Governments demand a bigger share of oil

Oct 24, 2007 02:00 AM

by Rob Gilles

The oil industry is under assault globally by nations and even provinces who want companies like ExxonMobil, Chevron and Suncor to cough up more royalties they can use to address issues like poverty and education.
First it was Venezuela. Now, Nigeria is reviewing its relationships with international oil companies and the oil-rich Canadian province of Alberta is set to announce a decision increasing royalties from the energy industry. It's a move the industry warns could devastate Alberta's oil patch.

At least once analyst compared Alberta to Venezuela in September after a government-appointed panel called for the province to boost its total take from the energy industry by 20 % a year, or roughly $ 2 bn. Under President Hugo Chavez, Venezuela raised royalty and tax rates on foreign oil companies, then later took majority control of all oil projects as part of a larger nationalization drive of "strategic" economic sectors. Chavez says those policies are ensuring that oil benefits Venezuelans instead of foreign corporations and governments.
Russia and Bolivia have also asserted greater state control over their oil or natural gas assets in recent years.

A report by Alberta's provincial panel says royalties have not kept pace with world energy markets -- a barrel of crude oil has reached record levels of more than $ 90 recently. It says all projects in the booming oil region should pay more because "Albertans do not receive their fair share from energy development."
"There's definitely been a trend over the last year or two, a lot of countries looking to nationalize oil reserves," said Kyle Preston, an oil and gas analyst with Salman Partners. "It's a function of higher commodities prices. Oil companies are making more money and governments want a bigger share."

Alberta is home to vast reserves of oil sands, a tar-like bitumen that is extracted using mining techniques. Industry officials estimate the region will yield as much as 175 bn barrels of oil, making Canadasecond only to Saudi Arabia in crude oil reserves.
"Chavez is not the kinda guy you want to be compared to. But yes, I could see that comparison since Chavez has increased royalties in his country," Preston said.

Greg Stringham, vice president of the Canadian Association of Petroleum Producers, called increased revenue sharing the biggest economic decision in Canada this year.
"The energy industry has been a phenomenal driver," Stringham said. "It not only affects Alberta... It's going to set the direction for where this industry goes and where Alberta goes the next five to 10 years." Stringham said there's more room for sharing revenues but says it costs $ 55-60 a barrel to develop the oil sands because of rising costs in steel and labour.

Many companies have said they'll shut down future projects and invest elsewhere if Alberta adopts the recommendations in full. EnCana has said it will cut its capital investment in Alberta by a $ 1 bn next year if the province raises royalties as much as proposed.
Alberta's Conservative government repeatedly rejected advice in the past to raise royalties but the province has a new premier who is expected to face an election soon. Canada's constitution grants the provinces control over their natural resources and gives them the right to levy direct taxes on them.

"Canada has been a politically safe region and that has somewhat changed now," said Philip Skolnick, an oil analyst with Genuity Capital Markets. "Yes, oil prices have come up significantly but so has the cost to develop them."
"Our first reaction to the Alberta government's recent royalty review panel report was that it was authored by a visiting delegation of Venezuelans," Deutsche Bank North America analyst Paul Sankey wrote in a note to investors.

Last year, Alberta collected $ 10 bn in energy royalties, which have not been updated since the mid-1990s. The province is debt-free but has struggled to build infrastructure needed for the booming industry.
In Nigeria, meanwhile, an energy adviser to President Umaru Yar'Adua said that his country needs to make the most of its position as Africa's largest oil exporter. Nigeria, a top supplier of oil for the United States, remains desperately poor due to years of corruption and lack of development. Nigeria is the fifth-largest supplier of crude to the United States. Despite producing tens of billions of dollars worth of crude every year, few Nigerians have access clean water or electricity.

More than 90 % of the country's oil is produced through joint ventures between the Nigerian government and international oil firms such as Royal Dutch Shell, ExxonMobil, Chevron, Paris-based Total and Italy's ENI. While there is no indication Nigeria is threatening to re-negotiate existing contracts, they may re-examine terms when the contracts expire.
"We have not officially seen anything from the Nigerian government, so it is too soon to make a comment," said Caroline Wittgen, a Shell spokeswoman.
"We are monitoring the situation and have no developments to report," Chevron spokesman Don Campbell said.

Source / The Associated Press
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