Oil and gas producers, angry with a government report that recommends hiking the royalties they pay, shot back Monday warning higher royalty rates will be a major blow to Alberta's energy sector.

The Canadian Association of Petroleum Producers, which represents major companies in the industry, says last week's report is flawed.

The energy sector paid Alberta about $10 billion in royalties last fiscal year.
(CBC)

"They've got faulty numbers in terms of the cost projections that are in there. They've got assumptions in terms of Canada's competitiveness versus other parts of the world that simply don't line up with other experts and other studies that have been done," said CAPP's president, Pierre Alvarez.

The royalty review by a government-appointed panel found Albertans are not getting their fair share from energy production, and recommended the province hike royalty rates by 20 per cent, or about $2 billion a year.

However, Alvarez said the review failed to account for "real costs," pointing out the price of steel is dictated by global markets, and that a new oilsands project costs $11 billion, and not $5.6 billion as stated in the report.

Alvarez said higher royalties will hurt Alberta's growth.

'Significant' reduction in land sales values: Alvarez

"It's going to mean less money is available for reinvestment in the first place and secondly it's going to have a significant reduction in terms of the value of land sales in this province. You can't have your pie and eat it too in this case I'm afraid."

But economist Joseph Doucet says the royalty report is sound and there is no way for anyone to predict what will happen if the formula is changed because too many factors are at play.

"With increasing oil prices and the increasing value of the Canadian dollar and increasing costs in the province, it's hard to pinpoint exactly what the outcome in the change in environment will be," said the University of Alberta professor.

Alberta Premier Ed Stelmach was in Toronto Monday and not available for comment. Finance Minister Lyle Oberg said he's staying out of the debate until the province consults directly with the energy industry.

A final decision on the report's recommendations is expected in October.