Make oil riches profit Alberta

We appreciate this opportunity to
express our opinions on the role that
Alberta’s natural resources and espe-
cially oil, should play in contributing
revenues to meet the needs of Alber-
tans.

Secondly, we appreciate the “posi-
tion paper” prepared by the govern-
ment. It is, to our knowledge, a first
effort to make public some of the in-
formation on oil resources, its rate of
extraction, the returns that Albertans
get from it.

Having said that, we want to make
it plain from the beginning, that we do
not agree with the thrust of the “ten-
tative plan” outlined by the govern-
ment. In our opinion it does not fulfill
the need to find those new and ade-
quate sources of revenue to change the
present system of taxation.

FAIR RETURN

A “fair and reasonable return” to
citizens of the province “from the re-
covery of this depleting resource” must
surely be higher than the projected 50
to 90 million dollars in additional
revenue.

The fairness and reasonableness of
the return should be measured against
needs. We know of no school board or
municipality in the province that does
not need help to meet rising costs of
operations this year. And getting no
meaningful help, they are compelled
to increase taxes and cut services.
There is a crisis in municipal financing.
And it is the tax-payer who is bearing
the brunt of it and needs urgent relief.
And this can come only from senior
levels of government. Provincial reve-
nues need to be increased to do that.

We urge that this be the basic aim
of any plan to raise increased revenues
from our oil resources. Accompanying
this immediate relief to municipalities
and school boards, provincial revenues
from resources should also be so plan-
ned that they will underwrite needed
reforms in our taxation system in this
province. In such terms the projected
revenue increases of 50 to 90 million
dollars a year for some years to come
are totally inadequate. In fact, they
seem to predict how inadequate the
reforms may turn out to be.

The present position of the oil in-
dustry in the province begs a totally
different approach to that outlined in
the government’s “tentative plan.”

DECLINING RESERVE

To us it is obvious that the bloom
is off the oil-boom in Alberta. The ‘“‘po-
sition paper” of the government makes
that clear but does not draw conclu-
sions from it. Annual crude oil produc-
tion for two years has exceeded an-
nual additions to crude oil reserves
and we face declining net reserves. Ex-
ploratory activity has stabilized or de-
clined. The number of wild-cat wells
has dropped seriously. Annual expend-
itures for exploration have dropped 30
million dollars in two years. The most
significant indication of the change is
the decline in the sales of rights to
Crown lands—down from 100 million
dollars to 25 million dollars in a mat-
ter of a few years.

What is happening is an example of
how capital moves out to seek “green-
er pastures.” The easy money has been
made in Alberta. Capital now seeks
new areas in which to invest. They are
finding these in the North West Ter-
ritories, the Yukon, in the Arctic
Islands and on Canada’s east coast.
The extent of the flow of this capital
to other areas of the country is indi-
cated by a statement in the “position
paper” (page 13) that 30 oil companies
with production in Alberta large
enough to account for 95% of the roy-
alties paid to the Alberta government

PACIFIC, TRIBUNE—ERIDAY, MAY 26, 1972—PAGE 10

NUE tS gia 73S

Text of a brief on provincial oil policy
presented to the Provincial Government by
W. A. Tuomi‘on behalf of the Alberta Com-
mittee of the Communist Party of Canada.

in 1970, have holdings outside of this
province that are 10 times greater than
their holdings in this province. And the
capital to acquire those holdings may
well have been created from the oil
industry here.

“INCENTIVE’ POLICY

The position we are in is further in-
dicated by the nature of oil exploration
in Alberta in recent years. “Minor”
operators in the industry (that is, all
but the 10 “major” companies which
are an extension of the integrated in-
ternational oil cartels) (footnote page
14) increased their drilling activity from
362 wells in 1962 to 900 wells in re-
cent years. The 10 “major” companies
drilled only 75 wells in 1°71. Yet with
all of the exploratory drilling done by
the “minors” in recent years (900
wells), what they added to oil produc-
tion is shown by the fact that they
contributed only part of 5% of the
royalties collected by the province in
1970.

It is clear that the “boom” phase of
oil exploration and production in
Alberta is over and will not return.
The change has been caused by the
“major” companies withdrawing from
new investments in oil exploration
here and are now seeking more profit-
able areas elsewhere in the country.
And what this capital is doing is not
going into the direct production of oil
but is seeking ownership of reserves
that will serve future production needs.

In the light of this, we question
whether any incentive program could
be made attractive enough to draw
this kind of capital back to this prov-
ince. To base legislation on such an
incentive program may well be a mis-
take that will require correction by
new legislation in the near future. For
it is not true that only exploration
which results in increasing the prov-
ince’s net reserves of oil will increase
provincial government revenues. We
maintain that that option is almost
closed off now and that other options
have to be used.

NEED NEW POLICY

We urge a policy, as a basis for
legislation, which recognizes the chang-
es that have occured. Provincial reve-
nues from oil can no longer be based
on rentals or reserve sales. That period

is over. What remains is revenues from
royalties based on oil production.

This is important revenue-wise be-
cause production levels now are quite
significant. The oil market is a sellers’
market and demand for increased pro-
duction to meet world oil needs is
bound to grow. The Energy Resources
Conservation Board projects an in-
crease in Alberta oil production from
1,124,000 bbls. a day in 1972 to 1,533,-
000 bbls. a day in 1976—in four years.
Provincial government revenue needs
to be under-pinned by that kind of pro-
duction.

The basic proposals in the “tentative
plan” submitted by the government
seem aimed in the wrong direction.

The greatest incentive to exploration
now is the need for oil. It will bring
on further exploration. Exploration in-
centives that would try to re-create
the boom years of the past will not be
effective. This despite the fact that the
“tentative plan” does offer a five year
tax-holiday for new discoveries and no
royalty payments. New discoveries for
the next five years will bring practic-
ally no revenue to the provincial
treasury.

TAX PROPOSALS

The proposal for a tax on reserves
seems similarly misdirected. We may
be over-simplifying the proposals in
the “tentative plan,’ but it appears to
be: (1) shift the base for revenues to .a
tax on reserves, where there is a net
decline setting in and which will
therefore produce declining revenues
through the years; and (2) no increase
in royalties above the 162/3% ceiling
for oil produced, despite the fact that
all signs and projections point to a
rapid increase in daily production.

The tax on reserves is on an esti-
mated 20,000 million bbls. It is pro-
jected to produce revenues of 50 to 90
million dollars a year. It would be in-
teresting to reduce such a tax to a
rate per barrel. And then it would be
interesting to compare this with the
rate of taxes that farmers pay to mu-
nicipal governments for the surface
use of oil lands.

The reserves tax seems to be bor-
rowed from the United States system.
There, because the state governments
do not own mineral rights, they levy
an ad valorem tax on reserves and a

severance tax on the amount 8)
taken out that reduces the ™.

But there is a basic difference fs) f
berta. Alberta oil is, in ‘pert
Crown-owned. This gives Alb@ g

ecological protection; have rest
the need of conservation of @ ah
able resource; assure the great! A
ancial return from it for the eh
good of the people of the provin’
direct the development of it Mag.
way that energy and secondary fh
tries based on it can provid?"
dustrial base for an expandiNe”
omy.

MUST CORRECT ERRO'§

Because of growing similat
our positiori and that of oil Pn
countries now organize Expo”
(Organization of Petroleum Ale
Countries), we urge thal. of
should make a study of the’ ig
iences. They have made dec! Bi
in getting higher royalty. ae
oil industries are financing. i)
restructuring of a way of a i)
countries. They are now MOV! ay
direction of taking over the i (
international oil companies W! faced
we also are familiar. They: ‘pert
their actions have made the Ue
important source of oil for

States market.

acl
We are aware of the provift i
ernment’s position on 0 | cof
They urge that the existing a6 ad”)
arrived at under the previo’! pt
tration be honored in ther ie
form. We urge them t0 Th is
position. The government rte

_ercise its legal right to £0,

they mildly called “a serious aif
judgment” that the previou too)
tration made when it agre@™ ati)
ing on royalties and wiO™ «uch
agreements. Compounding
“error” does not correct it.

; A
COMMUNIST PROPS?
woth

Last January we proposed , "
in a new situation, royalty vel
should be increased to aa the aA
one dollar per barrel 29° ely
used to immediately reliev™ it :
cial crisis in our mumnlCh (oj)

schools. We have found n° att
change our proposal.
ward again. it

; jn P
We summarize our malt sift

(
Remove the 16 2/3% cet
increase royalties to 4 }
$1.00 a barrel. wh

of the de

@ Use the authority ©, 1
Taxation Act to incre’) ide
from free-hold lands, W
tax rates on free-hol
producing oil.

e Raise oil revenues to nc 4
enough to relieve the tHe fp
in the municipalities and dite
education—as a means ° uf the
ernment action to help *
omy of the province. pf

ory
e@ Abandon the Explo®
Incentive Program. + ue

@ Use the right of Yas i
to levy taxes on oil reser ad Ma
an alternative to inc reine
—but as a means 0 ;
production. TOR

other provinces and the mem
ment for orderly deve”
oil industry nationally: j

: J
e Seek information aroieut
the Organization of PE”

ing Countries.

iin ee ene