ninety-two per cent of the world's oil and gas resources are under the control of National Oil Companies (NOCs), which take the lion's share of the profits. Only eight per cent of the world's oil reserves are available to International Oil Companies (IOCs) such as ExxonMobil, BP/Amoco, ConocoPhillips or Royal Dutch Shell without any restrictions. More than half of that eight per cent is in Alberta's oil sands.

Boychuk explained: "What the Progressive Conservative government is saying is that they are dedicated to getting the worst possible return for Albertans on their non-renewable resources. Directly contradicting part of their stated goal to 'maximize benefits to Albertans,' this year Alberta Energy's new target aims to keep Albertans' share of their natural wealth worse than three-quarters of other jurisdictions."

Says McGowan: "Clearly, it's way past time for the Progressive Conservative government to get a better deal from Big Oil. To do that it needs to start acting like a real owner, it has to understand the strength of its position and it has to negotiate accordingly."

Premier Ed Stelmach, to his credit, tried to do better when he revised the royalty regime in 2007. The move was popular with Albertans, with a Calgary Herald/Edmonton Journal poll at the time saying 88 per cent believed we weren't getting a fair share from industry and 67 per cent backing royalty changes.

Unfortunately, like a rookie at the big-boy poker table in Vegas, he caved at the first sign of trouble. The industry played hardball and took some of their business elsewhere. In 2010, reeling from the effects of the global recession, Stelmach relented, rolled back the royalty changes and lost all the gains he had made. The rollbacks were welcomed by industry, but the Herald reported they were opposed by 58 per cent of Albertans and two-thirds of Progressive Conservative supporters.

An editorial in the Calgary Sun last month said: "Alberta under-collected royalty revenue for decades, losing billions of dollars. A government panel that reached this conclusion was almost exclusively made up of business people, not 'loony lefties.' All that largesse kept the Tories in power, with unending deep pockets funding re-elections. When it tried to collect that money, companies took advantage of the greed of Saskatchewan and B.C., and temporarily increased drilling there, arguing royalty rates were lower. All the industry was doing was playing one 'customer' for economic spinoff against another, in a recession. But the oil wasn't going anywhere and was still profitable."

This is what the government failed to grasp. Stand firm. If the oil companies walk away, they won't be gone for long. The oil, gas and oil sands are here. They want it. They can make money from it. They'll be back.

Danny Williams, when he was premier of Newfoundland and Labrador, knew this. In April 2006, oil companies broke off negotiations to develop the Hebron-Ben Nevis 

offshore oilfield when they couldn't agree fiscal terms with the provincial government.

According to a CanWest News Service article in August 2007: "The premier came under severe criticism, both in his home province and in the oil community, for refusing to back down on his demands, which involve heavy provincial involvement and for which he was likened to Venezuela strongman Hugo Chavez."

However, 16 months later, the oil cats came back and signed a deal that Williams described as historic for his province and that The Globe and Mail said included "a heightened royalty regime and guarantees for local content in the construction of the offshore platform."

The Newfoundland case proves you can get a better deal from the oil industry.

"Danny Williams did it and the oil companies didn't run away from the offshore," says Dave Coles, president of the Communications, Energy and Paperworkers Union of Canada. "I think that they (the Alberta government) need to get a fairer share of the resources of the province for the people of the province ... those resources will be gone at some point and you'll be left with a hole in the ground."

He doubts the Progressive Conservative government will change its ways. "It is clearly a political decision of the provincial government either to get a fair amount of revenue ... or to allow big corporations to escape without paying their fair share."

The Tories, he says, have chosen to let oil companies get away with paying less than their share. "It isn't that way in most jurisdictions around the world. It wasn't that way under (former Alberta Premier) Peter Lougheed."

If the government does decide to seek a better deal, help is at hand, says the AFL's McGowan – from the labour movement.

"For 100 years the labour movement in Alberta has been getting good deals for its members in negotiations with industry. This is what we do. We are experts. We know how to sit down at a bargaining table and get a deal that benefits all parties," he says.

"Whoever becomes the premier, whichever party forms the next government, if they need advice on getting a better deal from Big Oil, we're ready to help."