CALGARY (CP) -- Canada's biggest oil and gas companies are attempting to gang-tackle a proposed 20% royalty boost in Alberta with daily dire warnings of economic slowdowns and multibillion-dollar spending slashes.
Heavyweights Talisman Energy [TSX:TLM; NYSE:TLM] and Petro-Canada [TSX:PCA; NYSE:PCZ] were the latest to join the fray Wednesday.
Talisman's recently retired chief executive, Jim Buckee, warned in an open letter to Premier Ed Stelmach that the company will spend C$500 million less in the province next year if a government-appointed royalty review panel's recommendations are accepted. That would be on top of C$500 million already slashed from the budget because of lower natural gas prices.
''Mr. Premier, I urge you to be cautious about implementing the major changes that are contemplated by the royalty review paper,'' Buckee wrote.
''At current gas prices, I believe it will be difficult for anyone to grow their natural gas production in Alberta, and if you implement these proposals we will see a significant loss of investment, jobs, taxes and the loss of world-class technical expertise.''
Buckee said that in many energy-producing regions of the world, ''the size of the potential pie is big and government take is high.''
But in Alberta the discoveries are getting smaller while costs are higher. ''Typically, as basins mature, governments reduce the royalty burden to encourage activity and maintain revenue.''
Petro-Canada's open letter to the premier was a tad less confrontational, but still suggested the royalty report used flawed analysis and warned that ''investing in Alberta would be severely impaired.''
And it said any new royalty scheme should go up in stages to give companies time to adjust.
''This is why investors have always liked Alberta,'' chief executive Ron Brenneman said on a conference call Wednesday. ''We go about making changes in a fair, balanced way here.''
The company, which is spending C$2 billion this year on its conventional and oilsands assets in Alberta, didn't specify how much money it would cut from its spending if the royalty report were adopted.
Brenneman said Alberta's royalty rates should only increase ''at oil and gas prices above today's levels.''
The price of oil is hovering close to $80 US per barrel, just $3 off its all-time high. But natural gas was trading at $5.74 per gigajoule in Alberta on Wednesday - well off its record high but still up 60% from a year ago.
Like other oilpatch players in recent days, Petro-Canada suggested a willingness to pay higher royalties, but said the review report goes too far.
''The company acknowledges that Albertans should rightly expect royalty income to the province to increase as oil and gas prices rise,'' Petro-Canada said.
''But those royalty increases must be balanced against investment and job creation in the industry to maintain the prosperity that all Albertans want to enjoy.''
Brenneman said Canada's big oil companies were not trying to threaten the Alberta government, but rather were giving ''just factual statements.''
Late last week, energy giant EnCana Corp. [TSX:ECA; NYSE:ECA] said it would cut spending in Alberta by C$1 billion next year alone should royalty rates rise.
Along with the big oil companies, many of the small oilpatch-focused investment banks have gone public with warnings about a large-scale ''flight of capital'' should royalties increase.
Tristone Capital predicted earlier this week that provincial revenues would actually drop by C$2 billion within a few short years instead of the province getting C$2 billion more from the increases.
In the two weeks since the royalty report was released, it has caused an enormous amount of consternation in the energy sector, which was not expecting such wholesale changes after arguing during summer consultations that no changes were necessary.
Stelmach has promised a response ''within weeks'' and suggested a willingness to listen to all sides of the debate. But he also said that he ''won't be intimidated'' by the energy industry or anyone else.
Adding fuel to the fire was a report by Alberta's auditor general earlier this week that echoed many of the same points in the royalty report. Fred Dunn said there was clear evidence that the province has been shortchanged billions of dollars due to royalty rates that were far too low.
The fierce debate is splitting Albertans into two opposite camps - one side believing that royalty increases will bring the white-hot provincial economy to a screeching halt while the other believing the province has been ripped off for long enough.
(c) The Canadian Press 2007
