Premier Ed Stelmach came under fire last week for remarks he was reported to have made behind closed doors to business leaders about a contentious report calling for higher energy royalties.
Meanwhile the oilpatch continues its fierce lobbying effort against the rate hikes.
Stelmach was quoted as saying he "will not trounce existing agreements" on royalties - which is the exact opposite of what's being recommended by the government-appointed review panel.
The premier's comment, which his staff could not confirm, drew an immediate reaction from Bill Hunter, the head of the panel that has called for a $2-billion increase in annual royalties.
"It was our recommendation that there would be no grandfathering," said Hunter, who spent eight months reviewing a myriad of energy royalties.
"Our intent was to simplify the royalty regimes and taxes and fees, get rid of some historical stuff and then apply the new regime to all players within the oil and gas sector."
Stelmach was not available to clarify his remarks, but two of his staff - including one who was in the room when he spoke - said they wouldn't dispute the quote.
The premier was speaking to about 50 business executives at a breakfast event in Calgary.
He gave a 30-minute speech followed by half an hour of questions from the audience.
The premier's senior communications staff spoke with Stelmach after the quote made headlines, but they would not confirm exactly what he told the private breakfast meeting.
"I'm not disavowing the quote," said Tom Olsen, Stelmach's communications director. "What I am saying is that no decisions have been made and the premier is committed to meeting the objectives of the Hunter report.
"The objectives of the report are to make sure that Albertans get their fair share of royalties. The premier is committed to that. There's no blinking and he's not backing down from anyone."
Energy industry officials were reluctant to discuss the premier's alleged remarks.
"I was not in the room and I did not hear the quote," said Pierre Alvarez, president of the Canadian Association of Petroleum Producers.
But Alvarez said there's no question that one of the key issues for the energy industry is about the level of certainty for the royalty and taxation rules now in place in Alberta.
"There are Crown agreements that are out there that have been signed bilaterally between the companies and the province, and I'm assuming those have the force of law," said Alvarez.
Changing the terms of royalty agreements now in place would have to be "handled very, very carefully," he said.
The energy industry has been making daily announcements that thousands of jobs and billions of dollars worth of investments will be lost to Alberta if the proposed royalty increases are adopted.
Hunter said he's disappointed that the energy industry has chosen this tactic to pressure the Stelmach government to ignore some of the key recommendations in his report.
"I was hoping for a high-road approach," Hunter told The Canadian Press. "But to start tossing hand grenades, it kind of reminds me of (the joke memo) 'the beatings will continue until morale improves.' I don't get it."
A report from First Energy Capital claimed more than 30,000 jobs could be lost in the oil and gas industry if the Alberta government adopts a proposal to raise royalty rates.
The Mullen Group Income Fund (TSX:MTL.UN), an oilfield transportation and energy services company, is attributing 100 layoffs to lower oil and natural gas drilling activity amid uncertainty surrounding Alberta's royalty system.
And the industry is warning that environmental stewardship in the province will suffer if Alberta acts on recommendations to increase its energy royalties by nearly 20 per cent.
The First Energy Capital report says about 3,500 jobs are likely already on the line due to low natural gas prices, but another 8,100 jobs could be cut in the sector if royalties rise.
In the oilsands, cancelled projects could lead to 11,000 job losses and another 8,000 due to cuts in capital spending as well.
Several major energy companies, including EnCana Corp. (TSX:ECA) and Talisman Energy (TSX:TLM), have said they'll cut between $500 million to $1 billion in annual spending from the province if royalties rise.
Canadian Natural Resources Ltd. (TSX:CNQ) also said it would cut jobs and spending. It said $7 billion in planned oilsands capital spending over the next 15 years would be jeopardized.
Mullen's temporary layoffs are among the first labour effects of the decline in natural gas drilling caused by falling prices and the chill that has swept through the oilpatch in the last month over fears of new provincial royalties on the sector.
The Calgary-based company employed 2,500 people at the end of last year and generated more than $1 billion in total revenue.
Gas drilling is in a major slump because of high costs, depleting wells, the impact of the high Canadian dollar and weak gas prices because of a supply glut in the North American market.
Aside from job losses, the oilpatch also is warning of a hit to environmental spending.
Diana Lawson, president of consulting firm Lawson Environmental Management Ltd., fears that voluntary environmental work done by the oilpatch would be among the first to suffer if higher royalties hiked the costs of producing oil and gas in Alberta.
"My main concern is that the oil industry is funding huge amounts of research right now - and this is all voluntary."
Lawson said a large amount of research done on native revegetation research and water protection is funded by the energy industry.
"It's just common sense that if there's less money, less money will be given because it's not a regulatory requirement, this is voluntary on the part of the oil industry."
Kurtis Averill, a construction superintendent with Compton Petroleum (TSX:CMT), said it becomes far more difficult to allocate dollars toward research "when it's not a direct value-added to the company."
"It comes down to what's required, rather than maybe what we would do otherwise."
But Chris Severson-Baker of the Pembina Institute, an Alberta-based environmental think-tank, doesn't buy it.
He says extra environmental spending in the oilpatch is usually motivated by the need for good relations with landowner or their own corporate ethics.
The royalty review panel has repeatedly said that its recommendations in the Our Fair Share report are not overly onerous and would only bring Alberta into the medium range of what energy producing jurisdictions are currently charging the industry.
Stelmach will announce what he plans to do with the royalty structure during a television address on Oct. 22.
Recent polls suggest that the majority of Albertans want to see the energy sector pay higher royalties.
