Alberta oil drilling rigs and producers are migrating to the United States, because American oil states are more profitable places to do business than Western Canada.
The primary reason is the selling price for crude oil. Texas oil sold in October for $56 (US) per barrel. Alberta oil sold for $20 per barrel. The defining difference between Texas and Alberta oil and gas taxation and regulation is the ownership of oil and gas in the ground.
In Texas, all oil and gas resources are privately owned by the owner of the surface land. In Alberta, 81 per cent is owned by the Crown on behalf of the public and 19 per cent is freehold, owned by the surface land owner.
In Texas, an oil company pays an average royalty of 12.5 per cent of sales to the surface landowner for the oil and gas it produces. The state charges a severance tax and the baseline is 7.5 per cent of market value of gas, 4.6 per cent of the market value of oil and 4.6 per cent tax of the market value of condensate (liquids).
The baseline severance tax is reduced for enhanced oil recovery, high-cost gas wells, incremental production and in other cases to make production more attractive.
In Texas, the state and the freehold owner of the oil and gas “think like a producer” when they set severance taxes and negotiate royalties. “Think like an owner,” said former Alberta premier Peter Lougheed when he set royalty rates and made regulations.
In Alberta the company pays a fixed royalty set by the province. In the current low price environment, the royalty rate is about nine per cent.
In Texas, it is considered that it is in the interest of all parties to make the cost of producing and the profits as high as is practical and responsible.
In Alberta, costs and prices are irrelevant if producers can’t ship the product to market whether it is because of lack of pipelines or rail access.
In Texas, protesters found guilty of halting service or delaying construction of an oil or natural gas pipeline could be charged with a third-degree felony punishable by two to 10 years of incarceration.
In Canada, anti-oil protesters are treated like heroes and have allies in the federal government. So why would company shareholders want to see their money invested where it isn’t welcome?
If Prime Minister “Blackface” wants to excuse his mistreatment of Alberta, he can cite economic disparity.
The distribution of income is measured by the “GINI coefficient.” A GINI of 0.0 means all incomes are equal and the higher the coefficient the greater the disparity.
Texas is the 39th ranked American state with a GINI of 0.480 compared to all America’s CINI of 486. Alberta’s GINI is 0.032. Canada’s is 0.441 before equalization and 0.324 after, thanks to Alberta’s transfer of $12 billion to the rest of the country. Is the smaller disparity in Alberta worth the price if we are not creating wealth for the future? Do we all want to be equally poor together?
Frank Dabbs is a veteran business and political journalist and author.
