STOP: Stop Tar Sands Operations Permanently

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Big Oil’s Math Doesn’t Add Up

Posted by mhudema on February 18, 2008

Big Oil’s math doesn’t add up
Charles Frank
Calgary Herald

I’m not all that good with numbers. Never have been.

Still, like a lot of mathematically challenged people, I’ve always managed to figure out how to add one and one together and get two.

Even when we’re talking about billions of dollars.

But try as I might, I haven’t been able to make sense of some of the numbers being bandied about the oilpatch this week — and I expect there are more than a few Albertans who find themselves in the same boat.

My confusion started with Canadian Natural Resources’ announcement that it was going to be roughly $1.9 billion overbudget on its Horizon oilsands project by the time the much talked-about facility opens for business, later this year.

No big deal, company officials indicated. And indeed, for CNQ (as the company is known) $1.9 billion is basically chump change.

Some of you might also recall that $1.9 billion is roughly half a billion dollars more than the incremental $1.4 billion Premier Ed Stelmach hopes to collect from all energy companies operating in the province through increased royalties starting in 2009 — an amount that is less than the $2 billion recommended by a government-appointed royalty panel and considerably less than the province’s auditor general suggested would be in order if Albertans were to receive fair compensation for our oil and gas.

You might also be aware that this so-called cash grab has been the source of much acrimony between the industry and the government; between Albertans in the oilpatch and out; and between our various political parties.

And you can bet we’ll hear a lot more about royalties during the current election campaign.

A few days after the CNQ announcement, EnCana Corp., the country’s largest independent energy company, reported a profit of $4 billion for 2007.

That came on the heels of the group we call Big Oil — Husky Energy, Suncor, Imperial Oil and Petro-Canada — reporting a collective record profit of $11.8 billion in 2007. Keep in mind that amount would have been even higher had Shell Canada, a mainstay of the oilpatch, not been subsumed by its parent Royal Dutch Shell.

Serendipitously, as we were parsing EnCana’s numbers, the Conference Board in Canada issued a report saying the oil industry would see profits soar a further 18 per cent in 2008 to a total of $23 billion, before falling back in 2009.

For the record, we’re only talking about the oil industry here.

And for the most part, we’re talking about the handful of companies that generate the vast majority of the industry’s profits — companies by-the-by that have been forking out billions of dollars for cost overruns on oilsands projects and upgraders without so much as taking a deep breath, let alone mortgaging their future.

I know what you’re thinking: Something doesn’t add up here. You’re right.

In fact, the last time I was this confused, I was trying to figure out why the people down in Fort Macleod always seem to have cheaper gasoline than we do here in Calgary — even though the oil companies always say that isn’t so and that pump prices are the product of local circumstances such as demand and competition.

That’s a whole other issue. Or is it? Hmmm.

Make no mistake: the Stelmachites made a huge mess of the royalties issue — a mess I’ve said before that they can’t fix at this point in time, no matter what they do.

The billions of dollars in exploration expenditures that industry members have collectively pulled out of Alberta for 2008 in protest are not coming back this year, no matter how much “tweaking” to avoid “unintended consequences” the premier promises to do.

At this point nobody really knows what will happen after 2009, when the new royalty regime is slated to kick in.

But the more I look at the year-end numbers being rolled out by the industry heavyweights — and the ease with which individual companies assimilate billion-dollar cost overruns into their budgets — the more trouble I have understanding the industry’s antipathy toward an additional $1.4 billion in royalties.

Obviously, I’m missing something here. Or it could be that I’m simply not good at the new math the industry must be using to support their argument that forking over an additional $1.4 billion a year — or for that matter, any amount whatsoever as one industry executive after another told the royalty panel during last year’s review — would be a prelude to financial ruination.

No matter how you add it up, that position doesn’t jibe with what the numbers released by industry members themselves appear to be telling us.

Then again, maybe it’s just me.

© The Calgary Herald 2008

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