Stelmach's drilling program failed: Alberta Federation of Labour Program merely padded the profits of major oil and gas companies in Alberta: AFL president

Ed Stelmach's program to stimulate drilling during the recession cost taxpayers $2.9 billion and failed to create promised jobs, new wells or new investment in the oilpatch, says the Alberta Federation of Labour.

AFL president Gil McGowan said Friday the federation's research shows the program merely padded the profits of major oil and gas companies in Alberta while depleting the treasury of revenue that could have been used to fund health care and education.

He has passed on AFL's findings to Alberta's auditor-general and also requested the all-party legislature public accounts committee investigate the program.

"When Albertans learn about this they will see this for what it is, which is an outrageous misuse of government funds," he said.

The program contributed to 55 per cent of the provincial deficit during the two years it was in effect — a cost McGowan estimated was 10 times the annual budget of Alberta Environment.

McGowan said the program also created a "loophole" in the form of a "grey market" for royalty tax credits that enabled smaller companies that had more credits than they needed to sell them to bigger companies.

Those companies were able to defray the amount they paid in royalties owed to Albertans without having to hire workers or drill new wells, he added.

McGowan said Albertans won't know who cashed in the credits because Alberta Energy keeps that information secret.

He quotes former energy minister Mel Knight saying the program would create jobs for Albertans and generate additional royalty revenue and production over the next 10 to 30 years.

Using statistics from Statistics Canada and the Canadian Association of Oilwell Drilling Contractors, the AFL showed the number of new wells being drilled decreased steadily during 2009 and 2010 and over the same period the province lost about 8,000 jobs.

Capital investment in the oil and gas industry swooned, but industry profits increased, the AFL says.

Alberta's rate of well completions for that period mirrored Saskatchewan and B.C., which didn't have programs as generous, and seemed to climb and fall with the price of oil, despite the drilling stimulus program, the AFL reported.

University of Alberta energy economist Andrew Leach said the program was likely not as successful as the government claimed and likely not as dismal as the AFL contends because it can't be determined how many more jobs might have been lost without it.

"I think the truth is probably somewhere in the middle," Leach said. "What you really need is an account of what would have happened in Alberta in the absence of the program and to say that Saskatchewan and B.C. are exactly like Alberta with the exception of these programs isn't true."

But he said the provincial government has an obligation to be open and accountable to Albertans since they own the resource.

"I think the government should be providing information on who is drilling and what they are paying in royalties," he said. "I can't really see a downside in releasing those numbers."

Travis Davies, a spokesman for the Canadian Association of Petroleum Producers, said the programs were successful at keeping drilling rigs working during the downturn in the economy.

The hours of operation for drilling rigs jumped from 47,000 hours in 2009 to 76,000 hours in 2010, he said.

"I don't know how that equates to reduced employment in the oil and gas sector," he said. "If you increase operational hours, I don't understand how you have reduced employment."

He noted Alberta just set a record for sales of oil and gas leases.

"Obviously there is some attraction to this province in terms of investment and I think part of that was the work that was done on royalties," Davies added.

Calgary Herald, Fri Jul 15 2011
Byline: Darcy Henton

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