The Alberta government established the current oil sands royalty regime in 1997 with the aim of accelerating oil sands developments beyond 1 million barrels per day by the year 2020.2 The terms were set to explicitly favour investors and support a fledgling industry. Ten years later, however, economic conditions have change significantly: oil sands extraction and upgrading technologies have matured, and current and projected oil prices have increased substantially. The price of bitumen (the raw product from oil sands) has increased 256%. Not surprisingly, capital investments in oils sands projects are soaring in response. Since 1997, capital investments have increased more than 400% and oil production has increased 130%. In fact, the current royalty regime has already exceeded its own objectives for spurring development: production surpassed 1 million barrels per day in 2004, 16 years ahead of schedule. Oil sands production is now forecast to reach 3.5 million barrels per day by 2015 and 4.0 million barrels per day by 2020, accounting for more than 80% of Canadian oil production.4
In spite of radically improved economic conditions for oil sands developments, the provincial government has maintained the same low royalty rates introduced in 1997. Now royalties from oil sands production are expected to decline.5 The provincial government’s budget, released on April 19, 2007, predicts a decline in oil sands revenues over the next three years. Looking further ahead, the Alberta Department of Energy estimates that oil sands royalty revenue will be the same in 2020 as it was in 2004/2005 — despite a tripling of production over that time period. The royalty regime, which is now seriously outdated, is costing Albertans billions of dollars in lost resource revenues. The citizens of Alberta need to start thinking like owners and insist that their manager, the Government of Alberta, gets a better deal for them from the development of their resource.