Canadian province receives warning from Exxon

Thursday, September 13, 2007

ExxonMobil Corp. chairman and chief executive Rex Tillerson has warned residents of Alberta, Canada that they risk endangering investment and growth of the province if they change the royalty scheme to increase revenue returned to the province from its oil sands.

Currently, oil companies pay a one per cent royalty on their revenues until their initial investment is paid off, when the royalty is then increased to 25 percent of revenues. Alberta received CA$14 billion in oil sands revenue the last fiscal year.

Described as one of the most powerful oilmen in the world, Tillerson made it clear that should the province of Alberta seek a larger portion of the profits, Alberta could suffer a decrease in economic growth. Tillerson suggests that royalties represent interventionist policies similar to those associated with the (much maligned in Alberta) National Energy Program. In contrast to the warning from Tillerson, CIBC World Markets recently released a report stating that the oil sands are one of the few petroleum resources that can be "expanded significantly" and will be an increasingly important source for future demand.

The statement comes at a time where a large and growing number of Albertans associate the province's economic growth with high inflation, housing shortages and a strain on schools and infrastructure. A report on recommendations to the scheme was scheduled to be released September 12, but was delayed until September 16 to verify data.