[ScottFromCalgary]

New royalty regime sucking life out of oilpatch growth; Anemic land sales
shows drillers are finding better prospects elsewhere

22 Mar 2008

By: Lorne Gunter


The Edmonton Journal

The provincial election is over. Premier Ed Stelmach and his Tories are
safely back in total control of the Alberta government. It's time, then, for
them to admit they messed up on last year's royalty review -- particularly
when it comes to natural gas and conventional oil -- and undo the damage
already being done by their forthcoming grab of 20 per cent more from the
energy sector.

Despite oil prices soaring over $100 a barrel and natural gas prices around
$9 per million British thermal units, oil and gas land sales in Alberta have
all but collapsed.

In the first quarter of this year, oil companies have paid just $126 million
for conventional oil and gas rights, down from $253 million this time last
year -- a decline of almost exactly half. Oilsands leases are off even more.
In the first three months of this year, just $76 million in oilsands rights
have been purchased versus $223 million a year ago, a decline of nearly
two-thirds.

At the same time, our neighbouring provinces of B.C. and Saskatchewan are
enjoying record land sales.

There can be several reasons for Alberta's decline and for our neighbours'
rises, royalties being only one of them.

For instance, Alberta's current known, undeveloped reserves are smaller than
some of the big new fields on either side of us. Since Western Canada is one
of the costliest places on the planet to drill (versus the return on
investment), it makes some sense for energy companies to go where there is
an economy of scale.

The Canadian Association of Petroleum Producers says Alberta's known oil
fields are small. Sixty-one per cent of our conventional wells produce fewer
than 12 barrels a day. And in recent years, according to the Alberta Energy
and Utilities Board, we have only been replacing 65 per cent of our annual
natural gas production with new finds.

There are no huge new gas fields on the horizon, either.

Meanwhile, in B.C., energy companies have been bidding aggressively on two
large new "plays," the Montney field and the Horn River Basin. The Montney
play took several years to pull together, so when the leases were finally
purchased last year, they caused a one-time upward spike in B.C. sales. And
Horn River, near the B.C.-N.W.T. border, is thought to be nearly as large as
the massive Barnett discovery in Texas.

The political climates in both Saskatchewan and B.C. have changed, too, in
recent years. Where once both were in the grip of high-tax, anti-development
NDP governments, both are now governed by more growth-friendly
administrations. The pent up demand for more exploration and development has
finally been released.

Still, the upcoming new royalty grab in Alberta has been the thumb that
tipped many companies' scales towards moving out of the province.

According to the Alberta Energy website, a hectare of oil and gas land in
Alberta can be had for as little as $4.11.

According to Saskatchewan's energy department, leases there have been going
for an average of $618 per hectare since the middle of last year.

After this past Wednesday's pathetic land auction in Alberta, Energy
department spokesman Jason Chance said it was too early to say whether the
sharp falloff in lease sales was part of a long-term decline in resource
development brought on by the province's royalty plans.

"It's not appropriate to look at one specific sale," Chance said.

Maybe not. But what about two sales? Or four?

Last year, Alberta's natural gas and oil land sales plummeted 52 per cent to
$710 million, down from 2006's record $1.5 billion. And so far, this year's
sales are half of last year's dismal rate.

On Dec. 12, at the last major auction before Wednesday's, sales and leases
on natural gas and oil properties fell to a anaemic $37 million from $54
million in Dec. 2006, while oilsands leases plunged from $89 million to just
over $31 million.

In contrast, in 2007 British Columbia's land sales surpassed the $1-billion
mark for the first time, demolishing a record of $647 million set in 2003.
Saskatchewan, too, set a new record -- $250 million -- easily surpassing the
$200 million earned in 1994.

The ending by both Ottawa and the provincial government of accelerated
writedowns on oilsands investment has hurt land sales and leases, as has the
federal removal of income trust tax benefits for energy companies, a move
completely beyond the Stelmach government's control.

And federal promises to make Alberta's energy sector pay the cost of
capturing carbon dioxide released in the extraction of oil from the tarsands
and sequestering it underground -- a multi-billion-dollar price tag -- has
given investors jitters, too.

But the most-cited cause for the flight of oil and gas exploration to
Saskatchewan, B.C. and even the States is the Alberta government's oncoming
royalty regime.

It may be unfair that the royalty decision is seen as the proverbial
camel-breaking straw.

But it is seen that way, and it is entirely within the Stelmach government's
ability to change it.

[ScottFromCalgary]

British Columbia says energy lease sales at record

Thu Mar 27, 2008 6:02pm EDT

CALGARY, Alberta, March 27 (Reuters) - British Columbia's take from oil and gas lease sales rose to a record C$1.2 billion ($1.18 billion) for the current fiscal year, the Western Canadian province said on Thursday, thanks to growing interest in tapping the region's natural gas reserves.

The province said sales for the fiscal year ending March 31 more than doubled the previous record of C$625.7 million, set in 2003-2004. Prices per hectare also rose to a new high of C$1,863, up 89 percent from the previous high set last year of C$984 per hectare.

Interest among energy companies in tapping British Columbia's gas fields is climbing, particularly after EOG Resources Inc (EOG.N: Quote, Profile, Research) revealed last month that it had found a 6 trillion cubic foot gas field in the Horn River basin in the northeastern corner of the province, one of Canada's biggest-ever finds.

Three parcels in the Horn River region were offered at a lease sale held on Wednesday. They fetched a combined C$51.1 million. The geology of the region has been compared to the prolific Barnett Shale gas region of Texas.

"These exceptional land rights sales show British Columbia is a top jurisdiction for oil and gas investment," said Richard Neufeld, the province's energy minister.

http://www.reuters.com/article/marketsNews/idUSN2744525320080327

[The Kid]

Sounds about right. My wifes company has pretty muched moved all activity into B.C. They were in B.C. and Alberta before the royalty review, but since the reveiw they've turned 100% of their focus West.

The only bright note, maybe the rest of Canada can now bitch about Sask and B.C. instead of Alberta.

[Champion3]

Meh, when you look at the levels of growth that we are coming down from, it's a relief. When there are effectively no idle resources and inflation is past 6%, it's just too much -- and unsustainable.

[Ayreonaut]

Right now I'm working for my mom's seismic company. They have kept busy all year, but very little to do with oil, most of their business comes from potash companies (I'm currently on a potash job).

My aunt's company doesn't do any potash, and they haven't been busy at all this winter.

[freeweed]

I only skimmed that article as it's a grab-bag of figures, but does it ever actually comment on the royalties in BC and SK?

Are they demonstrably lower than AB? I find it hard to believe that no one would have brought that up during the royalty review if so - all I ever saw by comparison is that AB had some of the lowest royalty rates in the world.

[Sir.Humphrey.Appleby]

I think this is more a comment on the status of Alberta's resources as past peak. It would have happened (probably not to the same degree) without the Royalty changes.

Unfortunately for Mr. Stelmach he now gets blamed for the decline, because people see two and two and put them together.

Shall be interesting times indeed.

[ScottFromCalgary]

I only skimmed that article as it's a grab-bag of figures, but does it ever actually comment on the royalties in BC and SK?

Are they demonstrably lower than AB? I find it hard to believe that no one would have brought that up during the royalty review if so - all I ever saw by comparison is that AB had some of the lowest royalty rates in the world.

I many cases they are. Saskatchewan has institued a "royalty holiday" where companies pay zero royalties on the first x number of barrels produced(~75K per well I think). So are Albertans happy to be getting their extra billion in royalties now that our land sales and capex have dropped off the map?

[jawagord]

While it was completely predictable, it is still ironic that without yet implementing any royalty changes Ed has managed to reduce land sales to the same level as Alberta was getting 10 years ago, when oil and gas were worth a fraction of today's value. The billions of dollars in land sales that Alberta has lost in the last year and a half is more than what next years increase in royalties will add to the Alberta treasury. Classical tax theory at work here!

[Boris2k7]

Last I checked, all that land isn't exactly going anywhere, the big players in the oilsands were trying to slow down the sales anyways, and there have been a long slew of articles detailing record-shattering profits and huge projects in the tens of billions of dollars being planned and/or built.

Yeah, big crisis.

My heart bleeds for the fact that not one of these companies has skimmed a cool million off the top of their billions in profits and sent it my way, via a mysterious unsigned letter in my mail slot.

C'mon guys (yeah you, the gigantic oilsands company), there's only 3.5 Million Albertans and tons of you, with your hundreds of billions of dollars... you could make every single Albertan filthy stinkin' rich and it wouldn't hardly affect your collective balance sheets.

[freeweed]

C'mon guys (yeah you, the gigantic oilsands company), there's only 3.5 Million Albertans and tons of you, with your hundreds of billions of dollars... you could make every single Albertan filthy stinkin' rich and it wouldn't hardly affect your collective balance sheets.

...

That's HOW Albertans are rich. Where exactly do you think this money goes? ;)

[Boris2k7]

I'm still waiting for that mysterious envelope in the mail.

[scumtoes]

i get an envelope in the mail every two weeks from an oil company.....except i have to work in fort mac to get one. :(

[freeweed]

I'm still waiting for that mysterious envelope in the mail.

Those of us that are employed get one every 2 weeks, whether it's a direct contribution or a vastly lower tax deduction. Except it's all direct deposit these days.

The excellent roads, transit system, health care, schools, etc - those don't fit so neatly into an envelope, unfortunately. You have to get out of the house to experience them.

[NumberFive]

I think this is more a comment on the status of Alberta's resources as past peak. It would have happened (probably not to the same degree) without the Royalty changes.

Unfortunately for Mr. Stelmach he now gets blamed for the decline, because people see two and two and put them together.

Shall be interesting times indeed.

Surely both are at work. There are factors of "whether there's anything good (and conventional) left to find" in this province. Finding pools in Alberta is getting tougher and tougher. The geology and geophysics involved is becoming more and more subtle and the big pools just don't exist anymore. On the other hand, drilling that you've seen on the East and West side of the border isn't going to happen anymore because of new royalty regimes. In the past, companies would be hitting pools in Alberta (that were just as accessible from Sask) because it was better to do business here. That's definitely starting to change.

[NumberFive]

Last I checked, all that land isn't exactly going anywhere, the big players in the oilsands were trying to slow down the sales anyways, and there have been a long slew of articles detailing record-shattering profits and huge projects in the tens of billions of dollars being planned and/or built.

Yeah, big crisis.

My heart bleeds for the fact that not one of these companies has skimmed a cool million off the top of their billions in profits and sent it my way, via a mysterious unsigned letter in my mail slot.

C'mon guys (yeah you, the gigantic oilsands company), there's only 3.5 Million Albertans and tons of you, with your hundreds of billions of dollars... you could make every single Albertan filthy stinkin' rich and it wouldn't hardly affect your collective balance sheets.

Of note:

Who do you think gets the money when companies like CNRL (as one example of several) announce more than $20 billion being invested into their Horizon oilsands project? This is money that's being paid for services, to build infrastructure, etc... all going into the economy.

[Boris2k7]

Yes, yes, yes.

So where's my envelope? :D

BTW, money being continuously pumped into, and labour being continually used up, in an overheated economy really doesn't benefit anyone. In fact, the inflationary pressures that come with such an economic climate have damaged the province in many ways as much as it supposedly benefited it.

[NumberFive]

Yes, yes, yes.

So where's my envelope? :D


You answer with a grin, but it's easy to grin when it's not your $20 billion being invested before the first penny is made (all the while, demanding your "fair share").

[MichaelS]

Yes, yes, yes.

So where's my envelope? :D



How about the Ralph Bucks we all got a couple of years ago?

[Boris2k7]

The money in the envelope thing was as joke, guys.

My main point is, that there still seems to be a lot of growth and investment going on, despite the bullshitting going on with the new media. We go from an unsustainable and insane level of growth down to just a high level of growth, and a whole bunch of people start screaming bloody murder and pointing fingers. Get over it.

Like it's a great big surprise that oil companies would want to go after untapped resources in other provinces, when the big producers have been driving up their own prices and killing off the small producers the whole time. Yeah, the sky is falling, sure. Tell me that when the oil sands become abandoned mines.

I can only hope that future environmental regulations force these guys to clean up their act.

[NumberFive]

The money in the envelope thing was as joke, guys.

My main point is, that there still seems to be a lot of growth and investment going on, despite the bullshitting going on with the new media. We go from an unsustainable and insane level of growth down to just a high level of growth, and a whole bunch of people start screaming bloody murder and pointing fingers. Get over it.

Fair enough... humor/sarcasm is hard to catch in these forums. Plus, there are a lot of people out there that do hold the "where's my fair share of the $" argument.

[ScottFromCalgary]

Alberta's energy crown threatened

B.C. and Saskatchewan raking in huge sums from the sale of crude and natural gas exploration rights

DAVID EBNER
The Globe and Mail

March 28, 2008

CALGARY -- British Columbia and Saskatchewan are on the verge of a huge oil and natural gas exploration boom as companies pour hundreds of millions of dollars into land rights, shifting their focus away from the established energy capital of Alberta.

B.C. raked in $152-million from its latest sale of exploration rights, the province announced yesterday. Buoyed by high natural gas prices and big exploration prospects, energy companies are rushing to stake a claim in the province's northeast.

Last month, Saskatchewan took in $197-million in a single sale of exploration rights, by far its biggest-ever sale - and almost as much as it previously generated in an entire year. Stoked by $100-a-barrel oil, companies are in a frenzy over the Bakken play in the southeast part of the province, where interest has percolated in recent years and has now exploded.

"It's the big M - momentum. There's no question B.C. and Saskatchewan have momentum," said Gregg Scott, president of Calgary-based land broker Scott Land & Lease Ltd.

New exploration rights are closely correlated with drilling activity, which remains active in Alberta but is poised to notably broaden beyond the province.

Alberta, during its 2004-06 boom years, saw billions of dollars flood into the provincial treasury, peaking in 2006 with a stunning $3.4-billion paid to scoop up fast-disappearing exploration territory, especially in the oil sands.

But now, the best new prospects are not in Alberta but in neighbouring provinces.

And that's expected to continue.

"We'll be seeing more and more competition at land sales in B.C.," Mr. Scott said.

FirstEnergy Capital Corp. in a recent report said "frantic" land sale activity in B.C. is likely to extend into April, saying it is a "massive land grab equivalent to that of the oil sands binge observed in Alberta during late 2005 and early 2006."

Bids for the next B.C. sale are due April 23.

In Saskatchewan, April 7 is the deadline for the next rounds of bids.

The province likely will smash its annual exploration rights record of $250-million, set last year, just four months into 2008.

For British Columbia, driving the boom are drilling results from EnCana Corp. and EOG Resources Inc., both of which may be sitting on some of the biggest natural gas discoveries in Canadian history in the Horn River region of northeastern B.C.

The hot Montney play, which is also in northeastern B.C., where companies such as ARC Energy Trust are active, attracted big bids yesterday as well.

Yesterday's $152-million take was the fourth-biggest single sale in B.C.'s history, extending a run that includes $401-million collected in December and $265-million in September. The province's largest sale was in September, 2003, with EnCana leading a charge that month that saw B.C. collect $418-million.

This year, for the first time ever, B.C. is on pace to surpass Alberta in the competition for dollars for exploration rights. Alberta has seen only $202-million spent in 2008.

Beyond high commodity prices and strong prospects, advances in technology underpin the industry's new look at B.C. and Saskatchewan.

Horizontal drilling techniques, and better fracturing of subsurface reservoirs, is helping unlock previously difficult-to-recover oil and gas.

A further factor is royalties. In Alberta, the rates charged on natural gas will rise in 2009, and will hit the most attractive gas plays in the province the hardest.

In B.C., while royalties on gas are roughly the same as Alberta's increased rates, a special deal was instituted last year to encourage investment in emerging gas plays, such as the kind at Horn River, where much of the recent money has been spent.

Land sales are conducted twice a month in Alberta, once a month in British Columbia, and every two months in Saskatchewan.

In other areas, such as Newfoundland and the Northwest Territories, the land sales generally happen once a year.

The hot provinces

Natural gas and oil explorers are paying big dollars to acquire prospective land in British Columbia and Saskatchewan, buoyed by high oil and gas prices. It is a big shift away from Alberta, where huge dollars were laid out in recent years but not in 2008.

B.C. $278-million

Alberta $202-million

Saskatchewan $197-million

(Money spent to acquire exploration rights, to date, in 2008.)

Source: B.C., Alberta and Saskatchewan governments

http://www.theglobeandmail.com/servlet/story/LAC.20080328.RGAS28/TPStory/

[Edmonchuck]

OH MY GOD!!!!! THE SKY IS FALLING!!!! THE TOWERS WILL MOVE TO MOOSE JAW FROM CALGARY!!!!!

Oh brother...

[wild wild west]

Now that Sask and BC are raking in the dough from oil, hopefully this will help dispel the "we're only better off than them because of the oil" argument.

[NumberFive]

Several layoffs at the seismic service companies I deal with in the last few couple months.

[lubicon]

Several layoffs at the seismic service companies I deal with in the last few couple months.

There have been plenty of layoffs in the service sector over the past 12 months or so.

[jawagord]

CALGARY — Alberta is giving drillers of deep oil and gas wells a break on royalties at a cost of more than $1-billion over five years.
The province Thursday introduced two new royalty programs, a move aimed at relieving pressure on companies drilling high-cost, high productivity wells that were seen as the most heavily penalized by the previous royalty regime changes last October.
“Addressing the unintended consequences with these programs will help Alberta achieve the necessary levels of investment and production to generate the royalties anticipated by the New Royalty Framework,” Energy Minister Mel Knight said.
Drillers of deep natural gas wells will get a break on royalties through credits, which will cost the province about $200-million a year for five years, while the credits to deep oil drillers will cost $37-million annually, also for five years.
http://www.reportonbusiness.com/servlet/story/RTGAM.20080410.wroyalties0410/BNStory/energy/home?cid=al_gam_mostview

[Wooster]

http://www.canada.com/calgaryherald/news/story.html?id=cdadba13-2062-45fc-97ef-3307ec19406e&k=26425

Tories soften royalty changes

Billion-dollar break for producers
Renata D'Aliesio, with files from Jon Harding, Calgary Herald, Calgary Herald
Published: Friday, April 11, 2008

The Alberta government is giving oil and gas producers a $1-billion break on royalties over the next five years in a bid to attract millions more in investment that it fears is being chased away.

Energy Minister Mel Knight revealed in Calgary on Thursday that the province has tweaked its new royalty regime to address the "unintended consequences" of the plan announced in October.

The energy sector charged that plan made some oil and gas plays uneconomical, while opposition critics contended it shortchanged Albertans.

These (new) programs will help generate hundreds of millions of dollars in royalties and countless new jobs for decades," Knight said.

"I believe this is good news for most of the industry," Knight said.

However, the Tory government's attempt to calm last fall's criticism has instead ignited new discontent from several quarters.

"We predicted that once the election was out of the way, they would start going through and reducing even the modest royalty increases," NDP Leader Brian Mason said.

"With oil soaring well over $100 a barrel, these breaks should be unnecessary."

But Gary Leach, president of the Small Explorers and Producers Association of Canada, said the royalty holidays will only benefit a handful of large oil companies. He predicted the number of exploration wells in Alberta -- currently at decade lows -- would slump further.

"It wasn't nearly what we had hoped for. Overall we're disappointed," Leach said.

The financial community also expected a bigger royalty overhaul favouring the energy sector, said Martin Pelletier, an analyst with Blackmont Capital.

Pelletier anticipates capital will continue to take flight from Alberta to oil and gas development in Saskatchewan and British Columbia. EnCana, Talisman Energy and Canadian Natural Resources have pulled, or threatened to pull, about $3 billion worth of investments from the province, fingering the royalty plan as the reason.

"The competition for capital goes to where the strongest economics are," Pelletier said. "I'm not sure the government of Alberta realizes that."

The energy minister, though, said the added breaks will stem the tide of fleeing investment.

The provincial government is giving oil and gas producers chasing deep reserves a $237-million-a-year holiday for the next five years. But Knight expects a net benefit of $830 million in royalty revenues over the next decade.

The changes, he added, will help Alberta "achieve or exceed" the revenue expectations laid out in its royalty plan.

The government committed in October to hiking royalties 20 per cent to reap an additional $1.4 billion in 2010. The increase was nearly $500 million less than an expert panel recommended.

"I have no doubt that you will have people who will say this doesn't go far enough," deputy premier Ron Stevens said of the changes for deep oil and gas wells. "By spending the money on these programs we will produce jobs. But more importantly for Albertans, we will be able to increase the royalty for this area and if we didn't do it, we wouldn't have the business."
Energy prices have been rising on the New York Mercantile Exchange. Crude oil closed at $110 US a barrel Thursday after hitting an all-time high earlier this week. Spot prices for natural gas were at $10 US per million British thermal units.

During last month's election campaign, the Alberta Liberals called for a revamp of the royalty regime because the gas sector was struggling.

"At this point, the deep natural gas program is needed," Liberal MLA Hugh MacDonald said. "But I don't think with oil trading over $100 per barrel, there's any need for deep oil well programs."

Knight vowed Thursday the province won't do more tweaking around unintended consequences tied to its royalty plan. The latest revisions came after months of closed-door consultation with the energy industry.

But Canada's oil lobby won't know whether it got the changes it wanted without further study, said Greg Stringham of the Canadian Association of Petroleum Producers.

The Pembina Institute, an environmental think-tank, is also uncertain whether Albertans are getting a good deal because too few details were released Thursday, said Amy Taylor.

"The question remains, were these changes required in order to ensure Albertans receive their fair share that they deserve from their resource?" she said.

Easing Up New Rules

- The province is giving producers who chase reserves deep beneath the ground a break -- around $200 million a year for five years for deep gas wells and $37 million a year for five years for deep oil wells.

- Energy Minister Mel Knight says without the changes, about $830 million in royalties would have been lost.

- Opposition parties assailed the changes, with the Liberals questioning why oil producers need help as prices soar and the NDP accusing the government of making post-election changes to appease industry.

CalgaryHerald.com

[Wooster]

http://www.canada.com/calgaryherald/news/calgarybusiness/story.html?id=d4f0cbb9-f0dc-41a9-874b-1f50fb4545be

Royalty adjustments get industry thumbs-down

Tories take another stab at overhaul
Shaun Polczer and Jon Harding, Calgary Herald
Published: Friday, April 11, 2008

The Alberta government on Thursday tried to make good on fixing the "unintended consequences" of its proposed royalty scheme by offering incentives for industry to drill deeper oil and gas wells, but the complex new incentives were widely panned by the oilpatch.

Energy Minister Mel Knight was in Calgary to announce two new sets of royalty breaks he said would correct an imbalance in the framework unveiled last October, which the oilpatch complained would render some types of oil and gas reserves uneconomic to produce, potentially causing a loss of industry activity, jobs and, in turn, royalty revenue to the government.

"Today we make good on that promise," Knight told reporters. "This government is not willing to accept that risk to Albertans' jobs and livelihoods. . . . Resource wells that are not drilled do not generate royalty and do not benefit Albertans."

Specifically, the government said it would provide royalty "adjustments" on oil exploration wells deeper than 2,000 metres to offset higher costs and encourage development of deeper reserves.

The second program will grant a sliding scale of royalty credits for gas wells drilled deeper than 2,500 metres.

Although deep gas wells represent less than five per cent of the wells drilled in Alberta, they account for nearly a third of the province's gas production, generating about 60 per cent of its royalty revenue.

The expected cost of the program is $200 million a year for the next five years. However, Knight said the programs would encourage investment that might not otherwise occur and would generate $1.5 billion in additional revenues over the next 10 years -- for a net benefit of $510 million after adjusting for the cost of the credits.

Despite the incentives, Knight said the new royalty structure would "meet or exceed" the stated revenue target of $1.4 billion per year.

Knight further stated there would be no additional concessions to industry. "On the issue of unintended consequences, this is it."

But Gary Leach, president of the Small Explorers and Producers Association of Canada, said the royalty holidays would benefit only a handful of large oil companies.

The group had previously lobbied the government to set the depth cutoffs at 1,200 metres for oil wells and 1,000 metres for gas.

Because junior oil companies drill the largest component of exploration wells, he predicted the number of exploration wells in Alberta -- currently at decade lows -- would slump further.

"It wasn't nearly what we had hoped for. Overall we're disappointed," he said. "It (the change) affects a very small number of wells drilled by a very small number of large companies."

Martin Pelletier, and analyst at Blackmont Capital Inc., said the financial community was expecting better and he predicted capital will continue to take flight from Alberta to more economic oil and gas plays in Saskatchewan and British Columbia.

"The competition for capital goes to where the strongest economics are," Pelletier said. "I'm not sure the government of Alberta realizes that."

Knight denied the royalty changes have eroded Alberta's competitiveness.

Coincidentally, Saskatchewan posted a record land sale Thursday, with oil companies investing $265 million for exploration rights largely based in the Bakken light oil play in the province's southeast corner.

Dollars spent on Saskatchewan's most recent sale bettered proceeds collected all last year in that province, while gains recouped from Alberta land sales have plummeted.

Jonathan Lexier, president and chief executive of Highpine Oil & Gas Ltd., a light oil producer with operations in west-central Alberta's prolific Pembina-Nisku play, said an issue around the timing of when the new royalty structure, and the new breaks, would apply to recently drilled wells was not addressed.

Highpine stood to be among the most adversely impacted companies by the new royalty framework.

"The minister said it applies to wells drilled today. Does that mean wells spudded today, rig-released today or licensed today? Those are the nuances that we need to be aware of," Lexier said.

"On the positive side, they have finally provided some clarity," he said, adding Highpine will need to spend days "or even weeks" matching the royalty programs to its drilling inventory to tally the impact.

Crescent Point Energy Trust issued a news release last fall saying the company -- which owns some assets in Alberta but is mostly based in Saskatchewan -- would spend all of its capital in Saskatchewan in light of the proposed royalty changes. CEO Scott Saxberg said the strategy will not soon change.

"It's still unbelievable to me how all of this has shaken out," he said. "All Alberta has done is push off the development of their reserves by four, five or 10 years."

The province also said its natural gas royalty calculation will be based on the sum of vertical drill depth and all lateral wells, which would encourage greater development of coal bed methane using laterals.

The measure could significantly lessen the environmental footprint of coal bed methane development, the government said.

spolczer@theherald.canwest.com

jharding@theherald.canwest.com

- - -

Deep Natural Gas

- To encourage continued deep-gas exploration, the government will replace the existing Royalty Adjustment Program with the Natural Gas Deep Drilling Program for wells deeper than 2,500 metres.

- Wells over 2,500 metres represented five per cent of natural gas wells drilled and 27 per cent of natural gas production between 2002 and 2007.

- The Natural Gas Deep Drilling Program will provide greater benefits for deeper wells, creating a sliding scale of royalty credit according to depth, up to $3,750 per metre.

- The expected cost of the program is approximately $200 million a year for five years. This investment is anticipated to encourage development that may otherwise not occur, and is expected to generate $1.51 billion in royalties over the next 10 years -- a net benefit of $510 million in royalties.

Source: Alberta Energy

Deep Oil Wells

- A five-year oil program for exploration wells over 2,000 metres will provide royalty adjustments to offset higher drilling costs and provide greater incentive for producers to continue to pursue deeper oil plays.

- Wells deeper than 2,000 metres represented 20 per cent of oil wells drilled and 26 per cent of new conventional oil production between 2002 and 2007.

- Wells will qualify for up to $1 million or 12 months of royalty offsets, whichever comes first.

- The expected cost of the program is approximately $37 million a year for five years. This investment is anticipated to encourage development that may otherwise not occur, and is expected to generate $505 million over the next 10 years -- a net benefit of $320 million in royalties.

Other Clarifications

- Under the new royalty framework, four par prices instead of two will be used to calculate royalties on oil, allowing royalties to be charged at a price closer to that received by the producer.

- Natural gas royalties will be calculated based on the sum of vertical drill depth and all laterals, encouraging greater development of coal bed methane. Greater use of laterals may significantly lessen land use and the environmental footprint of CBM development.

Source: Alberta Energy


© The Calgary Herald 2008

[NumberFive]

Recent land sales numbers I heard... these are ballpark numbers...

Saskatchewan - over $400 million brough in
BC - over $250 brought in
Alberta - around $150 brought in

[Greco Roman]

Recent land sales numbers I heard... these are ballpark numbers...

Saskatchewan - over $400 million brough in
BC - over $250 brought in
Alberta - around $150 brought in

Sorry, just for my own clarification.

Are you talking about land sales from the oil and gas industry, or land sales in general?

[NumberFive]

Sorry, just for my own clarification.

Are you talking about land sales from the oil and gas industry, or land sales in general?

Oil and Gas land sales... mineral rights... (as opposed to surface rights)

[Danma]

What's the big deal? The oil's still in the ground, and the price of a barrel isn't exactly dropping... it just means it'll take an extra 50 years to completely rape and pillage northern alberta. :D

It's also healthy for our economy to see BC and Sask start developing too. Their land prices will rise and their workers will have more money and things will equalize a little, which isn't a bad thing to happen.

[rrskylar]

????? You mean not all Albertan`s have been brainwashed by the notion that royalties are too high. With oil nearing $120. per barrel leaving some of it in the ground is not such a bad thing!

[psych1]

Now that Sask and BC are raking in the dough from oil, hopefully this will help dispel the "we're only better off than them because of the oil" argument.

Or maybe you will cease to be better off than them (us), in which case the argument that oil did it, is even stronger!;)

[lubicon]

????? You mean not all Albertan`s have been brainwashed by the notion that royalties are too high. With oil nearing $120. per barrel leaving some of it in the ground is not such a bad thing!

It's not oil royalties that are the big problem right now, it's gas royalties. With about 70% of conventional drilling focused on gas this is where the big impact currently is. The higher royalties for gas mean that is is likely more expensive to drill and produce tha gas than the energy companies can get for it. That is why you have seen such a large drop in drilling activity over the past 1 to 1 1/2 years, and that is where the majority of job losses have been. Shallow gas in particular has been hammered very hard.

Gas prices have risen slightly recently though so you might see a pickup in activity.

[ScottFromCalgary]

Further shift away from Alberta:


B.C. land rights sale hits a record
NORVAL SCOTT AND WENDY STUECK

From Friday's Globe and Mail

May 22, 2008 at 8:59 PM EDT

CALGARY AND VANCOUVER — British Columbia sold a record $441-million in land rights to energy companies at its monthly auction, reflecting the explosion windfall in the province's oil and gas industry and a growing shift away from Alberta.

Sky-high natural gas prices and technological advances have made B.C.'s vast unconventional gas plays, such as the red-hot Montney and Horn River fields in the province's northeast, increasingly attractive for producers in the wake of Alberta's decision last year to increase its royalty rates beginning in 2009.

Over the last 12 months, natural gas futures have increased by 45 per cent to close Thursday on the New York Mercantile Exchange at $11.63 per million British thermal units, up from nearly $8. Higher demand and colder weather triggered the run-up in prices.

B.C. has now raised $824-million in sales of explorations rights so far this year, putting it on course to break its previous full-year total of just over $1-billion. That's more than double the $352-million Alberta – the country's traditional energy capital – has made through oil, gas and oil sands lease sales in 2008.

“There's a lot of stars lining up right now … gas prices, the developing size and scope of this [Montney] play,” said Gregg Scott, president of Calgary-based land broker Scott Land & Lease Ltd. “More and more companies are shifting their attention to B.C.”

The May sale of drilling licences and leases in B.C. smashed the previous monthly best of $418-million, set in September, 2003.

In Fort St. John, the hub of drilling activity in northeastern B.C., a new mall is under construction and big-box retailers are moving in.

Housing prices in the city of about 17,000 have risen significantly, and the service sector is ramping up for an expected boom in winter activity, said Andy Ackerman, president of the Fort St. John and District Chamber of Commerce

“It affects everything, from trucking to catering and all the way through – there's a huge spinoff for all the businesses in the town,” he said.

Now, the biggest problem is labour, he said, especially finding skilled tradespeople.

“McDonald's is hiring kids at $11.75 an hour, and trying to hang on to administrative staff is extremely difficult,” he said. “It's a major issue for us.”

In Alberta, drilling activity remains active, but many companies are looking elsewhere. During its 2004-06 boom years, Alberta saw billions of dollars flood into the provincial treasury, peaking in 2006 with a stunning $3.4-billion paid to scoop up fast-disappearing exploration territory, especially in the oil sands.

However, the province's best rights have now been sold off. Consequently, the best new prospects are in B.C.'s unconventional gas fields and even in Saskatchewan, whose $463-million worth of land sales so far this year, have also outstripped Alberta's.

The majority of attention in Thursday's sale was focused on the Montney field, which is estimated to hold as much as 50 trillion cubic feet of gas, more than all of Alberta's proven reserves of 41 trillion cubic feet. While the gas is in tight shale rock formations and is difficult and expensive to extract, new technologies have made the gas field far more viable.

Companies already active in the area, who may have been part of the sale, include EnCana Corp., Duvernay Oil Corp., ARC Energy Trust and Talisman Energy Inc.

In Fort Nelson, the locals are gearing up. “The coffee shop talk this morning is, ‘look out, it's going to be busy this winter,'” said Wayne Robertson, a dispatcher with Fort Nelson-based KOS Oilfield Transportation, which moves drilling rigs to remote sites.

The biggest finds in the region are still in the very early stages of development. But, said Mr. Robertson, “we're very optimistic.”

With a file from reporter David Ebner in Calgary

http://www.theglobeandmail.com/servlet/story/RTGAM.20080522.wbc-gas23/BNStory/energy/home

[northwest2k]

Thats great to hear that BC is setting records in land leasing (cuz I live in BC :D )

But does BC actually have any companies doing the exploration/extraction?? Or are we just whoring out our land to foreign companies. Thats why I respect Alberta so much. They have their own companies doing the exploration/extraction/refining. And all the oil and gas companies that are based there have head offices. Which contribute to more office jobs (and more office buildings meaning a bigger skyline :D )

[lubicon]

Thats great to hear that BC is setting records in land leasing (cuz I live in BC :D )

But does BC actually have any companies doing the exploration/extraction?? Or are we just whoring out our land to foreign companies. Thats why I respect Alberta so much. They have their own companies doing the exploration/extraction/refining. And all the oil and gas companies that are based there have head offices. Which contribute to more office jobs (and more office buildings meaning a bigger skyline :D )

If you define Alberta as foreign then the answer is yes. All the companies engaged in exploration in BC would have either their head offices or their Canadian offices in Calgary. Most of the big service firms would be the same. However a lot of the smaller services (welders, bit sales etc) would be based out of FSJ and Ft Nelson so there is a lot of money going into the local economy.

[lubicon]

Fri, August 8, 2008

Alberta drilling set to drop
UPDATED: 2008-08-08 01:56:00 MST


Oilpatch exec says softening gas prices plus increased royalties will give projects a tough go

By MARKUS ERMISCH, SUN MEDIA


Natural gas drilling in Alberta will continue declining next year as lower gas prices and higher royalties are luring the industry to shift investment into the more lucrative search for oil, a senior oilpatch executive said yesterday.

While reporting second quarter results, Steve Laut, chief operating officer for Canadian Natural Resources Ltd., also said his company was forced yet again to funnel more cash into its massive Horizon oilsands project.

"We are concerned that we'll see further softening of gas prices," Laut said in a conference call with investment analysts.

"Particularly in 2009 in Alberta, with the increased royalty regime, Alberta gas projects will have a very, very difficult time, and I think you'll see the gas drilling in Alberta decline markedly in the industry in Canada."

The Petroleum Services Association of Canada predicts that total drilling in Alberta, including oil wells, will decrease by 15% from 2007 levels this year.




Natural gas prices have rebounded for much of this year but have slid from highs near $13 per thousand cubic feet to now trade below $9.

Oil prices, although down almost $30 a barrel from a record set early last month, is still trading at near $120 a barrel, well above last year's average price of $72 a barrel.

But despite recent drops, oil and gas prices were strong this spring and have left Canadian Natural coffers flush with cash. Although the company reported a net loss of $347 million over last year due to a one-time loss on risk management activities, cash flow in the second quarter increased to $1.86 billion, up from $1.51 billion a year ago.

Much of the recent cash flow was used to pay for the Horizon oilsands mine, which is now expected to cost $9.27 billion, 8% higher than an earlier estimate of $8.7 billion.

Laut said cost escalations, caused largely by the labour crunch, have "had a more significant impact on cost increases than even we would have anticipated."

Once Horizon starts operating later this year, the company, starting in 2009, plans to use some of the freed up cash flow to pay down debt.

Canadian Natural also revealed yesterday it has inked an agreement with TransCanada Corp. to ship heavy crude oil from Alberta to the Texas Gulf Coast once TransCanada completes its Keystone pipeline in 2012.

Board chairman Allan Markin said Canadian Natural has also entered into a supply agreement with a "major" unspecified Gulf Coast refiner.

"It's a simple and cost-effective strategy to unlock the value of a barrel of heavy crude oil and reduce the volatility historically experienced in the heavy crude oil market," he said.

[jawagord]

Dave Yager, Calgary Herald
Published: Sunday, September 07, 2008

......To achieve a multi-billion dollar number necessary to mollify public expectations created by the panel, the province introduced much higher royalties for conventional oil and natural gas. Alberta is a mature and marginal basin. No "massive" resource remains. Supporting this business is the economic engine of most small towns in Alberta. The rules under which every Alberta petroleum dollar was ever invested were torn up. This was "political stability?" Today's relations between the government and its major industry are polite out of necessity. But the oilpatch has little confidence the province fully understands what it has done. To

Edmonton, things still look good. Majority government. Huge surpluses. Lots of jobs.

To us oil guys, it's much different. Natural gas prices are soft because of surprising increases in U.S. production. Chaotic capital markets make raising
money difficult. International investor confidence in Alberta is damaged. Skyrocketing oil prices have dented worldwide demand. Money, equipment
and manpower are leaving Alberta en masse. Virtually every drilling rig in the world is working while hundreds in our province aren't. House prices and
housing starts are falling. Only in Alberta is gas production -- the major royalty contributor -- declining fast.
David Yager is a Calgary oil service executive.

http://www.canada.com/calgaryherald/news/theeditorialpage/story.html?id=280ea070-a1fe-4820-bd64-2cc6fa600d82&p=2

[Sir.Humphrey.Appleby]

^ Gas production is falling because we have exploited most if not all of our conventional reserves and finding usable water to exploit non-traditional reserves is getting harder and harder.

Using a royalty argument to explain a geologic problem is pretty stupid. If other places can supply the gas for a lower marginal cost then the exploration should go to them. Shale gas was uneconomic just 5 years ago, and now there is a potential glut of gas on the gulf coast and incredible amount of production in NE BC and Sask.

The real economic growth doesn't come from gas exploration and drilling at this phase of our reserves, but in petrochemicals and selling our knowledge of how to exploit gas. Now if the Alliance Pipeline wasn't allowed to ship gas without passing first through straddle plants, maybe we would have experienced more manufacturing (ie: not boom bust) development. Hopefully we will be able to direct the Alaska Gas through the straddle plants when the pipeline comes online (since it feeds into the TCPL Alberta Collector system).

[jawagord]

^ Gas production is falling because we have exploited most if not all of our conventional reserves and finding usable water to exploit non-traditional reserves is getting harder and harder.

Using a royalty argument to explain a geologic problem is pretty stupid. If other places can supply the gas for a lower marginal cost then the exploration should go to them. Shale gas was uneconomic just 5 years ago, and now there is a potential glut of gas on the gulf coast and incredible amount of production in NE BC and Sask.

The real economic growth doesn't come from gas exploration and drilling at this phase of our reserves, but in petrochemicals and selling our knowledge of how to exploit gas. Now if the Alliance Pipeline wasn't allowed to ship gas without passing first through straddle plants, maybe we would have experienced more manufacturing (ie: not boom bust) development. Hopefully we will be able to direct the Alaska Gas through the straddle plants when the pipeline comes online (since it feeds into the TCPL Alberta Collector system).

Not in the oil and gas business are you Kyle? FYI - you don't use water to produce natural gas, it is used in oil production, water tends to kill gas wells. Alberta has had a mature gas industry for years, but generally managed to slightly increase production by drilling new wells and using new technology, now the economics for doing that have been changed and the industry is stampeding to other provinces where by the oddest coincidence royalty rates are not being increased. To paraphrase Bill Clinton's old campagin slogan, "It's the royalties, Stupid"!

[Sir.Humphrey.Appleby]

[Edit: DP

[Sir.Humphrey.Appleby]

Not in the oil and gas business are you Kyle? FYI - you don't use water to produce natural gas, it is used in oil production, water tends to kill gas wells. Alberta has had a mature gas industry for years, but generally managed to slightly increase production by drilling new wells and using new technology, now the economics for doing that have been changed and the industry is stampeding to other provinces where by the oddest coincidence royalty rates are not being increased. To paraphrase Bill Clinton's old campagin slogan, "It's the royalties, Stupid"!

Alberta has had 10 years of reserves in the ground for the last ten years (every year we were able to roughly replace what we had taken out). You do that for long enough, and there is a point where technology and all the money in the world can't deliver anymore. Especially when new tight gas that has lower marginal exploration and production cost all over the continent is being brought on line and you have a confluence of events that will lead to reduced gas production. It isn't like this hasn't been predicted in modeling, as early as 2003 the government had major dropout in gas royalties by the end of the decade. One of the reasons Stelmach fuddled with the oilsands royalties was to make up for the sudden drop in gas royalties most experts predicted was coming.

The economics changed much more due to forces outside of the governments control, rather than the royalties. Correlation is not causation. The woe is me arguments from the gas sector while gas trades around its upper range is rather tiresome.

[lubicon]

Gas drilling, especially shallow gas drilling, is way off due to uncertainty over the new royalty rates scheduled to kick in next year. The fact that practically every area in the world is drilling for gas and we are not should be a very worrisome sign. You can pin most of that on the new royalty regime.

[Sir.Humphrey.Appleby]

Gas drilling, especially shallow gas drilling, is way off due to uncertainty over the new royalty rates scheduled to kick in next year. The fact that practically every area in the world is drilling for gas and we are not should be a very worrisome sign. You can pin most of that on the new royalty regime.

It seems the problems are not the rates themselves, but the uncertainty caused by the poor implementation, and an unclear plan. Still, it is rather unrealistic that we could maintain the production levels of the past, when the amount of gas tapped per new well has been dropping over time (ie, tapping smaller and smaller pockets). At some point, no matter whether it is technically feasible or not, it doesn't make sense to go after the increasingly small pools.

[lubicon]

It seems the problems are not the rates themselves, but the uncertainty caused by the poor implementation, and an unclear plan. Still, it is rather unrealistic that we could maintain the production levels of the past, when the amount of gas tapped per new well has been dropping over time (ie, tapping smaller and smaller pockets). At some point, no matter whether it is technically feasible or not, it doesn't make sense to go after the increasingly small pools.

But it DOES make sense, if there is an economic incentive to do so. And the new royalty rates are a disinsentive to do this.

[jawagord]

Alberta's royalty change 'the most disastrous economic decision' ever made: Gobert
http://www.calgaryherald.com/Business/Alberta+royalty+change+most+disastrous+economic+decision+ever+made+Gobert/1402495/story.html

The Alberta government needs to admit it made a mistake when it implemented higher oil and gas royalties on Jan. 1 and try to repair the damage it has caused, says Wilf Gobert, new chairman of Calgary Economic Development.

But it won’t do that, the former investment banker said in a morning speech Wednesday, because of poor advice from a less-talented bureaucracy and a prevalent suspicion in the Edmonton-based government of any suggestions originating with the Calgary oilpatch elite.

The result, he said, will be continuing erosion of provincial royalties and more deficits in a province where they were once illegal.

Natural gas production in Alberta has been in steady decline since 2000. The government’s annual royalty income from natural gas — which accounts for about 70 per cent of non-oilsands oilfield activity and royalties — reached a high in 2005 and was down in 2006 and 2007, Gobert said.

“From a policy standpoint, you would think the government would say, ‘We need to encourage this industry,’” he said. “Instead what we had was, ‘We’re not getting our fair share.’

“I think it will be shown in the future, looking back historically, this was the most disastrous economic decision the province has ever made,” said Gobert.

“Eighteen months after it was suggested by the royalty panel, there still is a sense in the industry and financial community that the government doesn’t get it.

“It begins, unfortunately, in the bureaucracy, which I believe has been dramatically weakened in terms of its talent over the past 10 years and as a result is making bad policy recommendations to the politicians.”

He added Alberta’s ruling Tories “don’t have enough experience” to know that they are being fed bad ideas and that the three adjustments made to the royalty scheme in the past year haven’t helped restore confidence or stability.

Alberta Energy Minister Mel Knight defended his staff in comments at the legislature in Edmonton.

“Most certainly I would tell you that all staff here and anywhere in Alberta and anywhere in the world and stack up our bureaucracy that deals with the royalty issue against anybody’s civil service anywhere,” said Knight.

Tristone Capital Inc. analyst Chris Theal said he agrees that provincial bureaucrats lack talent.


“It’s quite apparent through the number of iterations we’ve gone through on the royalty framework,” he said.

“You go right back to the start in late 2007 when they posted the formulas. We went through it in one night. You have a matrix of rate and gas prices, you go halfway down the matrix and nothing was economic. They didn’t have the — call it what you want — the brainpower, the horsepower, the modelling power to litmus test their royalty framework.”

He said the patches the government has added to its royalty scheme have made it too complex for either the industry or the government staff who have to enforce it.

Gobert, a former Peters & Co. vice-chairman appointed to chair economic development in December, said the government also didn’t take into account what would happen to the sale of oil and gas drilling rights, which have collapsed over the past year, when considering its royalty changes.

The province’s latest land auction, a key indicator of future drilling plans, took place Wednesday afternoon and raised just $2.9 million via the sale of 25,000 hectares. The year-to-date total after five sales is $54 million, the lowest since at least 1996 (as far back as there are statistics on the Alberta Energy website).

In 2008, the provnce had raised $126 million after five sales; in 2006, it had collected $670 million on the way to a record $1.47 billion from conventional oil and gas drilling rights for the year.

In an interview, Gobert said he hopes that a panel unveilled last month and charged with reviewing Alberta’s competitiveness will be able to come up with answers to turn things around.

“What they should be doing is saying we made mistakes and we need to fix it,” he said.

The panel is made up of Energy and Finance department officials, the province’s energy regulator and two industry lobby groups, the Canadian Association of Petroleum Producers and the Small Explorers and Producers Association of Canada.

SEPAC executive director Gary Leach said Wednesday the panel hasn’t met yet to established structure and pinpoint issues but hopes to begin meeting in April and have some answers by the fall.

“Royalties may well be part of the conversation,” he said, adding his group welcomed the recent drilling incentive program but is concerned that it will only be in place for a year.

Leach attended the Gobert speech but declined comment on the relative talent of Alberta bureaucrats.

In a research report earlier this week, investment bank UBS said Canadian natural gas production has fallen in March from the previous month, although March is typically the start of an upturn in production due to drilling activity that normally peaks in January and February.

It attributed the drop to a poor winter drilling program.

Peters & Co. Ltd. has predicted just 10,000 wells will be drilled in the Western Canadian Sedimentary Basin this year, a 10-year low.

[fortroad]

Does anyone think we will go back to 1 cent on the dollar?

[Coldrsx]

this whole topic is BS... we have such a relatively low royalty % is it ridiculous.

[lubicon]

this whole topic is BS... we have such a relatively low royalty % is it ridiculous.

Hardly. Add in the expense of doing business in Canada / Alberta and total extraction costs are among the highest in the world.

Another big issue is Alberta's continual tinkering with the royalty rates. last year they announced the new rates and insisted that they were going through - no exceptions or changes. Then last fall after billions of dollars left the province in lost exploration they decided to change it again with a 'new' lower royalty regime for certain types of wells. Then the whole economy melted down and they cnnounce yet another 'new & temporary' change a few weeks ago. Producers can't plan aheaad anymore because the province is continually changing the rules at their whim.

This whole royalty review was a huge mistake that should never have been carried through. It's cost the province way more money than anyone had thought.

[Coldrsx]

^i agree about the back and forth but the absolute royalty rate is still low... we can blame other factors for the rest of the costs, like unions.

[240glt]

^ THe industry can have blame themselves for a lot of that as well.

[lubicon]

^i agree about the back and forth but the absolute royalty rate is still low... we can blame other factors for the rest of the costs, like unions.

Outside some of the construction unions that are responsible for a lot of the work in the oilsands sector, very little of the oilpatch is unionized. Especially in the conventional O&G sector.

[mooky]

How about blaming unchecked capitalistic need for greed by the wealthy 2% of the population that own the stocks of the oil companies (or any stock for that matter)? The idea that infinite growth (whether money, population, etc) can continue unabated forever is a flawed concept.

My personal philosphy is that corporations exist to serve the people in a society, not the other way round. The last go-round of boom before the so-called "bust" the world is now in is proof that greed unchecked by some sort of social conscience is envietably bad and self-destructive, just like communism.

Corporate-personhood has lead to the consolidation of wealth among a few wealthy elite who use the "rights of the coporation" to trump the rights of the public through legislation and monetary influence of those making the legislation - giving way to the idea that greed, above all else, is good. In the end, corporations wield so much power that the little people, the middle class, built on the backs of the labour movement is destroyed. After that what you have left is an oligarchy of a small elite, a small middle class, and a huge poverty ridden "slave labour" class. Unions are not the enemy. I argue the middle class today is dying and is living on borrowed time and money with no real wealth behind them as a whole, it's all an illusion.

Free trade was a bad deal, it tore apart the manufacturing base of most developed nations, with some exceptions to certain industries all manufacturing has been outsourced to cheap-labour countries. Fair trade is fine on individually negotiated products and goods between parties, but free-trade as a blanket policy was again influenced by the rich wanting to get richer. You now have that $5 Walmart t-shirt, but at what cost to the greater economy of your country? Good paying manufacturing jobs are replaced with a retail/service job to sell those shirts, paying a lot lower wage in the process. Everything has a cost.

What does all this have to do with royalty rates? It's all just symptoms of the bigger-picture problem I outlined above.

But hey, I'm just a guy, and thats just my $0.02

[freeweed]

Good paying manufacturing jobs are replaced with a retail/service job to sell those shirts, paying a lot lower wage in the process. Everything has a cost.

You know, the rest of your rant is typical and not worth commenting on, but I'm amazed anyone still trots out this old chestnut. We already dealt with a round of this when automation really kicked into full gear, and everyone came out better off.

The fact is, the standard of living for just about every single person in an industrialized country has risen in direct correlation to manufacturing jobs being replaced. I know we still all want to harbour the memories of some idyllic 1950s utopia where our parents all went off to fun, cushy factory jobs and came home to new cars and a beautiful family - but that just wasn't the case.

This manufacturing vs retail job thing is a completely false dichotomy. You might want to read up a little on what people *actually* do to earn money these days (hint: we didn't take millions of factory employees and make them work at Wal-Mart).

PS: yes, the middle class AS YOU KNOW IT is evaporating - it's being replaced with a majority of people in our society living a lifestyle that only the upper classes used to be able to afford. Ask yourself how many factory worker families in 1965 had colour TV (and several thereof), 2-3 cars in the driveway, and could afford to take an annual vacation to somewhere tropical. Plus a thousand other luxury items that used to be reserved for the ultra-wealthy.

[mooky]

but how do we afford it? I know lots of poeple in debt up to there eyeballs. Taking that vacation or paying for those Christmas gifts on your VISA does not make you rich.

Lots of poeple have said we live beyond our means as a society. Consumerism on credit cannot last forever. The US Fed is printing money out of thin air, why and how are they doing this, and how will it end... for that scary thought, I suggest you watch zeitgeist the movie, and then the second part "adedndum." Google video has them.

We need to step back and look at what we've become objectively. Manufacturing is the backbone, who has the welth and growth today, China.

A nation of consumers contributes little or nothing of value in real terms.

In the end this all is a question with a great divide in people's positions. I suggest before you discount my position, look at the gaps between the rich and poor and how much they are widening, not just here, not just the US, but around the world. It is no accident the rish are in fact getting richer... legislative policies favour them.

[freeweed]

look at the gaps between the rich and poor and how much they are widening, not just here, not just the US, but around the world. It is no accident the rish are in fact getting richer... legislative policies favour them.

And I simply suggest that the gap itself is irrelevant, unless you're the jealous type.

If everyone you work with got a 20% raise, but one guy got a 30% raise, you (and most of your co-workers) are still all better off. Yes, there's someone "more better" off - but that doesn't change the fact that things have materially improved for you, all other things being equal.

The rich getting richer does not in and of itself indicate a problem. If everyone else has to get poorer (in an absolute sense), then there's a problem. The 20th century (and so far the 21st) are showing pretty clear signs that this isn't happening. It's only the gap that's widening.

PS: most people I know aren't using debt to finance their vacations and cars. Does my anecdote trump yours? Maybe our perspectives say more about who we know personally than any great insight into society's future. All we can do is look at the bigger picture, and the numbers constituting that - and beyond this year's aberration, things are looking pretty rosy (for the majority) compared to any other time in history.