If Ottawa had commissioned the royalty review that was released in Edmonton last week, it would have been about as popular as the National Energy Program of 1980.

But it was requested by Alberta's new premier and its recommendations have surprised the financial community and angered those who suspected that Big Oil was cheating the public. What is going on in Alberta?

History shows us that the booms and busts in the western oilpatch are always full of unexpected twists and turns, but that they also revolve around key issues.

This royalty review is just like all the others dating back 72 years, but in some ways quite different.

File photo by Larry MacDougal, Business Edge
Alberta has a long energy history and during much of it the oilpatch and governments have struggled to reconcile oil and gas production goals with the public good.

Until 1930, the mineral resources of the West belonged to Ottawa, not the region.

Not until 25 years after the formation of Alberta and Saskatchewan did these sparsely populated provinces gain control over their natural resource income.

It's always been about power and control. Once Alberta arm-wrestled the control away from Ottawa it had to turn around and leg-wrestle with the oil companies.

Reluctantly, the oilmen paid a flat five-per-cent royalty on oil and gas in 1931, a rate that increased to 10 per cent in 1935.

But the real issue was control over production. For many years the producers flared off the natural gas that was a by-product of the liquids they sold - mostly gasoline. At one point, they were wasting - literally burning money - $10 of natural gas in order to produce $1 of oil products.

When Alberta tried to stop the waste, the oil companies took it to federal court, effectively delaying its attempts to control the oil industry's wasteful practices that dated back to the mid 1920s.

Finally, in 1938, the empowered Petroleum and Natural Gas Conservation Board began enforcing conservation, drilling and production regulations.

No one blames the oilpatch for trying to do what it does best - produce oil and gas for hungry markets. But the public good is not served by waste.

At regular intervals the provincial government has reviewed royalty rates and adjusted them to suit the times. (Premier Ed Stelmach has said the province won't rush to judgment on higher royalties, and will spend the next few weeks analysing the review.)

Each time a new political party takes power - infrequently in Alberta - the new cabinet feels it necessary to re-establish dominance in the apparently cosy relationship that seems to develop between the 'patch and the governing members.

In 1935, for example, Bill Aberhart and the radical Social Credit party's threats to exert more control over the oil industry instilled so much fear into workers in the Turner Valley oilfield that they all voted against the upstart party. Once in power, the Socreds were blamed for chasing capital out of the province with their unusual banking ideas and eliminating jobs with the conservation legislation.

Similarly, after Peter Lougheed and his Progressive Conservative Party gained power in 1971, it shook up the status quo by more than doubling the royalty rate. And as the price of oil rose during the 1970s from less than $3 per barrel to almost $45, the province kept adjusting the rate in order to prevent the companies from getting all the windfall profits. Ottawa wanted in on the spoils too, of course, so Lougheed had to fight it, too.

When it became evident in 2006 that Alberta would be getting a new premier, the candidates for the job made a review of the royalty rates a major campaign issue because the province was once again experiencing an incredible oil boom.

There are similarities between these three examples; in each case a new pot of wealth had provided the expectation of massive wealth.

The 1936 discovery of crude oil at Turner Valley Royalties No. 1 well expanded the production of the Turner Valley oilfield and helped it eventually produce more than 10 million barrels of oil per year. Not big production by today's standards, but impressive when Canada was only using 54 million barrels a year. Income from taxation, royalties and other fees helped pull the impoverished province out of the Depression. The boom of the early 1970s occurred as the result of rapidly increasing international oil prices and allowed the new PC government to reap unprecedented wealth from the oil industry.

Alberta's annual budget grew by 33 per cent each year in the mid-1970s. It was so flush with cash that it bought its own airline, Pacific Western, created its own oil company, Alberta Energy, tried to diversify the economy and saved money against a rainy day in the Heritage Trust Fund.

By 2005, Alberta was experiencing another boom, caused this time by high natural gas prices and an all-time demand for oil. As conventional oil and gas supplies continued to dwindle - they have been in decline on an average return-per-well basis since the mid-1950s - synthetic oil from the oilsands took over as the engine of growth.

Unfortunately, forces always conspire against limitless growth, and changing circumstances and a different snapshot of the economics of the oilpatch have resulted in this month's shocking findings that Alberta has not been reaping its fair share.

Has the boom finally burst? History only tells us about the past, not the future, but a few conclusions are possible.

Large increases to royalty rates are possible only after serendipitous events like the discovery of a new source of oil in 1936, or wildly increasing prices as in the early 1970s.

This boom is different. Today's discoveries are infrequent and relatively modest. Oil prices have risen, modestly, not exponentially like during the 1970s. Costs associated with the development process have increased more quickly than the rise in the value of the commodity.

This most recent boom was built on the back of temporarily high natural gas prices, strong but not record-setting oil prices, and an unprecedented level of development of a resource that is expensive to produce - bitumen from the oilsands. Extracting marketable oil from tarry sand requires the consumption of vast amounts of water and natural gas, both of which are in short supply in Alberta.

So why is this boom NOT over? The 2007 royalty review, like its predecessors in the late 1930s and the 1970s, examined the existing rates and policies and found them wanting.

Even though Chicken Little said the sky was falling in, it did not. Similarly, we are not running out of oil or gas, just the stuff that is cheap, easy to find and clean.

The National Energy Program of 1980 tried to promote energy self-sufficiency, Canadian ownership, oil exploration and increase revenue for the Canadian people.

In 2007, the main priority is long-term economic sustainability and reliable income for the public.

There do not appear to be any more easy booms on the horizon. If we are to make this one last, we must manage what remains of the resource with caution, flexibility, nimbleness and sensitivity.

Ottawa's NEP of 1980 failed to meet these objectives.

Can Alberta get it right in 2007?

(David Finch is a Calgary historian and the author of PUMPED: Everyone's Guide to the Oil Patch, published by Fifth House Publishers.)