A royalty regime made right here

Brian
Brian Jones
Send to a friend

Send this article to a friend.

If you’re gullible enough to believe Premier Kathy Dunderdale’s recent diatribes against Quebec, perspective might be found by pondering some policies that were made right here.

You can be aided by a recent study called “Capturing Economic Rents from Resources Through Royalties and Taxes,” by Jack Mintz and Duanjie Chen of the University of Calgary’s School of Public Policy.

With that title and those credentials, you wouldn’t expect it to be reader-friendly, and it isn’t. It takes only a few of its 46 pages to convince you that royalty calculations here and elsewhere in the world are incredibly complex. People with an MBA or master’s degree in economics can probably zip through it without having to flip back to check what METRR stands for (marginal effective tax and royalty rate), but most commoners will have to read it more carefully.

Newfoundlanders (and Labradorians) face a further challenge. The reports states, “Newfoundland and Labrador presents one of the most complicated royalty regimes in Canada.”

The authors are mainly concerned with how taxes and royalties in the oil industry affect investment and exploration by companies.

Of greater interest, though, are the tables that provide comparisons of various regions’ METRR — what the layman or laywoman would refer to as the amount of oil money that gets deposited in the public’s bank account.

In Newfoundland (and Labrador) this figure is 13 per cent.

(Note: nowhere in “Capturing Economic Rents from Resources Through Royalties and Taxes” do Mintz and Chen allege that Quebec coerced Newfoundlanders to agree to this level of remuneration for their offshore resources.)

According to the report, the royalty rate in B.C. is 30 per cent. In Saskatchewan, the royalty rate is 37 per cent.

Alberta has two sets of royalty rates: 40 per cent for conventional oil and 28 per cent for the oilsands.

The report also outlines some royalty rates that prevail beyond Canada’s borders. In Texas, the royalty rate is 32 per cent. In Norway, it is 28 per cent.

The usual explanation — or excuse, if you prefer — for Newfoundland’s relatively low royalty rate is that offshore oil is very expensive to exploit. After all, they’re out there bobbing on the North Atlantic in a floating drill rig or such, pushing pipe down to and into the ocean floor.

Fair enough. But extracting oil from the oilsands is also vastly expensive and complicated, yet the Alberta government sees fit to charge companies a royalty rate that is more than double Newfoundland’s offshore royalty rate.

The report’s jargon can be jarring, as it always is, whether you’re talking oil, education, police-speak, etc. If the table outlining various levels of METRR leaves you wondering whether you’ve misread it, you can double-check it against Table 3, which describes the “Effective Tax/Royalty Rate” in a dozen or so jurisdictions.

But the listing of royalty rates is virtually unchanged: in Newfoundland, 13 per cent; B.C., 30 per cent; Saskatchewan, 37 per cent; Alberta, 40 per cent for conventional oil and 28 per cent for oilsands oil; Texas, 32 per cent; Norway, 28 per cent.

“Capturing Economic Rents from Resources Through Royalties and Taxes,” being a technical report concerned with hard economic facts rather than political interpretations, doesn’t offer much explanation for the varying royalty regimes, other than what they mean for exploration, investment and so on.

It’s too bad Mintz and Chen

didn’t devote even minimal attention to the social aspects of royalty rates. For instance, maybe Albertans and Texans, having a century or so of experience, know what to expect from their oil riches. Maybe Newfoundlanders are just happy to have streets paved in asphalt, never mind in gold.

 

Brian Jones is a desk editor at The Telegram. He can be reached by email at bjones@thetelegram.com

Organizations: University of Calgary, MBA, The Telegram

Geographic location: Newfoundland and Labrador, Quebec, Canada Alberta Saskatchewan Texas Norway B.C. North Atlantic

  • 1
  • 2
  • 3
  • 4
  • 5

Thanks for voting!

Top of page

Comments

Comments

Recent comments

  • C Roy
    October 17, 2012 - 11:18

    The royalty rates quoted are rather misleading (in terms of Alberta oil sands anyway). A rate closer to 1% is paid on oil sands until capital costs are recuperated, this puts the effective rate of most oil sands operations far below that of Newfoundland for many years of operations.

  • Who saw to it that Newfoundland and Labrador would have the lowest royalty rates by far in Canada? Something is WRONG.
    October 12, 2012 - 17:38

    This article states "But the listing of royalty rates is virtually unchanged: in Newfoundland, 13 per cent; B.C., 30 per cent; Saskatchewan, 37 per cent; Alberta, 40 per cent for conventional oil and 28 per cent for oil sands oil; Texas, 32 per cent; Norway, 28 per cent". Guys and Gals can you see that there is something the matter with those stastics as it pertains to the percentage of Newfoundland and Labrador Royalty figures. My thoughts for years now, since I realized that the province of Newfoundland and Labrador was not able to create a meaningful economy, given its great location combined with one of the greatest endowment of natural resources anywhere in this World, was that those overseeing the development of our natural resources must have been syphoning off the cream for themselves. What else could it have been? Something is not above board with those statistics and I think an Inquiry needs to be struck that goes back 63 years.

  • Cold Future
    October 12, 2012 - 09:26

    Half an hour later and just a bit slower. Some day the sun will shine and have not will be no more.

  • Wayne R Bennett
    October 12, 2012 - 08:37

    Fact check: In Norway, it is 28 per cent. It is my understanding that Norway's oil comes from the offshore. They must have the same environmental conditions that is faced off our coast.

  • wtf
    October 12, 2012 - 07:51

    I'd be curious if the report include other benefits besides the royalty rate? You would think that such a comparatively low royalty rate would have oil companies tripping over each other to explore for oil but that isn't happening.