A reader asked a little while ago what I think about the controversy over the proposed increase to oil royalties in Alberta, which is currently being pondered and undoubtedly finessed in the office of Premier Ed Stelmach. The short answer is that I think it’s ridiculous that we have to discuss it. The government, ideally, should not be in the business of setting a price for oil, in the ground or anywhere else. The issue does not exist in the American jurisdictions where subsurface rights are attached to land titles, as they traditionally were under the common-law doctrine of ad caelum et ad inferos. But that divorce was decreed in Canada long ago and cannot readily be reversed. Since the government has no choice but to set a price for the oil, the test for any given price level should be pretty simple: does it maximize revenue? Stelmach, in his mushmouthed way, has actually tried to advance this idea. The problem is that in principle no one, including him, knows whether the new price regime he imposes will accomplish this.
But the place to go for the best guess is the market. The oil companies and their investors reacted to Bill Hunter’s report on royalties, issued Sept. 18, with indignation and accusations that Alberta was going Chavista. The skeptic might consider looking at energy companies with a major Alberta presence to see whether the shareholders are really all that troubled by Hunter’s rhetoric. Since Sept. 17, the last day on which the information in the report was not public, we can see the effect it has had on the prospects for future profit in the sector. The share price for the Canadian Oil Sands Trust, for one, has plunged from $33.30 to $34.95. A battered Suncor, which stood at $98.71, has slumped to $100.84 per share. Husky Energy Inc. has plunged from $41.22 to $43.28. Clearly Stelmach must take a stand and call a halt to this financial bloodbath!