The Premier of Alberta is concerned about the price of oil and gas since it affects both Albertan’s and the Government’s ability to fund operations. He is asking Ottawa to “bailout” oil and gas, despite: (a) significant subsidies which the industry receives from Ottawa – app. $3.3 billion a year; (b) subsidies from Alberta of app. $1.3 billion a year in royalty forgiveness; (c) having one the lowest royalty rates in the world; and (d) having given $4.7 billion in tax giveaway’s from the Alberta budget to profitable companies, including oil and gas.
In addition, oil companies were bailed out by the Federal government when it agreed to purchase a pipeline under construction so as to ensure Alberta oil could get to tidewater. The Government initially spent $4.5 billion buying the pipelines and are now on the hook for construction – app. another $5 billion or more. Oil and gas have also largely walked away from their legal obligation for well restoration once a well has reached its end-of-life or is abandoned. There are over 3,400 of these abandoned wells in Alberta which will cost some $30 billion or more to clean up and the available funds to do so are just $227 million.
In 2019 some of the larger oil and gas companies had a terrific year. CNLR, for example, achieved record production totaling 1,098,957 BOE/d, delivering 2% production growth over 2018 levels in a curtailed market environment. Net earnings were $5.416 billion. In 2020 the company planned to spend $2.4 billion on share buy-backs – a common theme in the industry. At the same time, CNLR hired fewer people to drive its performance as it is now, and has been for some time, an early adopter of key innovative technologies aimed at increasing production with fewer people.
We should not bail them out. They can use their asset base to borrow funds at the most competitive interest rates seen in a generation. We also should not bail out airlines or cruise ship companies for the same reason.
What we should do instead is pay citizens a guaranteed income for the next 12-18 months (all citizens) so that we can all cope with the challenges of mortgages, rents, food costs (which will rise significantly). Oil company executives and shareholders can sort themselves out.
As for the Government of Alberta, they should heed the suggestion: “never let a good crisis go to waste”. Introduce a sales tax now (exempting food and medicine) and scale it to replace oil and gas royalty revenues used for operations. In addition, rethink the royalty regime to extract more from oil and gas so as to strengthen the Heritage fund and strengthen the orphaned well funds. This may look counter-intuitive at a time when oil prices are so low, but it is a time to decide what is important for all Albertans not just a few.
The Alberta government should abandon its budget so shoddily rushed through the legislature and start to focus on creating the next Alberta around policies of equity, compassion, and service. Bold new thinking not old recycled thinking from Ayn Rand. Rather than focusing on the oil and gas economy, Alberta’s strategy (like that in New Zealand) should focus on the wellbeing of all of its citizens. It is time for a wellbeing budget.