Alberta losing billions on energy royalties: auditor general

The Alberta government knew at least three years ago that it was losing $1 billion annually in royalties from energy projects such as the oilsands, the province's auditor general said Monday.

The Alberta government knew at least three years ago that it was losing royalties from energy projects such as the oilsands,the province's auditor general said.

Fred Dunn came down hard on former energy ministers and their staff in his annual report, released Monday,saying the process for collecting royalties needs to be more transparent and accountable to Albertans.

The government itself has identified roughly $1 billion per year in royalties that were owed by energy companies but were never collected, Dunn said, adding that the principles of transparency and accountability have not been followed when it comes to oil and gas royalties.

Dunn said that up until recently, Albertans have been forced to file freedom-of-information requests to get a clearer picture of whether the full value of royalties was being collected, and whether royalty rates were fair and competitive.

His report also said the royalty holiday for new oilsands projects achieved its objectives years ago and is no longer necessary.

"This has all the appearance of being deliberate deceit, deliberate misleading of the people of Alberta by the senior people of this government. The people of Alberta should be furious," Alberta Liberal Leader Kevin Taft said when he saw the report.

The auditor general's review is the second major report in as many weeks to scrutinize the province's petroleum industry.

A government-appointed panel released a report Sept. 18 that said Albertans have not been getting their fair share of energy revenues, and it recommended raising royalty rates by 20 per cent, or $2 billion a year.

Members of Premier Ed Stelmach's Conservative government have been suggesting that the panel process was about looking forward and not looking back.

But NDP Leader Brian Mason wants the premier to acknowledge the royalty losses in the past.

"Mr. Stelmach has sat at that table all the way along. He should apologize to Albertans for the loss of billions of dollars of revenues because the government failed to bring in adequate royalties," Mason said.

The government is expected to announce its future plans for collecting royalties in a few weeks.

Oil and gas companies lashed out at the recommendation of a royalty hike, saying an increase would hurt the province's investment and growth potential.

EnCana Corp. threatened to cut $1 billion from its 2008 investments if the panel's recommendations are adopted. The company said it would cut 30 to 40 per cent of the $2.5 billion to $3 billion it plans to spend next year on Alberta-based activity.

EnCana said most of the cuts would be to its natural gas activity in areas of the province where the company says the proposed royalty plan would make its efforts uneconomic or uncompetitive.

"Even without that future gas-production growth, under the recommended changes EnCana's royalties on Crown lands would effectively double, assuming current gas prices," EnCana president and CEO Randy Eresman said.

Eresman said his company is open to changes to Alberta's royalties, but he said the changes should reflect the volatility of commodity prices, higher costs and the risks and returns of capital investments.

"A royalty system can be developed that achieves Alberta's objectives without so severely damaging the province's future," Eresman said.

With files from Canadian Press