Fallout from the 2007 Alberta Royalty Review Panel

The new Alberta government has pledged to institute a review of royalty payments in Alberta’s oil and gas sector during its first term in office. The last time this happened, under the Ed Stelmach government in 2007, there was an immediate plunge in the perception of Alberta as a place in which to invest in oil and gas exploration and development as reflected in the Fraser Institute’s annual Global Petroleum Survey—a survey of senior executives in the upstream petroleum sector.

Perceptions of investment attractiveness remained depressed from 2008-2010, when the government announced a reversal of many of the rate increases instituted after the review. Investor confidence did not fully return until 2011, after most of the rate increases triggered by the 2007 royalty review were reversed.

If the Alberta government chooses to proceed with its royalty review in the face of past experience, it is important for it to consider ways to reduce uncertainty, which is often a deterrent to investment in extractive industries. Ways to reduce uncertainty might include ensuring that the process is a highly transparent, with clearly defined dates, clearly defined and delimited goals, and clearly defined public and private consultation with all stakeholders included from the outset.