CALGARY - The Alberta government said Thursday it will slash its royalty take from oil and gas producers, many of whom responded to a new regime introduced a year ago by moving their investment elsewhere.
"We can't pretend that oil and gas investment levels haven't eroded or that we don't have a responsibility to current and future generations of Albertans to address that," Energy Minister Ron Liepert said.
The maximum rate for both natural gas and oil had been 50 per cent, but the cap will be 40 per cent for oil and 36 per cent for gas.
An incentive program introduced last year to dampen some of the effects of the new royalty framework will be permanent. A five per cent royalty rate for new oil and gas wells during the first year of production was to have expired in 2011.
The government still needs to consult with industry precisely how royalty rates will be calculated, and those elements will be finalized by the end of May. The changes will take effect in January 2011.
The changes are expected to reduce revenue from royalties by about $828 million between now and 2013, but much of that is expected to be offset by the higher land sales and taxes that will result from the increased activity. The net reduction in revenues works out to just under $200 million.
Premier Ed Stelmach said the changes will benefit Albertans in the long-term.
"The piece of the pie may be smaller, but we're growing a much larger pie," he told reporters at a news conference.
"It's the economic activity that makes the difference, so there are so many things that go into the calculation of the quality of life for Albertans the return on the investment."
Bev Reuteman, the controller at Nelson Bros. Oilfield Services, said she was pleased by the announcement.
"I think any revision to that royalty program will benefit the oilpatch," said Reuteman, who has spent 25 years in the energy-centred town of Drayton Valley, Alta. "I think it's a good thing. Better than nothing at all."
"Is it enough? I guess time will tell," she said, noting that there has been an increase in oilfield activity since the fall.
In 2007, Alberta appointed a panel to look into whether citizens of the province were getting a fair shake from the royalty regime. That resulted in a report entitled Our Fair Share that recommended the province hike its royalty rates.
The energy industry railed against the changes, and moved much of its investment to neighbouring British Columbia and Saskatchewan. Some tweaks were made to the regime in response to the economic downturn.
When asked whether the province should have overhauled the program sooner, Liepert said the government is trying to move forward.
"I can't do anything about yesterday. I can only do something about tomorrow," he said.
The province also said it wanted to streamline its regulatory regime by avoiding duplication with various departments involved in the approval process.
Environment Minister Rob Renner said Alberta will also look at what other provinces have done to speed up regulatory approvals.
"I don't think we have to re-invent the wheel," he told reporters on his way into the legislature Thursday. "If someone's got a great idea, then I'm not ashamed to steal it."
The changes were a good step toward mending the province's relationship with the energy industry, said Dave Collyer, president of the Canadian Association of Petroleum Producers.
"I don't think you restore credibility and trust overnight. But I would say that both the substance of what's been announced today and the tone in which it's being announced are both very positive steps in that direction," he said.
Gary Leach of the Small Explorers and Producers Association of Canada said his group didn't get everything it wanted - like certainty on how royalty rates will be calculated - but that overall the announcement was positive.
"I think the sentiment is that this is going a long way towards restoring a level of trust with the government," he said.
The royalty changes were a hot topic in the legislature Thursday as the government faced some pointed questions.
"Why has this government folded like a cheap tent on oil and gas royalties when faced with industry pressure," said NDP Leader Brian Mason.
"The government, afraid for its political life, has sold out the interest of Albertans who own the resources in favour of its friends in the oil and gas industry."
Danielle Smith, the leader of the right-of-centre Wildrose Alliance party, told reporters the new royalty framework was the worst policy for Alberta since Pierre Trudeau's National Energy Program three decades ago.
"The fact that it was a wrong decision is proven in the fact that it took five major adjustments over the course of last year to try and get it right," she said.
"It looks like they've made some pretty good changes here. They may not have gotten the whole thing right but at least it shows they finally are listening."
-with files from Jim Macdonald in Edmonton.
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