Royalty Treatment

What oil companies can teach writers.

By Fred Stenson

In the 1990s, Premier Ralph Klein and Prime Minister Jean Chrétien teamed up to lure investment dollars to the Alberta oil sands. One of the carrots on offer was that, in the pre-payout period of project life (i.e., until the project had reached break-even), royalties could be 1 per cent of gross income. As the project got closer to payout, the royalty would slide up to 9 per cent. The full royalty wouldn’t be charged until project payout. There were still some concerns at that stage in history over the profitability of these massive oil sands undertakings, and so the government was trying to sweeten the package on offer to investors.

After the Rachel Notley government’s royalty review of 2015–2016, Alberta maintained this very generous system for its oil sands entrepreneurs. As it stands, the pre-payout royalty on gross income still exists, although the royalty for new projects (pre-payout) starts at 5 per cent. When a project finally pays out, possibly decades later, the royalty shifts to net income—and jumps to 40 per cent.

One might think I’m about to criticize this regime but, in fact, I think the idea is excellent. My only complaint has always been that book writers aren’t on the same system.

Our governments recognize with the generous pre-payout royalty that oil sands projects take a long time to construct and put onstream. Costs could go up. Setbacks could occur. The price of the product is also a fluctuating thing. My book-writing business is very like this. Books take years to write. Unforeseen obstacles emerge; constipations in the old creativity organ. And you really don’t know, for the whole time you’re working, what the demand for the product will be.

Production is nil, while costs (a new storey on the house; a flurry of lawsuits from the town and unreasonable neighbours) pile skyward.

If I had a 1 per cent deal with the government—say, a 1 per cent income tax until payout—I imagine things might go like this:

To begin, I would give the government an estimated time of completion for my book (a novel about southern Alberta), with the work to be done in my strip-mining dewatering upgrading complex (my home). After a year, a government representative would give me a call and ask how it’s coming. I would reply: It was going slightly well until I realized I could not work to capacity in my office, a small space that I share with a piano. I really can’t stretch myself there. So I went ahead and took out a wall so that my office and the boot room were amalgamated. This meant that, for a time, I had to rent an office elsewhere in order to keep working.

All in all, project costs went up, and I’m afraid that the length of time until I can pay out has risen by six months above the initial estimate.

When the government chap calls after the second year, I’d tell him that the book is advancing nicely. I’m up to 10 per cent of completion. However, I realized that I was getting a little stale, and that it would be a good idea if I flew down to Toronto where my publisher does business, and have a chat. Then, to refresh myself, I thought I’d rent a cottage in the Muskokas (where rentals have gone through the roof). So there I was in the Muskokas, where again I began progressing remarkably—until I had a slight boating accident, a broken femur, that stopped progress and put a hole in my schedule. So that the project didn’t stand entirely still, I hired a person to research wolverine behaviour in the Alberta mountains and foothills. The material I received is excellent and will improve the final product, but, of course, it was also a cost.

I have to report that I’m now up to 12 months behind on estimated payout.

In the third year, I’d tell the chap that all bets are off because I finally realized I could not effectively write in my enlarged home office (which still had a piano and resembled a boot room). Nor could I work in a rental office where my creative organ was apt to make strange. What was needed, I saw, was the ability to work while looking at my subject matter (the Rocky Mountains). At first I thought I would have to move to another house or even to another town, but then I had a creative moment in which I realized that the addition of a third storey on my two-storey house would afford me this.

This is the right choice for my project. Of course, it means that, in most of this year, I did not have a house in which to work. Production was nil, while costs (the building of the new storey plus a flurry of lawsuits from the town and unreasonable neighbours) piled skyward.

My calculation is that I am now many years behind my original project completion estimate. Payout is a tiny shrinking speck on the forward horizon.

For the fourth year, I will ask the government if they happen to have a rate below 1 per cent. For someone in the really unforeseen circumstances that I find myself?

Fred Stenson’s most recent novel is Who By Fire (Doubleday). Other books include The Trade, Lightning and The Great Karoo.


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