Don't Kill The Goose That Laid The Golden Egg
(An Editorial)
A revision of royalties payable to the Alberta Government from petroleum and natural gas production from Crown leases in the province will be affected by Order-in-Council within the next few days, Lands & Mines Minister N. E. Tanner announced in Edmonton on Monday. Concerning the proposed revision he said, "I feel that the people for whom I am acting as trustee are not receiving a fair share from the development of the natural resources."
With this latter statement there cannot be much argument, in as much as the great private owners of petroleum and natural gas rights (notably the Canadian Pacific Railway and C. & E. Corporation) have been drawing 12 ½% to 15% royalty from production obtained on their leases, in comparison with the government's 10% on crown leases. As a matter of fact, 12 ½% royalty to the lease owner is the general rule in the United States.
While it is reasonable that the province obtain a larger return from promotion, it is vital that the increase not be obtained in a manner that will, tend to disrupt the confidence of a great mass of Canadians - including thousands of Albertans - in Alberta Oil as an investment. Disrupting confidence could very well 'kill the goose that laid the golden egg', seriously curtail further development of Crown leases and gradually wipe out the return to the Crown from royalties and rentals. For the 1941-42 fiscal year, the province has estimated $400,000 revenue from royalties and a further $300,000 in fees and lease rentals. It's up to the government to keep the goose laying.
To briefly summarize the history of Crown royalties in Canada: During the infant days of the World Oil industry, the Canadian Government (which then controlled natural resources) took no royalty on petroleum and natural gas production. On January 1st 1930, it commenced collecting a 5% Royalty. On Sept. 1st 1930 it turned natural resources over to the provinces. After the transfer of resources had been completed early in 1931, the Alberta Government of that day issued an Order-in-Council setting forth Crown royalties on Provincial and School Lands, the royalty payable to the Crown to be 5% for the years 1931 to 1934 inclusive, for the years 1935 to 1939 10% inclusive, and 12 ½% from January lst 1940. This was rescinded by the present government on April lst 1936 when it, became necessary to provide for Crown royalty on Absorption Plant products. The new Order-in-Council stipulated a 10% royalty on every product obtained from a Crown lease, made no reference to the former government plan to up royalties to 12 ½% in 1940.
Since the 1936 Order was placed in effect, Alberta has entered its first major oil development stage, and production has been climbing steadily. Production to date has been divided about evenly between Crown leases and freehold leases from which the Crown draw no returns. The fact that the big Freehold owners, despite their reservation of 12 ½% to 15% Royalty, seemed to encounter no great difficulty in securing development of their leases, has led to considerable political pressure being brought to bear on the government to revise its royalty upward.
Accordingly, Lands & Mines Minister Tanner last week submitted his proposed new royalty schedule to representatives of operators and leaseholders. The proposed schedule, accord to those who were present at last week's conference, would differentiate between production from leases granted by the Dominion Government prior to the transfer of natural resources to the provinces, and leases granted by the Province since that time. The proposed rate on Dominion leases would be a straight 12%. The royalty on Provincial leases would be on a sliding scale ranging from 5% to 15%. Under the sliding scale, wells producing 25 bbls per day or less would be subject to 5% crown royalty and wells producing 225 bbls per day or more would be subject to 15%. The Crown royalty on wells producing between 25 and 225 bbls daily would be calculated each month, and would be equal to the square root of the daily average yield each month. (e.g. daily average 36 bbls, royalty 6% average 50 bbls, royalty 7.07%; average 75 bbls, royalty 8.66%; average 100 bbls, royalty 10% average 156 ¼ bbls, royalty 12 ½%, etc.)
The proposed 12 ½% Royalty on Dominion leases is not considered excessive. Nor is the proposed 'sliding scale', which has a real value in that the Crown royalty would decline with the normal decline in productivity, permitting commercial operation of a small well for a longer period than would be the case under a fixed royalty. Incidentally, most of the Crown leases in Turner Valley and other older oilfields are Dominion-granted leases. Most Crown leases in newer areas now undergoing development are Provincial leases.
But here is the other side of the picture. If, as was indicated to those who discuss the proposed regulations with Minister Tanner last week, the royalty schedule is applied to all Crown leases - being produced, being drilled, or not yet drilled - it might have serious repercussions that would tend to discourage further public investment in drilling on Crown lands.
