'Cautious optimism' seen in Alberta energy sector under new royalty regime

There is now reason for "cautious optimism" in Alberta's energy sector but the industry faces ever-growing challenges from competitors in the United States, says one of the architects of Alberta's royalty review.

"We have to be on top of our game," said Peter Tertzakian, a chief energy economist and managing director with ARC Financial Corporation, and former member of Alberta's Royalty Review Advisory Panel.

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He said it became clear during the review process that the U.S., once Alberta's "biggest customer," was rapidly becoming its "biggest competitor," as American firms emulated some of the innovations and new technologies being employed in Alberta's oilpatch.

"The [current] political narrative south of the border only amplifies the competitive nature of what is happening," Tertzakian said at a news conference in Calgary on Monday, on the one-year anniversary of the panel's recommendations.

The province adopted the recommendations and, as of Jan. 1, Alberta's oilpatch began paying the government under the new royalty system, which in broad terms looks largely the same as it did before.

The NDP had vowed before their election victory to make sure oil companies would pay more to taxpayers for pulling resources out of the ground, but changed its stance after the review.

'Rewarding innovation'

The new framework did make some other changes, however, which Dave Mowat, another review panel member, said are aimed at "rewarding innovation" in the energy sector.

Mowat, who works as president and CEO of ATB Financial, said there's no empirical evidence yet that the royalty changes have boosted activity in the industry but early signs are positive.

"The changes didn't actually come into force until Jan. 1 but more than 150 wells were actually registered before that date," he said. "So I think that speaks to the confidence of the people who are doing the drilling and will be operating under the framework."

There were 247 active rigs in Alberta in mid-January, according to industry figures, marking a 50 per cent increase from a year earlier.

Energy Minister Margaret McCuaig-Boyd, who was also at the news conference, said it's estimated each active drilling rig results in 135 direct and indirect jobs.

"One month into this framework, the industry is showing a lot of encouraging signs," she said.

No time to 'sit back'

After two exceedingly difficult years for the oil and gas sector in Alberta, McCuaig-Boyd said she's optimistic things are starting to turn around, too.

"Our energy industry is resilient like no other," she said.

"I'm confident that, as we move forward, we'll find new opportunities to strengthen our energy sector."

Canadian Association of Petroleum Producers president Tim McMillan said recent indicators are indeed encouraging but there are numerous challenges on the horizon for the country's energy industry within the global marketplace.

"I don't believe we can sit back and hope that we can compete," he said.

"We need to be very active participants in changing our policy frameworks, our structural frameworks and industry's cost frameworks as well."

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