Alberta needs 'iron fist' to enforce oilsands royalty rules

A report by Alberta's royalty review panel says questions have been raised about the possibility that oilsands companies could inflate their costs to pay less in royalties to the province.

Questions raised about oilsands companies inflating costs to reduce royalties, says panel report

The royalty review panel suggests there is public distrust concerning the costs claimed by oilsands companies, which could be inflated in order to pay lower royalties to the provincial government. (Dave Olecko/Bloomberg)

Alberta oilsands companies could be claiming higher costs to reduce the amount of royalties they must pay to the provincial government.

That's the concern raised by the royalty review panel, which heard questions, concerns and a level of distrust about oilsands accounting practices during its consultation with Albertans.

The Alberta government uses a system that sets out what specific costs companies can use as deductibles when it comes to royalties. 

"There is anecdotal evidence, however, that oilsands operators push the boundaries when it comes to costs, and that the province has not enforced the rules with the 'iron fist' that Albertans might expect," the report states.

The panel suggested that the Alberta government improve how it administers the program. 

"It was a little bit of a surprise reading that," said Caralyn Bennett, an oilsands adviser with Calgary-based GLJ Petroleum Consultants. "We haven't heard of any controversy with respect to those allowable cost situations between government and industry players."

People 'assume the worst'

The majority of oilsands projects are only paying a royalty rate of about one per cent, according to the panel, and will only pay a higher rate once companies recover the capital costs of constructing their facilities. It's in a company's best interests to stay in that "prepay" phase in order to remain in the lower royalty structure.

The rates paid by the oilsands were left untouched by the review panel, although there is a recommendation to update the regulations regarding which costs oilsands players can claim. The chair of the panel does not think the government is being shortchanged by industry. 
Alberta's royalty review suggests Albertans are getting a fair share of revenues from the energy industry. (Kyle Bakx/CBC)

"This deals with people's perception and I think when there isn't full information available, people sometimes assume the worst," said Dave Mowat, the chief executive of ATB Financial.

Mowat wouldn't say which groups or type of people raised concerns to the panel.

The royalty report recommends the government operate free of industry influence, make decisions more quickly and have staff that are experts on oilsands operations and the royalty rules. 

"It's not that something untoward is going on," said Mowat about the anecdotal evidence the panel heard. "A crisper, more decisive process is good for companies, good for the province and it gives all of us, as Albertans, confidence it is being well-managed."

Continued growth of bitumen production is expected in the oilsands.


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