Alberta Energy needs to better track royalty reduction programs, auditor general says

Alberta’s energy department can’t say whether a royalty reduction program is working unless it keeps better track of royalties collected from wells that use new technologies to recover oil and gas, says auditor general Merwan Saher.

Auditor general's report contains 15 new recommendations

Alberta Auditor General Merwin Saher has made 15 new recommendations in his report released Wednesday. (CBC)

Alberta's energy department can't determine whether a dozen royalty reduction programs that give incentives to companies are working, because it doesn't keep proper track of royalties collected under those programs, says auditor general Merwan Saher.

Though the department reports the total amount of incentives given to companies to recover oil and gas that would otherwise be too expensive to produce - in 2014-2015 those reductions totalled $1.4 billion - it does not track the total royalties collected from those wells, and therefore doesn't have a clear idea of whether the programs are a benefit in bringing in more revenues.

Royalty reductions under the incentive programs are, in many cases, given to companies that use new technologies to recover hard-to-reach oil and gas.

Saher said the department had not done enough analysis "to show that these programs achieved the desired results and provided the expected value."

What needs to happen now, Saher said, is that the department has to better evaluate and report on whether the complex programs "are providing value to Albertans."

"Without annual evaluation and reporting on its royalty reduction programs, the department is not telling Albertans whether the programs are working," Saher said.

The new recommendation is one of 15 outlined in the auditor general's report, released Wednesday.

The audit is intended to identify ways to improve the performance of and confidence in the public service.

Over $8B collected in royalties

Saher said the royalty program are particularly important given that Alberta collected more than $8 billion in oil and gas revenues in each of the last two years.

The 12 incentive programs the government offers cut reduced royalties by $1.4 billion, more than 10 per cent of the total.

The fact that the province created a royalty review panel last fall underscores the importance of properly evaluating the programs, Saher said.

Saher also found in his report that the systems that control Alberta's oil and gas facilities might be vulnerable to hackers.

Computer systems control valves and pumps and monitor leaks in the oil and gas industry. Saher said though the risk of an attack on such systems is low, the province has never evaluated what would happen if such an attack were to happen.

In the report, Saher referred to a recent hack at a steel mill in Germany, where a computer virus compromised controls  and blast furnace could not be shut down.

The attack in Germany resulted in "massive physical damage to the system," Saher noted.

Saher recommended that the province's Energy department determine if a single standard is needed for all companies, one that's in line with national and international standards.

Crime victims fund lost its way

In other findings, Sawher suggested the province has lost its way with its fund for victims of crime.

The fund is racking up millions of dollars in surplus cash, while at the same time cutting money to aid groups, he said.

The fund pays out compensation to injured victims and uses what is left over to help police and other community groups with victim-support programs.

The fund raises money from surcharges on provincial and federal fines — a growing pot of money that is expected to hit $56 million this year.

Saher notes that the surplus can't be spent, because the government has ordered the fund to reduce spending in tight economic times.

The auditor says the province needs to sort out what it wants to do with the surplus and figure out how to best use the cash in years to come.

In a media release Wednesday afternoon, Kathleen Ganley, minister of justice and solicitor general, said she will work with the auditor general to deal with the surplus.

"We are working on changes to the fund, especially in light of its surplus, which has been growing for 15 years," she said.

Ganley said her department will submit a plan to the auditor general describing how it will do a better job identifying the needs of crime victims, the current gaps in service, and a financial analysis of how much funding will be required to improve these areas, she said. 

With files from Canadian Press