Thursday, September 27, 2007

The Alberta Royalty Review Panel Report

Mr. Harry Chase,

I am a voter in your constituency and I am writing to you regarding the recent report from the Alberta Royalty Review Panel. I was surprised by the magnitude and character of the recommendations, given the factors that have contributed to the success of our economy and the lessons we have learned observing the impact of regime changes in other oil-rich centers. I believe that implementing the changes outlined in the report could have devastating consequences to the Alberta economy.

I was born and raised in Calgary, studied finance and economics at the University of Calgary and have pursued a career in oil and gas related finance in this city. This is a truly extraordinary place to live and I feel very fortunate to have had the opportunity to pursue my academic and professional ambitions while staying close to my family. I like living and working here and would like to see the province continue to prosper.

During my 30 years in this province and through my academic and professional endeavors, I have come to appreciate that one of the key reasons that the province has enjoyed such prosperity is the Alberta Advantage – specifically, being a business-friendly province committed to responsible regulation. Our low overall tax burden and business-friendly environment has encouraged investment to flow in to the province. This, combined with a period of unusually strong commodity prices, has resulted in an incredible amount of investment in the sector and a robust economy that has benefited ALL Albertans, not just those that work or invest in the oil sector. To say that Albertans are not getting their ‘fair share’ is, in my view, inaccurate and misinformed.

Looking to the report put forward by the Alberta Royalty Review Panel, there are some glaring shortfalls in the analysis that grossly misrepresent the impact that such changes would have on government revenue. The most significant of these shortfalls is the failure to recognize the impact of higher royalties on investment in the sector. One cannot look at this as an academic exercise; there are practical implications that need to be considered. The report offers an illustration of the expected provincial revenue under the existing regime and compares it with the expected provincial revenue under the new regime, giving no consideration to the impact that the new regime will have on investment and, therefore, oil and gas production.

The analysis is incomplete and blatantly misleading.

Raising royalty rates lowers returns for investors in oil and gas. If we change the fiscal regime in a direction that lowers the returns to investors, it can be expected that investment in the sector will decrease. This is a basic principle of finance. Alberta is not the only place to find oil and gas – investors can and will go elsewhere.

Investment is an important part of the equation because oil and gas is a capital intensive business that requires continued investment in order to sustain production. That is, without investment, production will decline. If production declines enough, provincial revenue from royalties will decline – even at a higher royalty rate. If production is 40% lower, it doesn’t matter if royalties are 20% higher, the overall pie is smaller. Albertans lose.

Extracting oil and gas from the Western Canadian Sedimentary Basin is already marginally economic in a global context because i) the cost to find oil and gas in Canada is among the highest in the world, ii) the cost to produce oil and gas is high relative to other regions, and iii) Canada has a high overall tax burden (low royalties help offset our overall high tax burden, 11th in the world, and many places with higher royalties have lower corporate taxes such that the aggregate burden is lower). However, we are still able to attract investment at this time because i) Canada is perceived as relatively stable from a political and economic standpoint (as such, investors are willing to accept lower rates of return), and ii) continued strength in commodity prices has created an environment that supports development of our resources. With respect to my first point, if we proceed to change the royalty regime, it will be the SECOND major signal in less than a year that this is NOT a stable investment environment. We are sending the signal that we are not open for business and the expected consequence will be reduced investment in the sector going forward. In terms of the role that commodity prices have played on investment interest in Canada, we need to remember that this is a cyclical business. Squeezing the economics will impact both the decision to invest here and the decision to stay here. If a new regime is implemented that leads to a higher ‘break-even’ commodity price environment, it is reasonable to expect that capital investment will not only stall, but will flow out of the sector. This is not good for Albertans.

We can observe by example the impact that regime changes have on investment behavior. Jurisdictions that have attempted to re-trade investors include Venezuela, Ecuador, Nigeria, Algeria and Russia, to name a few. The result has been an exodus of capital investment from these jurisdictions. Oilfield activity in these areas continues in large part because of strong commodity prices; however, it is at a slower pace and the negative impact on the oil and gas sectors and the economies in these regions when capital investment flees is clear. When capital investment declines, it means companies are spending less money oilfield activity. This means less work for oil and gas sector workers; in some cases, layoffs. In Alberta, it also means less money for many farmers, many of whom rely on supplementary income from leasing out their land to oil and gas companies. This trickles through the economy as these groups spend less on goods and services. Carpenters, framers, electricians, painters, waiters/waitresses, cooks, salespeople, realtors – people that live in your riding will be negatively impacted. As people leave the province for better opportunities, the need for teachers, doctors, nurses, and other public service providers will decrease. The changes proposed in the report will not benefit Albertans.

Beyond considering the economic consequences of the changes proposed in the report, I think we should also reflect on the way this would impact how the province is perceived externally. It was not too long ago that Albertans received prosperity cheques from the provincial government. Besides being a colossal waste of money from an administrative point of view and poorly implemented, the rebate cheque program was a clear message from the province that it had more money than it knew how to effectively allocate. How does it look to turn around now and say we need a bigger cut? Alberta’s reputation as a credible business center is on the line.

I sincerely hope the Alberta government will thoughtfully consider the consequences of any changes to the royalty regime. I believe the changes outlined in the report will have devastating consequences for the Alberta economy. This affects the people living in your riding and I urge you to fiercely defend our interests.


Tori Fahey

Monday, September 24, 2007

Verbal Abuse Part Two

Following up on my initial rant, here are a few more abuses that I feel compelled to report.

1. Thxs. Part of me questions how grateful one really is if they can't even spell out the word, but I admit to using 'thx' more often than I should, so that's not my point. I appreciate that X has a big job playing substitute for four letters, but the S brings nothing to the table.

2. Three times less. Take some math lessons.

3. Risk adverse. It's risk averse. Averse = reluctant, opposed to. Adverse = moving or working in an opposite or contrary direction. There is some similarity, but they are not the same.

...which brings me to my next point...

4. Same difference. That doesn't even make sense. When I've called people on it, the common response is that it is an idiom. Isn't it funny how close the word idiom is to the word idiot? I'm just sayin...

5. Expresso. The word is espresso.

6. Good progress. Isn't progress inherently good? I'm waging a war on superfluous adjectives.

Friday, September 14, 2007

Cycling Lingo 101

giv * er * a * tor [giv-uh-rey-ter]

An energy storage device used to propel a bicycle. It is capable of releasing significant quantities of kinetic energy. Its performance is measured on a scale of 1-10. The giverator can be charged under the following equation:

E=mc2, where:
e = energy
m = motivation
c = carbohydrates and/or caffeine

Conversely, the ‘giverator’ can be weakened when large amounts of work are performed in the office.

The giverator emits electromagnetic waves that can magnify or impede the performance of other giverators. For example: in a grouping of individuals with ‘giverators’, one individuals discussion or demonstration of his/her giverator can enhance or detract the performance of other ‘giverators’ in the group. While one may boast about the size and performance of his/her ‘giverator’ in the parking lot before the ride, an accurate measurement can only be taken during the ride.

Variations of the Giverator
  • Extraordinary performance can be generated when the giverator is fueled by substances such as EPO and other peoples hemoglobin. This has often been referred to as the 'cheatergiver’.
  • The giverator can be pushed past 10 for short periods of time, at which point it becomes the 'overgiver'. Warning: Extended use of the overgiver can result in a damaged or blown giverator.
  • Running the giverator at or below 7 can enable the operator to divert energy toward flower smelling and amusing conversation. When the latter dominates, it is commonly known as the 'giggleator'.

Source: Deadgoat Forum. Special acknowledgements to Ed, Tim, Stappy, Devin, and Steve.

Sunday, September 9, 2007

How to find 7,000 feet of vertical in Saskatchewan

After dinner, we headed to Moose Jaw. It was a 45 minute drive away, but we could see it the moment we were out of Regina. This place is flat. FLAT. Like, really, really flat. And we came all of the way here for a mountain bike race?

We stayed in a house that was built in 1908 and operates as a b&b now. Clean, comfortable, reasonably priced, friendly Saskatchewan hospitality and a funny lookin' little basset hound named Jenny to play with. Sure beats the Super 8.

The venue for the XC8 bike race was Buffalo Pound Park, which is just north of Moose Jaw. As we drove there, I was still confused about how there could be a mountain bike race hosted here. And then, there it was, a valley.

The race format was an 8 hour enduro, which means that riders see how many laps they can do of a prescribed circuit (which, in this case was 8.75 km) within that time frame. Eight hours is kind of intimidating when you are just getting started. Thoughts such as '10 minutes down, 470 to go' are not particularly productive, but inevitably enter your head. Fortunately, the circuit format offers more palatable bite sizes (45-60 minutes per lap) to focus on. As well, the practically non-stop singletrack prevents your thoughts from diverting away from the immediate challenges for very long.

There was 270m (885ft) of vertical per lap, which meant we were constantly climbing or descending. This is not the Saskatchewan that most people get to see. Less than one kilometre of the circuit was straight, flat double track. The rest was twisty, hilly single track, with a new challenge around every turn. From the hill tops, there were spectacular views of the valley. Autumn has arrived here already and the trees are changing colour. It was breathtaking (or was that the hill that took my breath away?).

Based on my first three laps, I calculated that I should be able to do 9 laps within the time limit. While I knew that I had not fueled by body well to that point, I was feeling strong. But, by lap six, my poor decision making had caught up with me and my performance started to deteriorate. My lap times increased. The hills felt steeper and the course more technical.

Lap seven was the hardest. My disappointment of realizing I could only fit in eight laps in was offset by the thought that I only had one more lap to go. Half way through my eighth and final lap, Pat, Erik and Craig lapped me again. It wasn't the fact that it was the fourth time they lapped me that was demoralizing so much as the fact that they looked fresh and full of energy as they blew past me. The new Deadgoat jerseys and shorts looked crisp and clean that one could have believed they were on their first lap.

Of the 80 or so racers, seven were Deadgoats - one mixed team of two (Gerry and Linda), three in the mens solo category (Erik, Pat and Craig), and two in the womens solo category (me and Trish). The mixed team placed sixth, despite TWO broken chains (Gerry has some seriously powerful legs). The three boys battled it out for the entire race, taking first (Pat), second (Craig), and third (Erik) overall and finishing with two more laps than the guy who finished fourth.

Trish finished with two more laps than me, but there's no shame at all in finishing behind a gal like that. It turns out that ninth lap wouldn't have made a difference afterall.

It was a good day to be a Deadgoat. This must be how the US Postal team felt at the Tour de France.

Deadgoats also cleaned up on the door prizes, with 6 out of 7 of us winning something, including a new 2007 Marzocchi Corsa World Cup for Erik (retail value $1,400 - which definitely makes the expense of a weekend trip to Moose Jaw seem worthwhile). The race organizers even gave me an Axiom hand pump for 'best dressed' for sporting my bee costume.

If you're looking to try an endurance race, the Offroad Syndicate and Blocks Saw & Cycle put on a really fun race. The XC8 is very well organized and takes place on an outstanding course. It was a great way to enjoy Saskatchewan.

Friday, September 7, 2007

I Love Regina

As we stepped off the escalator at the Regina International Airport, we were greeted by a woman who handed us little buttons that said 'I love Regina'. It made me so giddy that I giggled. I must have repeated that line ten times in the ten minutes that followed. 

Regina is not generally considered a tourist destination, but I am excited to be here - not just because of the pin, but because of my deep desire to discover my country.

The city looks like it has enjoyed better days - it has a bit of a Winnipeg feel to it. I don't mean that critically, it's just strange to see a city that is not in rapid expansion mode.

Our waiter at dinner revealed that he just moved to Regina from Calgary three months ago after deciding that it was too expensive to live in Calgary. He loves Regina too! He bought a house here for $35,000. That's two years worth of rent at the rate he was faced with in Calgary. His mortgage payment here is $127/month. Including utilities etc, he pays less than $300/month. Hey, maybe Erik and I could sell our place and come here and buy a whole block.

It was strange to get quick, competent, friendly service. We went for coffee after and were struck again by the different atmosphere. Of course, that might be related to the fact that we are usually in bed by this time. Who knows, maybe Calgary coffee shops are fun on Friday nights too. Whatever, I'm excited to be here! Plus, the name of the city still makes me laugh every time I hear it.

Thursday, September 6, 2007


I'm living on a fault line. The world around me is changing constantly, sending waves of disturbance through the predictable, orderly existence that I've built for myself.  From time to time, my world is rattled by an event of a magnitude so powerful that it results in a irreversible shift in priorities. It's disruptive, but I've come to embrace it and, occasionally, seek it out.

At one time, I was concerned that I might not want to get on my mountain bike again for a while after TransRockies - but the opposite has been true. Last weekend, I mountain biked on Saturday and Sunday. On Monday, I took the road bike out, for old times sake, but was distracted by day dreams of car-free trail riding.

I find myself looking ahead to an eight hour enduro near Moose Jaw this weekend and a four day epic in Costa Rica in November. I've also been making a short list of potential dates of interest for 2008 - Cascade CreamPuff, Test of Metal, Rat Race to name a few...and the list is growing.