The 50-year roller coaster of Alberta royalty revenues

I recently came across historical data on the revenue Alberta has generated through the fossil fuel industry over the last 50 years, so I thought I’d share it with all of you.

First, the data is broken down into 8 categories:

• Natural gas & by-product royalty
• Conventional oil royalty
• Oil sands royalty
• Coal royalty
• Bonuses & sales of crown leases
• Rentals & fees
• Special royalty features
• Alberta Royalty Tax Credit

The last two categories are monies the Alberta government paid out (either directly or indirectly) to companies in the industry. The latter was cancelled in 2007, and nothing has been paid out for the former since 2010.

Let’s start with the total revenue Alberta has generated through fossil fuel extraction since 1970.

As you can see, the vast majority of it (about 88%) comes from royalties. The rest comes from the other 4 categories (well, not the last two, since those were functionally expenses).

Fossil fuel royalty revenues brought nearly $220 billion into government coffers over the last 50 years, an average of $4.4 billion a year.

Here’s how royalty revenues look when we break it down by type:

We see that gas royalties made up the most of the royalty revenue over the last 50 years, at $97.8 billion (or about 45%). Conventional oil was close behind at $67.7 billion (or about 31%), with bitumen a close third at $52,8 billion (24%).

Now, let’s look at fossil fuel revenues by year.

If we include all royalties and other revenue sources (including payouts), here’s how total fossil fuel revenue looked between 1970 and 2020.

What we see here is some growth for the 1st decade, then pretty stable revenue for the next two decades, a massive spike in revenue in the 4th decade, and then continuous declining revenues over the next decade.

Fossil fuel revenues peaked in the 2005–2006 budget year, when they hit $14.347 billion, the year after Ralph Klein declared he’d eliminated the province’s debt.

In the 14 years since then, total fossil fuel revenue has slowly receded away from that record high, and it even dropped as low as $2.419 billion, in 2015–2016. That’s a 83.1% decrease.

In the 4 years since the 2015 recession, fossil fuel revenue has been increasing—the only 4-year period of year-over-year increases. But that doesn’t include revenue generated during the pandemic, so it’ll be interesting to see what the 2020–2021 data looks like when it’s released later this year.

Now here’s what the year-over-year change looked like for the same total revenue.

What we see here is that prior to the year 2000, the change in revenue was fairly stable. In fact, during that 30-year period, there were only 8 years where there was a drop in fossil fuel revenue. That’s nearly 1 in 4. And they averaged $397.75 million.

The increases were pretty consistent, bypassing the $1 billion mark only twice. The lowest increase was $41 million, and the highest increase was $1.249 billion, a difference of $1.208 billion.

That all changed after the turn of the century, however, with revenue changes being all over the map. Of the 21 years in this period, 7 saw a drop in revenue. That’s 1 in 3. And they averaged $1.131 billion.

And even then, more than half of them were larger than the largest drop in the first 30 years. The largest drop between 1970 and 2000 was $2.78 billion, in 1986–1987. The largest drop since 2000 was $6.159 billion, in 2015–2016. And there were 3 others in between those 2 amounts over the last 20 years: $3.858 billion in 2012–2013, $4.359 billion in 2001–2002, and $5.147 billion in 2009–2010.

The increases, on the other hand, were all over the map, ranging from $315 million to nearly $6 billion, a difference of $5.621 billion.

Now let’s look at just royalty revenue.

So, it looks pretty similar to the first chart. Although there are a few spots where the peaks and valleys are less pronounced than the total revenue.

Actually, let’s look at year-over-year changes then, shall we?

This chart, too, is moderated, relative to total revenue. It has 7 revenue decreases, compared to 8 prior to 1999–2000, and 6 instead of 7 after 1999–2000. And the increases aren’t as sharp.

Now, let’s look at royalty type.

Well, that sure shows a different picture.

First, coal barely shows up on the chart. That’s because it makes up such a tiny fraction of all royalty revenue. In fact, only once did it make up more than 1% of royalty revenue. The average was 0.39%.

The province gets more money from coal leases and bonuses than it does from coal royalties.

As you can see, coal bonuses and leases (in red) generate far more revenue than coal royalties. In fact, the former is measured in billions of dollars, while the latter is measured in millions of dollars.

Because coal royalties make up such a small portion of all royalties, I’m going to cut them out of the royalties chart. Here it is again, but without the coal royalties.

There are a few things I find interesting about this chart, compared to the others.

First, it looks like the jump in royalty revenue in the first part of this century was primarily driven by gas royalties, with bitumen royalties starting to kick in about 5 or so years later.

Second, the 2009 Financial Crisis seemed to affect gas royalty revenue—which never recovered—but not bitumen or conventional oil royalty revenue, both of which kept climbing during that recession. All 3 were affected by the 2015 recession, however.

Finally, after the recession, bitumen royalties were rising sharply, just in time for the huge drop in oil prices at the start of last year. It’ll be interesting to see what this graph looks like when 2020–2021 data comes in. Conventional oil rose, too, since the recession, but nowhere as significantly as bitumen did.

And natural gas royalties have continued their 15-year dive, although the decreases are far less pronounced than they were at the beginning of the decline.

Trying to depend on fossil fuel revenue to fund government programmes and services doesn’t seem like a wise strategy.

I mean, they were pretty attractive when my second oldest son was born, but he’s 20 now.